Deltek Insight 2010: DCAA- It's a Changing Environment

XT-218:DCAA – It’s a Changing EnvironmentPresented by:

Rich WilkinsonVP, Government Contracting

2007 Deltek, Inc. • CONFIDENTIAL • All Rights Reserved 2

It’s a Changing Environment

• DCAA is changing how it works with and relates to contractors– Changes will likely reduce communication with auditors and

increase the adversarial nature of the relationship

– Data requests will almost certainly increase significantly

– Most firms will be subject to the new “pass/fail” audit guidance

– Even the smallest firms will be impacted by the new requirement to trace invoices to the accounting system during invoice reviews

• DCAA is changing how it works with and relates to DCMA• DCAA may be changing how it works with and relates to

other Government agencies in general and DOD in particular

© 2008 Deltek, Inc. 3

“It’s a Brave New World”April

Stephenson, Then

Director, DCAA

DCAA’s Turmoil Timeline


2008 2009

FEB – A

pril S

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JUL –

GAO Is

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Sen

ate

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DEC – D

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DCAA says it’s “Back to Basics” for Auditors

• DCAA Director, April Stephenson, addressed a meeting of the Professional Services Council on February 25th, 2009

• In her presentation, she stressed that DCAA auditors will be returning to the basics of GAGAS and that they…– Need to understand what [they] are auditing

– Should use face-to-face communication with the contractor employees

– Should ask questions, maintain auditor skepticism

– Should develop sound conclusions


New Audit Guidance Changes the Relationship (with you)

• Memo 08-PAS-043(R) – December 19, 2008 – imposes new restrictions on audit findings and reports on Internal Control Reviews

• Memo 08-PAS-041(R) – December 19, 2008 – creates new requirement for “limited scope” audits of internal control deficiencies identified during the course of other audits

• Memo 08-PAS-042(R) – December 19, 2008 – imposes new rules and procedures for reporting and resolving “access to records” disputes

• Memo 08-PAS-044(R) – December 22, 2008 – requires additional reconciliation to contractors accounting records for all Public Voucher Reviews

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New Audit Guidance Changes the Relationship

• Memo 08-PAS-043(R) – December 19, 2008 – imposes new restrictions on audit findings and reports on Internal Control Reviews– DCAA will NO LONGER issue reports with “deficient in part”

findings – all findings will be either “adequate” or “not adequate”

– DCAA will NO LONGER make recommendations for improvement in contractors’ systems

– When any part of a contractor’s internal control system is found to deficient, the entire system will be deemed inadequate for use

– When a system in deemed inadequate, the auditor is REQUIRED to recommend to the ACO that the system be disapproved for use and payments be suspended (in whole or in part)

2007 Deltek, Inc. • CONFIDENTIAL • All Rights Reserved

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• Memo 08-PAS-041(R) – December 19, 2008 – creates new requirement for “limited scope” audits of internal control deficiencies identified during the course of other audits– When internal control deficiencies are identified in other than an

internal control audit (e.g., forward pricing proposal audit) the FAO should…

• issue a flash report to report the potential deficiencies

• establish a separate limited scope audit assignment

– Failure to accomplish a single control objective will render the overall internal control system inadequate

– If this occurs the auditor will] recommend that the contracting officer disapprove the affected portions of the system and pursue suspension of progress payments or reimbursement of costs


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• Memo 08-PAS-042(R) – December 19, 2008 – imposes new rules and procedures for reporting and resolving “access to records” disputes– Memo is specifically about obtaining documentation to support on-

going audits• Director April Stephenson, in a Q&A at the Professional Services

Council on 2/25/09, stated that this guidance was limited to “audit of contractor assertions” such as proposals, rate submissions, incurred cost submissions, etc.

