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  1. Left Brain Professionals

    Commercial Item Updates in NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA includes a number of provisions that reinforce the Congress’ commitment to the acquisition of commercial items under commercial terms. These include requirements for a reassessment of what general procurement statutes should apply to commercial items and the establishment of a so-called “Amazon for Government” online portal for the acquisition of commercial off-the-shelf (COTS) items. Section 846, termed “the Amazon provision,” mandates establishment of a program “to procure commercial products through commercial e-commerce portals … through multiple contracts with multiple commercial e-commerce portal providers, and shall design the program to be implemented in phases with the objective of enabling Government-wide use of such portals.” No later than 90 days after the date of enactment of the NDAA, the Office of Management and Budget (OMB) and General Services Administration (GSA) must submit an implementation plan to Congress. No later than one year after submission of the implementation plan, the OMB and GSA must conduct a market analysis of commercial e-commerce portal providers and recommend “any changes to, or exemptions from, laws necessary for effective implementation” of the program. No later than two years after the date of submission of the implementation plan, the OMB and GSA must issue guidance to implement and govern the use of the program, such as protocols for compliance with product screening requirements, data security and data analytics. The delay in full implementation of the program was incorporated into the provision during conference consideration of the NDAA to address concerns from various segments of the contracting community. The goal of the provision is to: streamline and simplify the DoD’s acquisition of many COTS items enhance competition expedite procurement enable market research ensure reasonable pricing and create cost-savings promote increased transparency and accountability Section 847 proposes to add language to 41 U.S.C. § 103 to clarify that non-developmental products or services developed at a private expense and sold competitively in “substantial quantities” to “multiple foreign governments” also qualify as “commercial items.” If enacted, this language would broaden paragraph #8 of the definition in FAR 2.101 of what constitutes a commercial item, perhaps opening up the United States commercial item market to foreign vendors that regularly sell non-developmental items to foreign governments. Section 848 provides that the DoD’s acquisition of an item through commercial item procedures constitutes a “prior determination” that the item is a commercial item that is binding on future DoD acquisitions unless (i) the head of contracting authority determines that the prior determination was improper or (ii) the senior procurement executive for a military service or the DoD determines that it is no longer appropriate to acquire the item under commercial item procedures. This change may improve consistency within the DoD acquisitions system and streamline the determination process for future acquisitions. Note that NDAA 2016, and corresponding DPAP memo, and PGI (DFARs) guidance put an emphasis on relying on prior written Commercial Item Determinations. NDAA 2018 says that a contract for items acquired using FAR 12 commercial item procedures shall serve as a Commercial Item Determination. We suspect that DoD will use this guidance for FAR 12 acquisitions going forward, but may not consider FAR 12 acquisitions that occured prior to NDAA 2018. In other words, if you’re currently trying to make a commercial item argument based on an acquisition that occurred before December 12, 2017, you may still have a battle to fight. Section 849 requires the Secretary of Defense to comprehensively review the procurement statutes and regulations applicable to commercial item acquisitions not required by statute, but have nevertheless been applied through the DFARS based on a determination that it is in the government’s interest . The Secretary of Defense is required to review each provision and provide an exemption, by December 12, 2018, from the statute or regulation for commercial item acquisitions unless he or she “determines there is a specific reason not to provide the exemption.” This provision provides a strong signal to the DoD that Congress wants a reduction in the number of provisions applicable to commercial item acquisitions. Perhaps the most important aspect of all these changes is the requirement for DoD to promulgate new regulations implementing the changes. The DAR Council must propose new rules, publish them in the Federal Register, solicit public feedback, and institute the final rule. Follow all of the DFARS cases here. Register here for Federal Register notifications. If you have questions about these changes and your federal contract, please contact Robert@LeftBrainPro.com or call (614) 556-4415. The post Commercial Item Updates in NDAA 2018 appeared first on Left Brain Professionals. leftbrainpro.com
  2. Left Brain Professionals

