Views do not reflect those of the US Government or the Defense Contract Management Agency

GPA Role in Contractor Self-Assessment and DCMA Southern California’s PMSA Strategies (for Southern CA, Contractors)

Len SalazarDCMA

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Simple Agenda

• Background• Government perspective• Building a CSA program (Len’s Advice)• Q&A (This is the target)• PMSA Strategies

Basic Assumptions• You have:

o awareness of basic and intermediate contract property conceptsDefinitions, title provisions, liability, contract types, clauses,

process management, basic statistics, etc…o an understanding of the role of a property management systemo established procedures detailing how specific property control

activities will be performedo management support to establish, continue, or modify a current

internal audit process• Within this discussion

o Use what you find applicable to your specific situation

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The FAR

• “The Contractor shall establish and maintain procedures necessary to assess its property management system effectiveness, and shall perform periodic internal reviews and audits. Significant findings and/or results of such reviews and audits pertaining to Government property shall be made available to the Property Administrator.”

o CSA is a contractual requiremento No specific process guide is provided

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DCMA• DCMA SOP: “FAR 52-245-1(f)(3) requires contractors to perform self

assessments to evaluate their property management system effectiveness. The clause requires the contractor to disclose significant findings to the Property Administrator (PA). If the self assessment provides a confidence level of the effective management and/or control of Government property comparable to that afforded by a property management system analysis performed in accordance with DCMA requirements, the PA should integrate the contractor’s self-assessment results within the overall audit.”o Role of the GPA is to assess the CSA processo In order for DCMA PAs to use the results of CSA, a condition exists…Ifo The if statement has caused much gnashing of teeth…

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Building a CSA program

(Len’s working level advice; does not replace contractual obligations)

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Conceptual CSA

• Each contractor has the contractual flexibility to establish a CSA program consistent with their corporate environment

• A decision needs to be made:o Do you want DCMA to leverage the results of your CSA

evaluation?• Leverage

o Incorporating the CSA evaluation in full or part into the DCMA property control system evaluation .

o Len’s add-on…resulting in a reduction of Government oversight.

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Types of CSA Programs• Second decision: What type of CSA program• Formal Procedures

o Follows Government established processes and proceduresDCMA PMSA model, DAU modelFormer CSO model (modified), ISO Standards (modified)

o CommonalityBased on specific agreed to procedures guiding each step of the

process using statistical based evaluation methodologies• Informal Procedures

o Observationso Walk-throughs and interviewso Questionnaires

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Clues to type of CSA

• Formal o Currently have an internal audit organization or staffo Have a predominance of Government contracts vice commercialo Large investment in Government property (dollars and lines)o Management support o Types of contracts that require oversight

R&D, Production, etc…

• Informal o Mad hattero Limited government contracts o Low investment of Government property (dollars and lines)o Low value overhaul, repair, modification contracts

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Example discussion of type • Large business (Formal CSA)

o 1 mil lines of GP (mixed) valued at $1 bilo 100’s of contractso Both a major prime contractor to the Government and subcontractor to other major prime

contractorso Multi-national presenceo Large independent internal audit organization

• Medium business (Formal or Informal CSA)o 19k lines of mixed GP valued at $56 milo Subcontractor to large businesseso Mixed prime contracts with multiple Government agencieso One full time auditor; not independent

• Small business (Informal CSA)o 5 lines of GFP (machinery) valued at $465ko 3 active contracts; making piece partso All-in-one facility

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First step of a working level CSA

• CSA procedure that details the: who, what, when, where, and how. Considerations: 1. Specific property management and control system2. Contract types, kinds, and special provisions3. Types and amount of GP 4. Customers (Government & Prime)5. Evaluation techniques and methodologies 6. Frequency7. Reporting to the customer/Government8. Corrective action process9. Risk assessments10. Government and Contractor owned property

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Informal CSA Process Suggestions

• Understand your contract requirements in terms of controlling the property in your possessiono Tip: read the specific property related clauses

• Ensure your control procedures address, in proper detail, these requirements

• Establish a series of audit objectives for each control process:o e.g. Ensure physical inventories are completed

• Establish a series of audit questions based on the audit objectiveso e.g. Were items of GP inventoried within a 1 year period

