Overview of the Defense Contract Audit Agency American Society of Military Comptrollers

Transcription

1 Overview of the Defense Contract Audit Agency American Society of Military Comptrollers Ms. Anita Bales Director Page 1

2 Presentation Outline DCAA Mission and Impact DCAA Organization Pre-Award - Forward Pricing Contract Performance -Interim Billings and Incurred Cost Contract Closeout Page 2

3 DCAA Mission Established in 1965 by transferring the existing contract audit functions from each of the military services into a single contract audit agency (DoD Directive ) Single mission organization: Audit contractor accounting books and records and other submissions for contracting official s use Audit at all stages of the contract life-cycle Provides financial advice regarding contractors and regulations governing contract costs Audits about 7,500 contractors every year and averages more than 6,000 audit reports which examine more than $150 billion of contractor costs Page 3

4 Impact Supports Better Buying Power initiatives: Affordable Programs Controlling Costs Helps to keep the acquisition process moving effectively by reviewing contractor cost estimates and accounting systems Our Recommendations to contracting officers help them reduce acquisition costs We work to support the warfighter and protect the taxpayer s interest by obtaining better prices on products and services Page 4

5 Department of Defense (DoD) Organization Secretary of Defense Deputy Sec of Defense Department of Army Department of Navy Department of Air Force Under Secretary (A T & L) Under Secretary (Comptroller) Inspector General Procurement Procurement Procurement DCMA DCAA Page 5

6 DCAA Organization DCAA IG Angela Janysek- Denzler Director Anita Bales Deputy Director Ken Saccoccia Executive Officer Vacant General Counsel Defense Legal Service Susan Chadick Assistant Director, Operations Tom Peters Assistant Director, Policy & Plans Don McKenzie Assistant Director, Resources Philip Anderson Assistant Director, Integrity & Quality Assurance Gary Spjut Headquarters Regions Central Region Diana Graff Vacant Eastern Region Dave Johnson Mark Richards Northeastern Region Ron Meldonian Martha McKune Mid-Atlantic Region Vacant Chris Andrezze Western Region Donald Mullinax Steve Hernandez Field Detachment Karen Cash Vacant Page 6

7 Regional Boundaries Southwest Asia BO European Br R R R R R No. of Field Audit Offices Eastern 24 Northeastern 22 Central 23 Mid-Atlantic 31 Western 24 FD 15 R = Regional Office Page 7

8 $5.0 $4.5 $4.0 $3.5 Annual Net Savings in Billions $4.4 $4.2 $3.5 $4.5 $3.0 $2.5 $2.5 $2.9 $2.0 $1.5 $1.0 $0.5 $ Represents an 80 % growth in Net Savings over the average Page 8

9 Return on Investment $8.00 $7.50 $7.00 $6.50 $7.00 $7.30 $6.70 $6.90 $6.00 $5.50 $5.00 $5.40 $5.00 $6.20 $5.20 $5.30 $5.10 $5.10 $5.80 $4.50 $ Page 9

10 Pre-Award Buying Command ACO Solicitation Requirement Document Relevant Information in CBAR DFAS Source Selection Award Funding Analyze/Audit submission and Negotiation Set up LOA & Financial Record Pre-Award Accounting System Pre-Award Estimating System DCAA

11 About Forward Pricing Audits Forward Pricing audits are examinations performed in accordance with GAGAS An examination provides a high level of assurance and consists of obtaining sufficient evidence to express an opinion on whether the proposed amounts comply with the solicitation terms related to pricing Objectives: Determine Adequacy of the contractor s proposal and supporting historical data (FAR 15) Compliance with FAR 31 and CAS of the proposed amounts as well as the underlying estimates and supporting contractor books and records DCAA also supports contracting officer negotiations, especially for complex submissions with significant audit issues Page 11