    Accounting Impacts of NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA 2018 raises the thresholds for a number of procurement regulations reflecting a recognition that more onerous acquisition regulations should be limited to more costly procurements. The NDAA also reflects an emphasis on the use of commercial risk metrics when auditing contractors, and the use of non-government auditors to eliminate the backlog of pending incurred cost audits. Section 803 adds 10 U.S.C. §2313b which requires DoD to: comply with “commercially accepted standards of risk and materiality” in the performance of incurred cost audits begin using private auditors “to perform a sufficient number” of such audits not differentiate between private auditors and DCAA when considering audit results utilize peer reviews by a commercial auditor of DCAA’s unqualified audit findings notify a contractor within 60 days after receipt whether its ICP is “qualified. The goals requiring the use of private auditors are (i) the elimination of DCAA’ss incurred cost audit backlog by October 1, 2020, and (ii) the completion of all incurred cost audits within one year or less from the date of receipt of a qualified incurred cost submission. Don’t be surprised if DCAA redefines what constitutes a “qualified incurred cost submission.” We also expect even more scrutiny in a subjective process. After October 1, 2020 any audit findings not issued within one year shall be considered “complete” and further audit work will be barred-subject to waivers that must be submitted for approval by the Director of DCAA to the Comptroller of DOD. Section 805 increases the simplified acquisition threshold (SAT) to $250,000 from $100,000, and Section 806 increases the micro-purchase threshold to $10,000 from $3,000. Section 811 increases to $2 million from $750,000 the threshold for the submission of cost or pricing data for prime contracts awarded after June 30, 2018. The threshold for modifications to those prime contracts, subcontracts awarded under those prime contracts, and modifications to those subcontracts also increases to $2 million. The new threshold will be subject to periodic adjustment to keep pace with inflation pursuant to 41 USC § 1908. Section 811 also revises language in 10 USC §2306a(d) from affirmatively requiring the contracting officer (CO) to request other than cost or pricing data to the extent necessary to requiring the contractor to provide other than cost or pricing data only “if requested by the contracting officer.” Section 820 modifies the definition of “subcontractor” to clarify that agreements for the purchase of commodity items that are not identified with a particular contract and that support contracts with the federal government and other parties are not “subcontracts” for purposes of government acquisition requirements. This is a welcome clarification that will likely exclude a number of agreements from flow-down and other subcontract requirements and allow for the acquisition of these materials under standard industry terms. We expect this change to reduce the reporting requirements and risk associated with CPSRs. Perhaps the most important aspect of all these changes is the requirement for DoD to promulgate new regulations implementing the changes. The DAR Council must propose new rules, publish them in the Federal Register, solicit public feedback, and institute the final rule. Follow all of the DFARS cases here. Register here for Federal Register notifications. If you have questions about these changes and your federal contract, please contact Robert@LeftBrainPro.com or call (614) 556-4415. The post Accounting Impacts of NDAA 2018 appeared first on Left Brain Professionals. leftbrainpro.com
  3. Left Brain Professionals

    Accounting Impacts of NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA 2018 raises the thresholds for a number of procurement regulations reflecting a recognition… leftbrainpro.com
  4. Left Brain Professionals

    Accounting Impacts of NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA 2018 raises the thresholds for a number of procurement regulations reflecting a recognition… leftbrainpro.com
  5. Left Brain Professionals

    Commercial Item Updates in NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA includes a number of provisions that reinforce the Congress’ commitment to the acquisition… leftbrainpro.com
  6. Left Brain Professionals

    Commercial Item Updates in NDAA 2018

    Each year brings about new budgets and new National Defense Authorization Acts (NDAA). NDAAs address funding, strategic plans, and rules affecting the defense acquisition process. NDAA 2018 is no exception and here are the highlights regarding cost, price, and accounting. The NDAA includes a number of provisions that reinforce the Congress’ commitment to the acquisition… leftbrainpro.com
  7. A new year presents new opportunities for working more efficiently and effectively. When dealing with federal contracts, the Incurred Cost Proposal (ICP) presents one of the biggest opportunities. You’re closing 2017 and preparing for taxes anyway. What better time to gather information and documents for the ICP? Not sure what an Incurred Cost Proposal is… leftbrainpro.com
  8. A new year presents new opportunities for working more efficiently and effectively. When dealing with federal contracts, the Incurred Cost Proposal (ICP) presents one of the biggest opportunities. You’re closing 2017 and preparing for taxes anyway. What better time to gather information and documents for the ICP? Not sure what an Incurred Cost Proposal is… leftbrainpro.com
  9. A new year presents new opportunities for working more efficiently and effectively. When dealing with federal contracts, the Incurred Cost Proposal (ICP) presents one of the biggest opportunities. You’re closing 2017 and preparing for taxes anyway. What better time to gather information and documents for the ICP? Not sure what an Incurred Cost Proposal is or whether you’re required to file one? Here’s a brief primer. What is the ICP? The Incurred Cost Proposal (also known as an Incurred Cost Submission) is the annual reconciliation of the costs (direct and indirect) that a contractor expends in fulfilling a federal contract. Under FAR 52.216-7, it applies to cost-reimbursable and flexibly priced contracts. However, fixed price contracts are still documented in the submission. How is the ICP Used? The ICP is used to determine your final indirect rates for billings used in interim billing rates and forward pricing rate agreements. FAR 42.1701 provides for systematic review and monitoring of rates. What is the deadline for submission? The ICP is due six months after the close of a contractor’s fiscal year, which is June 30 for those that follow a calendar year. An auditor should verify the adequacy of your submission immediately, but it might take two or more years for the full audit. Any errors can result in penalties and interest, so accurate submissions are of paramount importance. How to Prepare the ICP My colleague Suzanne Camden and I gave a presentation on How to Prepare the ICP with Success!for the National Contract Management Association World Congress. It outlines the ICP preparation process, including the various schedules that must be completed. Start Preparing Today! June 30 might seem like a long way away, but it will be here before you know it. Don’t procrastinate until May or June! Create a folder right now to gather the necessary documents as you perform your month-end, quarter-end, and year-end tasks. Here are some of the things you can do now to prepare: Download the ICP Adequacy Checklist and use that as your guide. Download the ICE (Incurred Cost Electronically) Model (template) List the required ICP schedules and what you can accomplish or gather right now. As you reconcile your 940 and 941s, you can reconcile Schedule L. As you’re comparing budget to actual for overhead and general and administrative expenses, you can reconcile schedules B, C, and E. If you have a Period of Performance that ended 12/31, you can reconcile that contract immediately. Pro tip: if you do find yourself running behind while preparing the ICP, you can request an extension in writing from the governing office of the Defense Contracting Audit Agency as long as you do so before the deadline. But this should be a last resort. Be proactive. Make this a better year for your ICP. Get started today! If you have questions about the ICP and your federal contract, please feel welcome to reach out to Robert@LeftBrainPro.comor call (614) 556-4415. The post Why January is the Best Time to Begin Preparing the Incurred Cost Proposal appeared first on Left Brain Professionals. leftbrainpro.com
  10. Left Brain Professionals