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Informal CSA Process Suggestions

• Develop an cyclical schedule to walk the floor to:o Interview employees to determine if they are following

established procedureso Observe how employees handle GPo Provide questionnaires to determine knowledge of control

processes• Collect sample documentation • Determination of compliance • Issue corrective action memorandum• Validate corrective actions• Report findings and document closure of CSA 13

Formal CSA Process Suggestions

Suggestions for an audit based CSA program

• Understand your contract requirements in terms of controlling the property in your possessiono Tip: read the specific property related clauses

• Ensure your control procedures address, in proper, detail these requirements

• Establish a series of audit objectives for each control process:o e.g. Ensure physical inventories are completed

• Establish a series of audit questions based on the audit objectiveso e.g. Were items of GP inventoried within a 1 year period

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Formal CSA Process Suggestions

• Pre-identify what confidence levels and sampling plan will be used: e.g. DoD Double Sampling Plan, AQL 6.x

• Identify within a specific process the point of evaluationo e.g. processing form AB1: Receiving Discrepancy

• Population pullo All AB1 forms processed within x time period

• Sample pullo Randomly select a representation of the AB1 forms

• Document results of your evaluation• Determine if the samples pulled meet the requirements of

the applicable control procedure

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Formal CSA Process Suggestions

• Determine acceptability of the assessmento In compliance with control procedureso Not in compliance with control procedures

• Issue a request to correct identified concernso Recommend a root cause analysis be performed in

additional to correcting noted issues• At the proper time, verify that corrections have

been made• Finalize assessment and report to

Government/customer16

Implementation Suggestion

• Plan for a three year phase-in period if starting from scratcho Year 1: Develop the CSA process in coordination with your

assigned DCMA PA. Use new process to assess low risk processesProvide results to DCMA

o Year 2: Update CSA process based on lessons learned in year 1.Use to assess moderate risk processesProvide results to DCMA

o Year 3: Update CSA process based on lessons learned in year 2.Use to assess high risk processesProvide results to DCMA

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Suggested Goal

• Once you have demonstrate a competent CSA program, your goal should be to reduce Government oversight by sharing in the audit processo CSA only audits with DCMA sampling documentationo Joint Audits; sharing the audit responsibilities with

DCMA• Create an environment where DCMA-only audits

are kept to a minimum

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DCMA Southern California

• DCMA Southern California is responsible to provide oversight of contractor’s property control systems within our area of responsibility.

• Area of responsibility; greater areas of:o Los Angeles o Parts of Venturao San Bernardinoo Riversideo Orangeo San Diego and all of Hawaiio Imperial

If you are not within this AOR……19

DCMA Southern California

• Approximately 200 contractors • $16 Billion of contract Government property• Mixed: manufacturing,

research/development, sustainment contracts• Aircraft (manned and unmanned) , missiles,

satellites, communications, software, components, piece parts…

• Large, medium, small business; FFRDC’s

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Before, During, & After a PMSA

• On-going risk assessmentso Formal and informal (situational)

• Identify CAGEs requiring oversight o Annual, biennial, triennial

• Creating an audit schedule• Contract analysis• Planning the audit• Communication and notifications21

Before, During, & After a PMSA

• Collecting data and information• Procedure reviews• Population pulls• Sample pulls• Categorizing data points for analysis• Analyzing data• Identifying non-compliances to procedures and

contracts• Communicating with assigned C.O.• Requesting & evaluating corrective action plans22

Before, During, & After a PMSA

• Monitoring & validating corrections• Revised Risk determinations• Closure of the PMSA

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DCMA Southern California Strategies

• DCMA Southern California conducts two basic types of PMSAs; adjusting techniques basic on specific contractor conditionso Standard approach (on-site)

Moderate and High risk systemso Limited approach (distance or on-site)

Moderate and Low risk systems

• Considerationso Facility and property outcome risks (2)o Past performance (audit results)o Contract baseo CSA maturity

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Q & A

• Goal of a CSA program• Decisions to leverage CSA• Informal vice Formal CSA• CSA Procedure• Evaluation techniques and methodologies• Root Cause Analysis• Phase in period• Joint audits• General Q&A (CSA or anything else)25