12 Common Issues Areas Where DCAA Questions Costs Material Costs Issues include: Proposed costs are inflated over purchase history. Contractors do not consider cash or quantity discounts. Contractors do not determine if proposed materials are in surplus inventory. Contractors do not consider decrement on material costs that are based on quotes. Subcontracts Prime contractors are not performing the required cost and price analysis of their subcontractors Commercial Items DCAA is challenging Contractors on their proposed commercial items. Proposed commercial items often do not meet the FAR definition Escalation Contractors propose escalation on both material and labor costs. This can be a significant cost for Army procurements because of the long performance periods Contractors propose escalation that are not supported by historical rates or are based on estimates. DCAA uses commodity and labor specific escalation factors for out years. Page 12

13 Example Proposal Audits Total Proposed: $910.9M Questioned: $84.5M Sustained: $72.3M Significant Findings - Reports issued January (Material, Labor, ODCs) and February 2013 (Indirect and Labor Rates) DCAA provided extensive support at Navy negotiations to sustain audit findings DCAA sustained $52.4M in indirect rates based on applying audited rates DCAA sustained 17.4M in material costs due to: Proposed material based on unsupported engineering estimates and single-source quotes Previous purchases significantly less Contractor concurred during fact-finding DCAA sustained $2.5M in labor costs due to actuals from costs incurred on ongoing production buys Page 13

14 During Performance Buying Command ACO Monitor Funding Accept Deliveries Process Contract Modifications Adjust Funding & Monitoring DFAS Monitor Funding Accounting/Billing System Audit Process Withholds DCAA Maintain Gov. Financial Record Pay Vouchers Process Vouchers/ Perform Payment Reviews Annual Audit of Incurred Cost

15 About Evaluations of Public Vouchers Under flexibly priced contracts, the contract auditor is the authorized representative of the contracting officer to: Receive reimbursement vouchers directly from contractors Approve for payment those vouchers found acceptable Suspend payment of questionable costs The primary purpose of the evaluation and approval process is to evaluate whether the voucher is properly prepared and acceptable for provisional payment This effort does not give an opinion on the allowability, allocability, or reasonableness of the costs Page 15

16 Evaluation Process At a minimum, the review of sampled vouchers will include the following steps: Comparison of the information shown on the voucher with the related contract information Test of the mathematical accuracy of extensions and footings Verification that amounts claimed for reimbursement of indirect costs are computed using the billing rates acceptable to the cognizant auditor or contracting officer Verification that interim fees claimed are computed by the formula or basis in the contract Determination that the voucher has been properly prepared and that payment for the items listed on the voucher is not precluded by any contractual provisions Verification of appropriate withholds, if applicable (e.g., fee) Coordination with the Contracting Officer (PCO and/or ACO) and the Contracting Officer s Representative (COR) to ascertain any known concerns or unusual circumstances or risk associated with the COR s contract performance surveillance responsibilities Page 16

17 Evaluation Process DCAA uses a risk-based approach to reviewing vouchers in WAWF WAWF uses an automated voucher selection process that routes interim public vouchers to the contract auditor for pre-payment evaluation and approval using risk-based sampling methodologies: Provides a more comprehensive sample of all vouchers Enhances oversight of high risk vouchers Allows a more efficient processing of the vouchers not selected for pre-payment evaluation Page 17

18 Evaluation Process Examples of high risk vouchers include: first vouchers for contract/delivery/task orders vouchers with amounts greater than a specified dollar threshold (dollar parameter) Remaining vouchers are routed to the approver using a sampling methodology (percent parameter) Dollar and percent parameters are set based on contractor risk assessments performed by the local office Page 18

19 Incurred Cost Strategy Eliminating the Incurred Cost Backlog is an initiative under DoD s Better Buying Power 2.0 Developed a multi-pronged approach to working down backlog in an effective manner Dedicated audit teams Multi-year audit techniques Increased staffing dedicated to Incurred Cost Implemented a low-risk sampling approach to performing incurred cost audits Page 19

20 Completed Incurred Cost Years By Fiscal Year 12,000 11,101 10,000 8,636 8,000 6,000 4,000 4,088 2, FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Page 20

21 Substantial Progress Reducing Incurred Cost Backlog ,000 21,000 10,000 29,271 16,551 12,720 25,363 14,480 10,883 20,575 10,301 10,274 17,613 10,302 7,311 Regular Inventory Backlog Total Inventory * As of May 2015 Page 21

