DCAA / DCMA: Progress or Status Quo? Presented By: Christine Williamson, CPA, Member Kristen Soles, CPA, Member

Transcription

1 DCAA / DCMA: Progress or Status Quo? Presented By: Christine Williamson, CPA, Member Kristen Soles, CPA, Member

2 Agenda State of the Agencies DCAA/DCMA What does GAO have to say? What does DOD IG have to say? What are our Clients telling Us (Throughout)? Do you think it s Progress or Status Quo? Proprietary and Confidential 2

3 Reports Referenced in Presentation GAO Report DOD Initiative to Address Audit Backlog (Dec 2012). DCAA 2 recent reports: 2012 Year in Review(Feb 2013) Report to Congress (March 2013) DCMA State of the Agency Fiscal Year 2012 (Jan 2013). DOD IG Report 2 recent reports: Monitoring the Quality of DCAA FY 2010 Audits (March 2013) Actions to Align DCMA and DCAA functions (Nov 2012) Deltek Clarity Report released Spring Proprietary and Confidential 3

4 Who s Who? Proprietary and Confidential 4

5 Who s Who? Categories 12/31/12 Number of Civilians 10,492 Number of Military 548 Number Operations Directorates 3 Number of Contract Management Offices (CMOs) 45 Number of Contractors 20,143 Number of Active Contracts 340,000 Proprietary and Confidential 5

6 Concerns Last Year at this Time DCMA / DCAA redefining roles and responsibilities (business systems) working together. Huge backlog of incurred cost audits presenting risk of expiring funds and overpayments lost to the statute of limitations. Contract awards to contractors whose business systems and in some cases proposals go unaudited. DCAA under scrutiny for poor quality. Proprietary and Confidential 6

7 Refresher Business Systems HOW MANY? DCAA has half DCMA has half Proprietary and Confidential 7

8 Refresher Business Systems DCAA performs: Accounting Estimating Material Management and Accounting Systems (MMAS) DCMA performs: Purchasing Government Property EVM Proprietary and Confidential 8

9 Progress or Status Quo? Highest Priority Activities/Audits Audits of Contracts for Overseas Contingency Operations Ensuring contractor understanding and compliance with U.S. Laws. Forward Pricing Audits. Incurred Cost Audits. Equitable Adjustment and Termination Claim Amounts. Proprietary and Confidential 9

10 Incurred Cost Progress or Status Quo? End of FY 2012 Backlog 17,000 adequate ICS = $333 B 9,000 undetermined ICS = $377 B 2012 = 350 low risk memo 2013 = 1500 low risk memo Proprietary and Confidential 10

11 Moving at the speed of? Proprietary and Confidential 11

12 DCAA Completed Audits by Year by Type Type of Audit ICS & Special 12,826 5,166 3,886 3,732 Audits Forward Pricing 7,004 5,590 2,599 1,811 Other Audits 1, ,173 Total 21,276 11,731 7,390 6,716 Proprietary and Confidential 12

13 However Cost Recovery Initiative between DCMA and DCAA says: In the 2 nd year of this initiative: 139 audit resolutions for over $177M in the accounting changes and CAS non compliances area. 840 final indirect rate audit reports needing resolution, initiative resolved 402 audit reports for $1.4B recovery. Proprietary and Confidential 13

14 DCAA s Risk Based Initiative Proprietary and Confidential 14

15 DCAA s Sampling Changes Proprietary and Confidential 15

16 DCAA Status Quo Since August 26, 2009, DCAA has not had an opinion on its quality control system covering DCAA audits and attestation engagements as required by GAGAS. The last peer review was issued for FY 2006 with a clean opinion. That was revoked by the DOD IG on 8/26/09 due to the GAO report Widespread Problems with Audit Quality Require Significant Reform. GAGAS requires an external peer review at least once every 3 years. Based on that criteria, DCAA should have obtained peer review on its work performed in Proprietary and Confidential 16

17 DCAA s Resulting Qualification SCOPE OF AUDIT We conducted our examination in accordance with Generally Accepted Government Auditing Standards (GAGAS), except DCAA does not currently have an external opinion on its quality control system as required by GAGAS. The most recent external quality control review opinion expired on August 26, Proprietary and Confidential 17

18 DCAA Next Steps?? CIGIE Council of Inspectors General on Integrity and Efficiency s audit committee together with the DCAA started the process to obtain an outside CPA firm to perform its next peer review to cover 2012 reports. Proprietary and Confidential 18

19 DCAA Barriers to Progress / Resulting Legislative Proposals Adequacy of Contractor Submitted Data 3/28/13 Final rule to incorporate incurred cost adequacy checklist into DFARS Authority to Review & Subpoena Data other than certified cost or pricing data. Legislative proposal will be submitted for FY2014 to obtain subpoena rights (currently only have this for Certified cost or pricing data.) Access to online data Legislative proposal under review to ensure the DCAA has read only access to contractor s online data (business systems). Proprietary and Confidential 19