    Why Hire a CPA for Government Cybersecurity?

    Could your business recover from an abrupt loss of $82,000 to 256,000? That’s how much a single cybersecurity breach could cost a small business, according to an analysis by Tech Republic. For federal government contractors, the stakes are even higher. DFARS 252.204.7008 (Compliance Safeguarding and Covered Defense Information Controls), and 252.204.7012 (Safeguarding Covered Defense Information and Cyber Incident Reporting) requires Department of Defense contractors to fully implement required controls on covered contractor information by December 31, 2017. Failure to comply could result in losing a contract or in having to stop work until you can demonstrate compliance with all 14 categories and 110 specific items of the NIST 800-171 R1 controls. For details about covered items and practical steps you can take to achieve compliance, see our earlier blog posts on the Answers Blog. With the deadline fast approaching, a wide variety of technology and consulting companies are pitching cybersecurity services to small business contractors. Some require you to make costly investments in their technology or offer a one-size-fits-all solution. Here are a few reasons to consider engaging a CPA with government contracting experience to advise on cybersecurity compliance. Humans are at the core of cybersecurity protection – and humans are fallible. Not long ago, most companies relegated anything “cyber” to the IT department. However, technology alone will not protect your company from phishing, hacking and other cybersecurity breaches. Your biggest vulnerability may not involve software or hardware, but the people operating your systems. Are they consistent and thorough in following cybersecurity best practices? Do they use and protect strong passwords? Do they avoid phishing emails? If not, the most sophisticated technology can and will fail to protect your company and its data. Today’s cybersecurity best practices touch on personnel practices, supply chain management, and operational decisions. Nearly all areas of your business require strict policies for managing, storing and transmitting information. These must be applied consistently for effective protection. Trusted Advisors and Compliance Experts. As discussed above, technology is only a part of cybersecurity. Best practices require evaluating risks, implementing procedures to mitigate the risks, training employees to follow policies and continually monitoring adherence to those policies. Most companies invest in control systems to ensure compliance with laws and regulations surrounding financial reporting, tax reporting, labor relations, environmental impacts and many other aspects of business. CPAs set up, manage and audit the majority of such systems. CPAs have earned a unique advisory role based on their understanding of business and adherence to core values of independence, objectivity and skepticism. To maintain their credentials, they must complete appropriate continuing education and comply with a strict code of ethics. Their work also is subject to rigorous external quality reviews. A CPA who understands cybersecurity as well as the needs of small businesses and government contractors is an ideal partner to help you comply with government regulations – including those governing cybersecurity. CPAs Offer Multidisciplinary Knowledge. In addition to core education in business and accounting, many CPAs have expertise in business continuity and disaster recovery. Some hold additional credentials specifically related to IT and security. These include Certified Information Systems Security Professionals (CISSP), Certified Information Systems Auditors (CISA) and Certified Information Technology Professionals (CITP). Moreover, the American Institute of CPAs has established a Cybersecurity Risk Management Reporting Framework for companies to use in designing cybersecurity programs and reporting them to stakeholders – including boards of directors, senior managers, investors and government compliance officers. This framework also includes descriptive criteria, controls and an attestation guide to help CPAs report on cybersecurity. As more businesses implement the AICPA framework, it is becoming a common denominator in talking about cybersecurity in the business world. Preparing for Audit and Reporting Security Breaches For government contractors, compliance requires more than establishing a cybersecurity framework. You must be able to demonstrate compliance and have systems in place to report security breaches. Although no formal audit process has been established for compliance with the NIST 800-171 framework, it is wise to develop your systems with audits in mind. With extensive training and experience in both consultative and audit engagements, a CPA who understands cybersecurity and government contract compliance has an edge in helping you prepare. In addition to preparing for audit, you must have systems in place for reporting security breaches. FAR 52.204-21 has no reporting requirement, but other FAR clauses around Personally Identifiable Information and related items do have separate reporting