22 Incurred Cost - Looking to the Future DCAA has put in place the policies, training and infrastructure to effectively address the incurred cost backlog DCAA completed more than 11,000 incurred cost years in FY 2014 The Agency receives about 5,000 6,000 incurred cost submissions each year The Agency is currently completing about 2 years worth of incurred cost inventory every year Page 22

23 Actions to Overcome Barriers Actions available after submissions are late: Establishing unilateral rates for late or uncertified proposals (FAR (c)(2), Certificate of indirect costs Decrementing provisional billing rates for unsupported costs (FAR (d), Determining allowability) Establishing contract withholds for significant accounting system or related internal control deficiencies (DFARS (a)(4), Contractor accounting systems and related controls) Page 23

24 Contract Closeout Stakeholders Integrated Approach DCMA Services Funds Management Negotiation of Rates Complete all Closeout Actions Additional Funding Property Disposition Replacement Funds Product Acceptance Reconciliations Final Payment ONE FOCUS Final Indirect Rate & Direct Cost Audits Final Voucher Evaluation DFAS Industry Indirect Cost Rate Proposal Year End Rate Adjustments Final Invoice/Vouchers Settle Subcontracts DCAA Page 24

25 Close Out Buying Command Accept Final Delivery Confirm all Audits Complete ACO Process Contract Modifications Reconcile Quantity before accepting final voucher Preliminary ULO Review, reconcile payment differences Initiate Quick Close Out Procedures DFAS Sign & Process Final Voucher Reconcile and Close Out Contract Resolve remaining funds DCAA Pay Final Voucher Reconcile and Close Accounting File Audit of Incurred Cost Provide Final CACWS or Evaluation of Final Voucher Support Quick Close Out Procedures

26 MOCAS Overage Summary May 2015 Reason Code Contracts Percent Contracts awaiting final audit 32, Waiting for O/H Rates Negotiation 56, Contracts waiting for Final Contractor Invoice 43, Waiting for Payment Notice 36, Other 10, Total contracts awaiting closeout 179, Page 26

27 Final Vouchers The "Allowable Cost and Payment" clause, FAR (d) and , specifies that the contractor must submit a completion voucher within 120 days after settlement of the final indirect cost rates If the contractor fails to submit a completion invoice or voucher within the time specified, the contracting officer may: Determine the amounts due to the contractor under the contract and Record this determination in a unilateral modification to the contract Page Page 27

28 Contract Closeout Common Barriers Delinquent contractor incurred cost proposals Delayed audit/settlement of contractor final overhead rates: Lack of adequate support Denial of access to records Disallowed/Questioned Costs pending resolution (Form 1) Prime settlement of subcontract costs Delinquent contractor final voucher Reconciliations Awaiting removal of excess funds Litigation/Investigation pending Page 28

29 Quick Closeout Procedures FAR provides for quick closeout of contracts prior to agreement on final indirect cost rates. Quick closeout criteria: Contract is physically complete. Amount of unsettled direct and indirect costs on any one contract or delivery order is less than $1M or 10% whichever is less. Risk assessment is performed. Agreement can be reached on a reasonable estimate of allocable dollars. Settlement can occur before end of contractor FY. Powerful tool to close the last FY of a multi-year contract. Page 29

30 DCAA Assistance with Expiring Funds Financial Liaison Auditors (FLA) are available to provide targeted support when required FLAs work with responsible DCAA field office to determine status of required audits If audit will not be completed prior to funds expiring, FLAs facilitate the use of alternate procedures Update billing rates to approximate final rates & request contractor to submit an updated voucher For UCA & pre-award audits, adjust the scope of audit to address high risk items in the time available Adjust assignment of DCAA resources to address critical time sensitive need Page 30

31 Take Aways DCAA Supports Better Buying Power initiatives: Affordable Programs Controlling Costs Substantial Progress on eliminating Incurred Cost Backlog DCAA can help Resource Managers save money and minimize the impact of expiring funds DCAA plays a critical part in the contract closeout process Page 31

32 Defense Contract Audit Agency Additional information on DCAA and Points of Contact available at Page 32