20 On to the DCMA Proprietary and Confidential 20

21 2011 GAO Report on DCMA Amid ongoing effort to rebuild capacity, several factors present challenges to meeting its missions. > Identified risks: DCMA lost the majority of its contract cost/price analysts. Loss of this skill set, according to DCMA, meant that many of its pricing related contract administration responsibilities, such as negotiating forward pricing rate agreements and establishing final indirect cost rates and billing rates, were no longer performed to the same level of discipline and consistency as in prior years. Proprietary and Confidential 21

22 2011 GAO Report on DCMA Amid ongoing effort to rebuild capacity, several factors present challenges to meeting its missions. > Identified risks (cont d): Delays in obtaining audits from DCAA is a key external risk to DCMA s ability to effectively carry out its responsibility to determine the adequacy of defense contractor business systems comes from. Recent DOD policy change that increased the dollar threshold at which DCAA will conduct certain audits is another potential risk. As a result, DCMA s own pricing workload will increase. Proprietary and Confidential 22

23 DCMA Progress or Status Quo? CBAR CBAR (Contractor Business Analysis Repository) versions 1.2, 1.5 and 1.6 rolled out. A secure system to share information between DOD procurement and DCMA. Information about each and every government contractor. Supports price negotiations and awards. Refining to be done in stay tuned. Proprietary and Confidential 23

24 DCMA CBAR Demo Database Proprietary and Confidential 24

25 DCMA CBAR Proprietary and Confidential 25

26 DCMA Progress or Status Quo? training DAU / CCM In partnership with the DCMA the Defense Acquisition University (DAU) developed the CCM (College of Contract Management). Developing standardized criteria and certification for procurement personnel. Intern program keystone went from 50 participants to 700! Heavy Recruiting and social networking. Proprietary and Confidential 26

27 DCMA Progress Seems REAL Strategic Plan ; Outline for Lean Six Sigma implemented in May Forward Pricing Rate Agreements/ Recs increased by 200% from 2010 to Fine tuned EVM and released a new EVM instructions and Program Analysis Pamphlet. Established a Business Systems Review Panel to ensure Agency wide application to be consistent. Proprietary and Confidential 27

28 DCMA in 2013 Focus Become an Employer of Choice Strengthening the Workforce Financial Improvement and Audit Readiness Integrated Workflow Management System Proprietary and Confidential 28

29 JUST LIKE IN THE MOVIE DIEHARD. I GIVE YOU THE FBI OOPS I MEAN THE INSPECTOR GENERAL Proprietary and Confidential 29

30 DOD IG Report 11/13/2012 Actions to Align DCMA and DCAA functions An evaluation of the DOD actions to increase the dollar thresholds a contractor proposal must meet before the DCMA can request a proposal audit from the DCAA. Proprietary and Confidential 30

31 Remember this? Proprietary and Confidential 31

32 DOD IG Findings The office of Defense Procurement and Acquisition Policy (DPAP) did not perform a business case analysis to support the DFARS change to raise the threshold. As a result, this decision will cost taxpayers $249 million. DCMA is not prepared to perform contract cost analysis in place of the DCAA. The DPAP did not demonstrate why they chose to direct taxpayer resources to the DCMA to perform a job they were not prepared to perform. DCMA Pricing and Negotiation etool system is unreliable. Proprietary and Confidential 32

33 Proprietary and Confidential 33

34 Hmmm? DOD IG findings relative to proposal audit thresholds Did not perform a business case analysis to support the DFARS change to raise the threshold. DCMA is not prepared to perform contract cost analysis in place of the DCAA. The DPAP did not demonstrate why they chose to direct taxpayer resources to the DCMA to perform a job they were not prepared to perform. Proprietary and Confidential 34

35 DOD IG Report 3/7/2013 Monitoring of the Quality of the Defense Contract Audit Agency FY 2010 Audits Focus on FY 2010 audits. Report delayed due to a shift in primary oversight of DCAA to reviewing Defense Hotline Complaints. Found that the DCAA did not exercise professional judgment in performing 37 (74%) of the 50 FY 2010 assignments reviewed. Proprietary and Confidential 35

36 DOD IG Report Monitoring of the Quality of the Defense Contract Audit Agency FY 2010 Audits Proprietary and Confidential 36

37 DOD IG Report Monitoring of the Quality of the Defense Contract Audit Agency FY 2010 Audits Significant quality issues identified included external impairments to independence, inadequate planning, poor communications with the requester and contractor, insufficient evidence, unsupported or untimely reports, poor documentation, and ineffective supervision and quality control. DCAA came back with beefier IR processes, supervisor training, communication training, revised audit programs and enhanced statistical sampling. Proprietary and Confidential 37

38 DOD IG APO 2012/2013 Focus Deputy Inspector General for Audit Policy and Oversight APO monitored the Defense Contract Audit Agency (DCAA) on the quality of audit work, completed review on 22 DCAA related Hotline complaints, and started reviews on 14 other DoD Hotline complaints concerning DCAA audit operations. In FY 2012 through 2013, APO will focus on oversight reviews of DCAA high risk areas and monitor, review, and report on DCAA audit compliance with the Generally Accepted Government Auditing Standards (GAGAS). Proprietary and Confidential 38