requirements. Depending on where your business is located, you may have state reporting requirements in addition to any federal contract reporting requirements. Many companies don’t understand the need for solid cybersecurity controls until they have suffered a breach. For example, an attorney friend tells a story about a Human Resources professional who received an email from the president of her company requesting a list of all employees and their social security numbers. She prepared the list and responded to his email. A few minutes later, she bumped into the president and told him, “I just sent the list of information you requested.” He responded, “What information?” The HR professional immediately realized what had happened, but the damage was done. While this happened at a relative small company, its 115 employees resided in 32 states, requiring notification to each of the states. Since state laws are not synchronized, the company had to employ a national law firm. Chances are, if a CPA had been involved in developing the company’s cybersecurity policies, there would have been a clear prohibition against sending sensitive employee information via email – no matter who made the request. Questions about cybersecurity and government contracting? We’re here to help! Please call or email Robert E. Jones at (614) 556-4415 or robert@leftbrainpro.com. The post Why Hire a CPA for Government Cybersecurity? appeared first on Left Brain Professionals. leftbrainpro.com
  11. Months can expire between the conclusion of an audit and when the DCAA issues an audit report. Save yourselves needless speculation and angst! Make sure to hold an exit conference before auditors leave your premises. You may want to request that the auditor and the auditor’s supervisor both attend the meeting, Your designated point of contact and affected members of the management team should all attend. An exit conference gives you the opportunity to discuss audit findings before they become official. You can probe the accuracy of the findings and, if needed, clarify any items upon which there is disagreement. When required, follow up with documentation to support your position. Auditors should review their findings in order of priority. For high-priority findings, DCAA might not close the audit until you remediate the underlying issues. As a result, it is vital that you gain a thorough understanding of the finding as well as what the auditor will accept as remediation. Auditors might specify that lower-priority findings be fixed by the next audit. Again, you should obtain auditors view’ on what constitutes an acceptable solution to the issue. In some cases, auditors may say that your way of handling a procedure is acceptable, but they would prefer that you use a different approach. You must then evaluate the cost to your business of changing your approach versus the cost of having auditors challenge your business processes. The Preliminary Report After the exit interview, the auditor should prepare a preliminary report covering all of the findings resulting from the audit. This is often not completed until weeks or months after the audit. You should begin remediation of any findings addressed at the exit interview while awaiting the preliminary report. After receiving the report, you should review the findings and respond in writing to any areas of disagreement. Be prepared to back up your position with documentation. The Final Audit Report Some months after auditors have left your premises, the DCAA will satisfy its reporting requirements by issuing a final audit report. Typically, reports should include: A statement that identifies the scope and objectives of the audit, including the area, system, or proposal being audited. Objective audit findings. Adequate support for all conclusions. A description of any issues that adversely affected the audit. A summary of audit results, including the auditor’s findings, recommendations for contractor compliance with applicable regulations, and overall opinions. Review this report with your management team carefully and develop a plan to address remaining audit findings as required. If you successfully managed the audit process, you can breathe a sigh of relief and return to managing your business. What if I Disagree with the Audit Report? DCAA auditors are only human. They can make mistakes or issue findings with which you disagree. You do have rights of appeal under the Contract Disputes Act. Moreover, your contracting officer can reject DCAA recommendations, although this is increasingly rare. Litigation can be expensive, however. Unless their errors present a threat to your payments or continued operation as a government contractor, it may be to your advantage to change your systems to comply with their findings. This is a decision that you should make with competent legal counsel. If you have questions about DCAA or DCMA audits and your business, please call or email Robert E. Jones at (614) 556-4415 or robert@leftbrainpro.com. The post Surviving the DCAA Exit Conference and Audit Remediation appeared first on Left Brain Professionals. leftbrainpro.com
  12. Left Brain Professionals