• Memo extends prior guidance with respect to written requests to also cover all requests made “either verbally or in writing”

– Establishes “specific date, not to exceed one week” as the standard for compliance with requests for records


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• Memo 08-PAS-044(R) – December 22, 2008 – requires additional reconciliation to contractors accounting records for all Public Voucher Reviews– CAM 6-1008b has been revised to require auditors to reconcile

billed costs to the contractor’s accounting records for the interim vouchers selected for review

– For non-major contractors, auditors may perform this step on the auditor’s next visit to the contractor

– For Time-and-Materials and Labor-Hour vouchers, auditors should ensure that labor hours and material cost reconcile to the contractor’s accounting records



New Audit Guidance Changes the Relationship (with DCMA)

• Memo 09-PAS-004(R) – March 13, 2009 – creates new requirement to report to DOD IG when DCAA advice to a Contracting Officer is ignored (aimed at ACOs)– “where a contracting officer ignores a DCAA audit report and takes

an action that is grossly inconsistent with procurement law and regulation” … “the FAO will provide a report covering the details of the conditions to the region” … “the submission will be forwarded to the DoDIG for appropriate action”

– The “shooting war” with DCMA has begun and Congress in on the battlefield

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More Audit Guidance Affecting the Relationship (with you)

• Memo 09-PPD-006(R) – April 15, 2009 – requires that a contractor’s authorization to participate in the “Direct Bill” program be rescinded upon ANY change in their billing system– Auditor is required to provide both written and verbal “30-day notice

that (contractor) participation in the direct bill program will be rescinded

– FAO is cautioned to ensure that there is a plan and procedures for voucher review AND that appropriate personnel are available amd authorized to perform the reviews

– Auditor should immediately commence a billing system audit

– Upon completion, contract may be authorized to direct bill if system is deemed adequate



The Saga Continues

• The GAO follow-up report was released September 23rd and it’s worse than the first one– 69 audits reviewed across all regions, all considered deficient

– Accusations of retaliation against whistleblowers

– Accusations that auditors responsible for problems were promoted

September Senate Hearing



DCAA says it’s “Back to Basics” for Auditors

• October 23rd, 2009, DOD reassigned April Stevenson to the Pentagon’s Office of the Comptroller

• Patrick Fitzgerald, head of the Army Audit Agency, was named to replace her effective November 11th, 2009. Mr. Fitzgerald has not yet made any public appearances.

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Still More Audit Guidance Affecting the Relationship (with you)

• Memo 09-PAS-021(R) – October 22, 2009 – requires that control risk be assessed at maximum when a

contractor’s last internal control report is more than 4 years old OR there have been significant changes to the contractor’s system– Auditor is required to qualify all opinions (including proposal pricing

reviews) with respect to risk

– Prior opinions may not be used or referenced

– Reports must state that “a current audit of the system has not been performed”



New Audit Reports Change the Relationship (with DOD)

• In the original GAO report hearings the Senate Homeland Security Committee, Government Oversight subcommittee, called for removal of DCAA from DOD.– Senators Lieberman, McCaskil, Collins, Carper

• In the DCMA hearings, the same four Senators once again called for establishment of DCAA as an independent, Government-wide audit agency

• In the September 23rd Senate Homeland Security Committee hearing the panel once again called for removal of DCAA from DOD


The “Short Answer” Take-Aways

• DCAA is getting out of the business of helping contractors be compliant– Their “hands off” posture will put more pressure on you

– “Trial and error” is an expensive way to correct compliance issues

– More frequent and more in-depth vouchers reviews/audits will stress systems and expose firms to risk of adverse audit findings

• DCMA’s hand will be forced on following DCAA recommendations

• DCAA could become independent• Much of DCAA’s change in audit guidance is aimed

specifically at INCREASING THE JUSTIFICATION FOR MORE STAFFING

For more information contact:

Rich Wilkinson VP, Government [email protected]

Or visit my Blog at www.Deltek.com - click on Communities and then GovConToday

mailto:[email protected]

http://www.deltek.com/

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Deltek Insight 2010: DCAA- It's a Changing Environment