39 DOD IG Proprietary and Confidential 39

40 Proprietary and Confidential 40

41 GAO Report DOD Initiative to Address Audit Backlog Shows Promise, but Additional Management Attention Needed to Close Aging Contracts December DCAA s risk based initiative aimed to decrease the number of audits conducted (and backlog) by: Raising the threshold for ICP s to qualify for automatic audit. Revise criteria for low risk proposals. Lower the percentage of low risk proposals randomly selected for audit. Eliminate further review of proposals not selected for audit but enhance adequacy review. Proprietary and Confidential 41

42 GAO Findings DCAA has not determined how to assess whether the revised criteria for determining risk level are appropriate or should be adjusted in the future. The DCMA collects data through MOCAS on overage contracts but it is missing key information. DCMA could not tell if the contracts were waiting on an ICP submission, Incurred Cost Audit or final rate negotiation. No one knew who was responsible for moving the closeout forward. The DCMA is not taking advantage of the quick closeout afforded to them, especially under the class deviation. (contractors not having timely submissions was prohibitive). Proprietary and Confidential 42

43 GAO Findings, Cont. By 2016 DCAA estimates it will be current on outstanding audits (meaning 2 fiscal years unaudited.) Ability to achieve this goal depends largely on the amount of proposals determined to be high risk. Currently, high risk proposals are 2.5 times what was originally anticipated. Proprietary and Confidential 43

44 Top Audit Types (2011 & 2012) Clarity Survey Percent of Respondents by Firm Size Revenue <$20M $ M $100M+ 20% 9% 24% 24% 12% 24% DCMA DFAR 2% 14% 18% 37% 4% 12% 12% 24% 13% 17% 2% 32% Other ICS CAS Pre Award Proprietary and Confidential 44

45 GAO, Other Backlog The Army has a goal to close 475,000 contracts by September However, it has no information yet to know if the goal is attainable, nor do they have an implementation plan. Air Force and Navy have no performance metrics related to contract closeout. DCMA has two performance metrics for closeout. Proprietary and Confidential 45

46 DCMA Performance Metrics Contract Closeout Timeliness Performance Standard: Close 90% of contracts within the FAR time standards. Date Performance Standard is to be Achieved: > End of Fiscal Year (FY). Contract Closeout: Number of Overage Contracts Performance Standard: Reduce number of contracts past overage date at a 10% annual rate. Date Performance Standard is to be Achieved: > End of Fiscal Year (FY). Proprietary and Confidential 46

47 Why is closeout important? Risks to the Government. An agency can use funds for up to 5 years after they expire to pay for authorized increases to existing obligations made from the same appropriation, after which funds are cancelled and returned to Treasury. If after that point, it is found a contractor must be paid, the government must use other funds currently available. Statute of limitations could result in unrecoverable overpayments. Proprietary and Confidential 47

48 GAO High Risk List DOD Contract Mgmt & DOD Financial Mgmt remain on the 2013 high risk list. NEW HIGH RISK AREAS This year, GAO has added two areas. Limiting the Federal Government's Fiscal Exposure by Better Managing Climate Change Risks. Climate change creates significant financial risks for the federal government, which owns extensive infrastructure, such as defense installations; insures property through the National Flood Insurance Program; and provides emergency aid in response to natural disasters. The federal government is not well positioned to address the fiscal exposure presented by climate change, and needs a government wide strategic approach with strong leadership to manage related risks. Mitigating Gaps in Weather Satellite Data. Potential gaps in environmental satellite data beginning as early as 2014 and lasting as long as 53 months have led to concerns that future weather forecasts and warnings including warnings of extreme events such as hurricanes, storm surges, and floods will be less accurate and timely. A number of decisions are needed to ensure contingency and continuity plans can be implemented effectively. Proprietary and Confidential 48

49 News Flash DCAA reported that as a result of the GAO s findings, the DCAA is now required to do more testing and have stricter compliance with government auditing standards. These result in increased staff time to complete each audit. Proprietary and Confidential 49

50 A Note on Sequestration The DCMA and the DCAA will have effects related to: Hiring Furloughs Travel Resulting in longer procurement cycles and incurred cost audit timeframes. Proprietary and Confidential 50

51 Chuck s state of the agency closing statement As we leave the fiscal year, we confront the still unknown implications of budget sequestration. The effects of this situation may create an even more challenging operating environment for us next year. DCMA will meet future challenges and continue working with customers and industry partners to guarantee only superior products are delivered to our nation s warfighters, while maintaining the best value for the American taxpayer. Proprietary and Confidential 51

52 Let s Vote Progress or Status Quo? Proprietary and Confidential 52

53 Happy Summer! See you for Season 5 in September. Proprietary and Confidential 53

54 Contact Us Christine Williamson, CPA, Member Kristen Soles, CPA, Member Proprietary and Confidential 54