    Answers Blog

    Begin Planning Today for DCAA and DCMA Contract Reviews The minute you sign a contract with an agency of the federal government, one thing becomes certain: you will be audited. In fact, depending on your contract, you may undergo several types of contract, proposal, or business system reviews or audits. A wide body of continually changing federal regulations affect how the government ensures that contractors provide goods and services as promised. Some checks and balances fall under the guise of contract management, while others involve formal audits. Your ability to withstand contract review or audit has a direct bearing on your future as a government contractor. Pass, and your invoices are paid. Fail, and your invoices may be suspended or disallowed. You even could be barred from bidding on future contracts! With so much at stake, it is important that you begin preparing today to defend your costs, product quality, accounting systems and business practices during an audit. Preparation begins with understanding some of the agencies involved. Which Agencies Oversee Contracts? Individual awarding agencies, especially civilian agencies such as Health and Human Services, the Department of Energy and Department of Veterans Affairs, perform many of their own reviews and audits. Each agency follows its own protocols. For the Department of Defense, NASA and affiliated agencies, two federal agencies hold primary responsibility for ensuring the integrity of the purchasing process. The Defense Contract Management Agency administers contracts, while the Defense Contract Audit Agency provides financial and accounting services, including audits. The Defense Contract Management Agency provides a broad range of procurement and contract management services to the Department of Defense and other federal agencies. DCMA makes sure that DoD and affiliated federal agencies get the highest quality goods and services, the best value for their dollar and on-time delivery. The agency employs more than 10,000 professionals around the globe who are involved in every aspect of making sure needed equipment makes it from raw material to finished product. DCMA employees witness testing and accept products on behalf of the government. The agency also staffs six pricing centers around the U.S. to help contracting officers with price analysis and commercial item determinations. DCMA provides assistance with technical review of proposals and maintains the Commercial Item Determination registry. It maintains a secure web-based system for electronic Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT, formerly known as Wide Area Work Flow/WAWF). It also performs contractor surveillance and product inspections. Before contract award, DCMA provides advice and information to help construct effective solicitations, identify potential risks, select the most capable contractors, and write contracts that meet the needs of DoD, federal and allied government agencies. After contract award, DCMA monitors contractors’ performance and management systems to ensure that cost, product performance, and delivery schedules comply with the terms and conditions of the contracts. The Defense Contract Audit Agency performs most formal audits at the request of agency or DCMA contracting officers. The DCAA’s mission is to ensure that government agencies get what they need at fair and reasonable prices. Standards for allowable, reasonable and allocable prices are set forth in Part 31 of the Federal Acquisition Regulation. Established in 1965, the DCAA provides audit and financial advisory services to Department of Defense and other federal entities responsible for acquisition and contract administration. Other federal government agencies may hire commercial auditors. Pending language in H.R. 2511, introduced in May 2017, would allow the Defense Contract Management Agency or a military service contract officer to pick “a qualified private auditor to perform an incurred cost audit.” All audits must follow the DCAA Contract Audit Manual (DCAAM 7640.1), often abbreviated as the CAM. Chapter 10 of the CAM, which includes examples of different DCAA audit reports, can be particularly helpful for new contractors. What Types of Audits Does DCAA Perform? DCAA performs more than 50 specific audits to ensure that contractors have systems in place to support accurate and transparent pricing for the goods and services they provide to government agencies. Pre-award audits take place before you sign a contract. Common types of pre-award audits include accounting system surveys, proposal pricing and forward pricing rates. Post-award audits can occur at any time after you sign a contract. Per the DCAA contract audit manual (14-102), the objective of a post-award audit is to determine if the negotiated contract price increased by a significant amount because the contractor did not submit or disclose accurate, complete and current cost or pricing data. Common types of post-award audits include: · Accounting System Audit · Cost Accounting Standards (CAS) · Provisional Billing Rates · Incurred Costs/Annual Overhead Rates · Voucher/Progress Payment Reviews · Floor Checks · Material Existence · Contract Closing · Truth in Negotiation Act Compliance Contractor business system audits examine internal controls and processes. The FAR and Defense Federal Acquisition Regulation Supplement clauses incorporated into many government contracts list detailed criteria associated with business systems for: · Accounting · Estimating · Material management and accounting · Purchasing · Earned value management · Property As explained in CAM Chapter 5, federal contractors are responsible for establishing and maintaining adequate internal controls that support reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. During an audit, you must provide detailed walkthroughs and demonstrations of the processes that make up each system. Accounting System Audits Your accounting system is key to proving that your costs are reasonable, allowable and allocable to your contract. The Federal Acquisition Regulation 16.301(3) requires contractors to maintain an adequate accounting system.. Those with flexibly priced contracts must employ an accounting system that meets DCAA standards for tracking costs. In addition, federal contracts that exceed the $750,000 Truthful Cost or Pricing Data (formerly TINA) threshold require DCAA-compliant accounting systems and operations. Before awarding a contract, the Contracting Officer (CO) or Administrative Contracting Officer must determine if the contractor has an adequate accounting system. DCAA often serves as the technical advisor in making this decision. It performs a Pre-Award Accounting System Review or Post Award Review at the request of the CO or ACO. The Pre-Award Accounting System review requires the contractor to show that its accounting system meets requirements outlined in the Standard Form 1408, Pre-Award Survey of a Prospective Contractors Accounting System. The Post Award accounting system review also includes detailed testing of transactions through the contractor’s accounting system to ensure the system actually meets the SF 1408 requirements. What Types of Audits Does DCMA Perform? Whereas DCAA performs accounting and financial audits, DCMA audits government property systems, physical assets and shipments, including Item Unique Identification (IUID) methods and reporting obligations. Through IUID, DCMA auditors verify that every asset is uniquely identified, labeled, and tracked in accordance with two important standards: MIL-STD 129 (Shipment Identification) and MIL-STD 130 (Asset Identification). The IUID Registry is managed through iRAPT. Effective October 1, 2017, the Financial Improvement and Audit Readiness (FIAR) initiative dictates that all accountable assets must be audit ready. . Failure to comply can result in rejected payments, shipments that are rejected upon receipt, costly corrective actions and documentation of your deficiencies in an official government report. DCMA also performs Contractor Purchasing System Reviews, which are designed to evaluate the efficiency and effectiveness with which a contractor spends government funds and whether it complies with government policy when subcontracting. A CPSR is conducted when a contractor’s annual sales to the government are expected to exceed $50 million in a 12 month period. Begin Preparing Now to Save Time, Money and Headaches Later Preparing for audits at the start of your contract – or at least before you receive a notice of audit – is the best way to reduce costs and stress associated with the audit process. Designing your accounting systems and business operations to comply with contract requirements and audit standards from the beginning helps to prevent costly system redesigns, staff retraining, and the headaches associated with audit findings. One of the easiest ways to begin audit preparation is to assess your accounting systems using SF 1408. Knowing what a government representative is looking for will help to: · Improve your existing accounting system; · Identify and correct any defects in your system; · Be prepared for any pre-award review of your cost accounting system. Having effective internal controls, policies and procedures for your business will help you organize your business and prepare for a potential audit. At minimum, you should have a written policy and procedures manual that covers: · Accounting system (control environment) · Billing · Budget and Planning · Estimating · Information Technology · Labor, Compensation and Benefits · Material Management · Purchasing · Standards of Ethical Operation Setting up and maintaining the right records is another prudent step in preparing for audits. FAR Part 4.7 outlines records retention requirements for contractors. Remember, if you know how the DCAA and DCMA work and what to expect from them, you can expedite the audit visit and avoid spending more time with them than necessary. The converse is true for the unprepared. So, what should you do once the DCAA audit letter arrives? Check out our next blog post: Received a DCAA Audit Letter? Don’t Panic! Questions about DCAA and DCMA audits and your business? We’re here to help! Call or email Robert E. Jones at (614) 556-4415 or robert@leftbrainpro.com. The post Answers Blog appeared first on Left Brain Professionals. leftbrainpro.com
  13. Left Brain Professionals

    Received a DCAA Audit Letter? Don’t Panic!

    For government contractors, auditing is a matter of when – not if. Yet many contractors still panic when they receive the inevitable audit request from the Defense Contract Audit Agency. If you have been preparing from the start of your contract, you should be in good shape to withstand an audit. Yet, even if you have been so busy running your business that all thought of audits fell to the back burner, there are steps you can take before and after the auditors arrive to manage the process successfully. The DCAA Audit Letter and Data Call To initiate an audit, DCAA auditors will send an audit letter that includes: A description of the type of audit they plan to perform. A list of systems and records they want to examine (known as a data call). A deadline for your response. Once again, take a deep breath. Then begin developing a plan of attack for dealing with the audit. Examine the audit letter to see what auditors are looking for and what the agency’s agenda might be. Pull the Contract Audit Manual for guidance. Appoint someone as the primary point of contact between your company and the auditors. Ideally, you should appoint someone who is familiar with your overall business operations and who has a thorough understanding of government contracts, federal regulations and the DCAA audit process. Establish a chain of command for responding to the audit. Ensure that any employees likely to be involved in the audit understand their roles and responsibilities. Begin gathering requested data. Small business contractors often lack the in-house expertise to prepare for audits and represent themselves through the audit process. An experienced CPA will be an invaluable asset to you during the audit process. Your expert can serve as a buffer between you and the auditors. Ideally, you should appoint a CPA with the knowledge and experience to expedite the audit process and to push back against overly aggressive auditors if needed. The Entrance Conference Once you’ve put a preliminary plan in place, schedule an entrance conference with the DCAA auditors. Goals of the conference include: Introduce the auditors to your point of contact. Clarify the purpose of the audit. Agree on the audit scope. Nail down specifics. Do not accept a broad scope such as, “an audit of the contractor’s facilities.” Specify the types of records and data the auditor intends to review. Remember, the DCAA auditors have the right to review any documentation that supports a cost charged and recovered on a federal contract, grant, or cooperative agreement. Set the auditor’s level of access to documents, information and personnel. During the Audit While auditors are at your business, your goal should be to assist them in completing their task as quickly as possible while protecting your company’s interests. Here are some tips for managing the audit process and avoiding needless disruption to your operations. Be courteous and professional. The auditors represent one of your biggest clients, the federal government. Make sure to treat them accordingly. Know your rights. By law, auditors are only entitled to access specific records required to assess costs. They must follow Generally Accepted Government Auditing Standards to determine which records are relevant. If possible, provide auditors with a designated office or work area. Bring any requested documents to them rather than allow them to roam throughout your company. For floor checks, have your designated point of contact or another company manager accompany the auditor during interviews with employees. Ask auditors to make data requests, in writing, to your designated point of contact. Although DCAA auditors are not required to make written requests, these are very helpful in evaluating, tracking and prioritizing their requests. Review and log all documents before providing them to auditors. Auditors will ask clarifying questions. Answer them – but make sure you are only answering their specific questions. Do not volunteer additional information. This is where an experienced government contracts CPA can be especially helpful. Hold interim conferences as needed to manage the audit process. These will allow you to address any perceived deficiencies or mistakes in your data. If the auditors discover something wrong, remedy the issue before they leave your site, if possible. In our next blog post, we’ll discuss The Exit Conference and Audit Remediation. Surviving the DCAA Exit Conference and Audit Remediation In the meantime, if you have questions about DCAA or DCMA audits and your business, please call or email Robert E. Jones at (614) 556-4415 or robert@leftbrainpro.com. The post Received a DCAA Audit Letter? Don’t Panic! appeared first on Left Brain Professionals. leftbrainpro.com
  14. The minute you sign a contract with an agency of the federal government, one thing becomes certain: you will be audited. In fact, depending on your contract, you may undergo several types of contract, proposal, or business system reviews or audits. A wide body of continually changing federal regulations affect how the government ensures that contractors provide goods and services as promised. Some checks and balances fall under the guise of contract management, while others involve formal audits. Your ability to withstand contract review or audit has a direct bearing on your future as a government contractor. Pass, and your invoices are paid. Fail, and your invoices may be suspended or disallowed. You even could be barred from bidding on future contracts! With so much at stake, it is important that you begin preparing today to defend your costs, product quality, accounting systems and business practices during an audit. Preparation begins with understanding some of the agencies involved. Which Agencies Oversee Contracts? Individual awarding agencies, especially civilian agencies such as Health and Human Services, the Department of Energy and Department of Veterans Affairs, perform many of their own reviews and audits. Each agency follows its own protocols. For the Department of Defense, NASA and affiliated agencies, two federal agencies hold primary responsibility for ensuring the integrity of the purchasing process. The Defense Contract Management Agency administers contracts, while the Defense Contract Audit Agency provides financial and accounting services, including audits. The Defense Contract Management Agency provides a broad range of procurement and contract management services to the Department of Defense and other federal agencies. DCMA makes sure that DoD and affiliated federal agencies get the highest quality goods and services, the best value for their dollar and on-time delivery. The agency employs more than 10,000 professionals around the globe who are involved in every aspect of making sure needed equipment makes it from raw material to finished product. DCMA employees witness testing and accept products on behalf of the government. The agency also staffs six pricing centers around the U.S. to help contracting officers with price analysis and commercial item determinations. DCMA provides assistance with technical review of proposals and maintains the Commercial Item Determination registry. It maintains a secure web-based system for electronic Invoicing, Receipt, Acceptance, and Property Transfer (iRAPT, formerly known as Wide Area Work Flow/WAWF). It also performs contractor surveillance and product inspections. Before contract award, DCMA provides advice and information to help construct effective solicitations, identify potential risks, select the most capable contractors, and write contracts that meet the needs of DoD, federal and allied government agencies. After contract award, DCMA monitors contractors’ performance and management systems to ensure that cost, product performance, and delivery schedules comply with the terms and conditions of the contracts. The Defense Contract Audit Agency performs most formal audits at the request of agency or DCMA contracting officers. The DCAA’s mission is to ensure that government agencies get what they need at fair and reasonable prices. Standards for allowable, reasonable and allocable prices are set forth in Part 31 of the Federal Acquisition Regulation. Established in 1965, the DCAA provides audit and financial advisory services to Department of Defense and other federal entities responsible for acquisition and contract administration. Other federal government agencies may hire commercial auditors. Pending language in H.R. 2511, introduced in May 2017, would allow the Defense Contract Management Agency or a military service contract officer to pick “a qualified private auditor to perform an incurred cost audit.” All audits must follow the DCAA Contract Audit Manual (DCAAM 7640.1), often abbreviated as the CAM. Chapter 10 of the CAM, which includes examples of different DCAA audit reports, can be particularly helpful for new contractors. What Types of Audits Does DCAA Perform? DCAA performs more than 50 specific audits to ensure that contractors have systems in place to support accurate and transparent pricing for the goods and services they provide to government agencies. Pre-award audits take place before you sign a contract. Common types of pre-award audits include accounting system surveys, proposal pricing and forward pricing rates. Post-award audits can occur at any time after you sign a contract. Per the DCAA contract audit manual (14-102), the objective of a post-award audit is to determine if the negotiated contract price increased by a significant amount because the contractor did not submit or disclose accurate, complete and current cost or pricing data. Common types of post-award audits include: Accounting System Audit Cost Accounting Standards (CAS) Provisional Billing Rates Incurred Costs/Annual Overhead Rates Voucher/Progress Payment Reviews Floor Checks Material Existence Contract Closing Truth in Negotiation Act Compliance Contractor business system audits examine internal controls and processes. The FAR and Defense Federal Acquisition Regulation Supplement clauses incorporated into many government contracts list detailed criteria associated with business systems for: Accounting Estimating Material management and accounting Purchasing Earned value management Property As explained in CAM Chapter 5, federal contractors are responsible for establishing and maintaining adequate internal controls that support reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. During an audit, you must provide detailed walkthroughs and demonstrations of the processes that make up each system. Accounting System Audits Your accounting system is key to proving that your costs are reasonable, allowable and allocable to your contract. The Federal Acquisition Regulation 16.301(3) requires contractors to maintain an adequate accounting system.. Those with flexibly priced contracts must employ an accounting system that meets DCAA standards for tracking costs. In addition, federal contracts that exceed the $750,000 Truthful Cost or Pricing Data (formerly TINA) threshold require DCAA-compliant accounting systems and operations. Before awarding a contract, the Contracting Officer (CO) or Administrative Contracting Officer must determine if the contractor has an adequate accounting system. DCAA often serves as the technical advisor in making this decision. It performs a Pre-Award Accounting System Review or Post Award Review at the request of the CO or ACO. The Pre-Award Accounting System review requires the contractor to show that its accounting system meets requirements outlined in the Standard Form 1408, Pre-Award Survey of a Prospective Contractors Accounting System. The Post Award accounting system review also includes detailed testing of transactions through the contractor’s accounting system to ensure the system actually meets the SF 1408 requirements. What Types of Audits Does DCMA Perform? Whereas DCAA performs accounting and financial audits, DCMA audits government property systems, physical assets and shipments, including Item Unique Identification (IUID) methods and reporting obligations. Through IUID, DCMA auditors verify that every asset is uniquely identified, labeled, and tracked in accordance with two important standards: MIL-STD 129 (Shipment Identification) and MIL-STD 130 (Asset Identification). The IUID Registry is managed through iRAPT. Effective October 1, 2017, the Financial Improvement and Audit Readiness (FIAR) initiative dictates that all accountable assets must be audit ready. . Failure to comply can result in rejected payments, shipments that are rejected upon receipt, costly corrective actions and documentation of your deficiencies in an official government report. DCMA also performs Contractor Purchasing System Reviews, which are designed to evaluate the efficiency and effectiveness with which a contractor spends government funds and whether it complies with government policy when subcontracting. A CPSR is conducted when a contractor’s annual sales to the government are expected to exceed $50 million in a 12 month period. Begin Preparing Now to Save Time, Money and Headaches Later Preparing for audits at the start of your contract – or at least before you receive a notice of audit – is the best way to reduce costs and stress associated with the audit process. Designing your accounting systems and business operations to comply with contract requirements and audit standards from the beginning helps to prevent costly system redesigns, staff retraining, and the headaches associated with audit findings. One of the easiest ways to begin audit preparation is to assess your accounting systems using SF 1408. Knowing what a government representative is looking for will help to: Improve your existing accounting system Identify and correct any defects in your system Be prepared for any pre-award review of your cost accounting system. Having effective internal controls, policies and procedures for your business will help you organize your business and prepare for a potential audit. At minimum, you should have a written policy and procedures manual that covers: Accounting system (control environment) Billing Budget and Planning Estimating Information Technology Labor, Compensation and Benefits Material Management Purchasing Standards of Ethical Operation Setting up and maintaining the right records is another prudent step in preparing for audits. FAR Part 4.7 outlines records retention requirements for contractors. Remember, if you know how the DCAA and DCMA work and what to expect from them, you can expedite the audit visit and avoid spending more time with them than necessary. The converse is true for the unprepared. So, what should you do once the DCAA audit letter arrives? Check out our next blog post: Received a DCAA Audit Letter? Don’t Panic! Questions about DCAA and DCMA audits and your business? We’re here to help! Call or email Robert E. Jones at (614) 556-4415 or robert@leftbrainpro.com. Received a DCAA Audit Letter? Don’t Panic! The post Begin Planning Today for DCAA and DCMA Contract Reviews appeared first on Left Brain Professionals. leftbrainpro.com
  15. Left Brain Professionals

    Outsource Your Incurred Cost Proposal

    Congratulations! You Submitted Your Incurred Cost Proposal. But is it Adequate? If your company has flexibly priced or time-and-materials federal contracts that contain the Allowable Cost & Payment clause (FAR 52.216‐7), you are required to file an Incurred Cost Proposal (also known as an Incurred Cost Submission) within six months of the end of your… leftbrainpro.com
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