Maryland Association of Certified Public Accountants Government Contracting Conference. Defense Contract Audit Agency Current Initiatives

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1 Maryland Association of Certified Public Accountants Government Contracting Conference Defense Contract Audit Agency Current Initiatives The views expressed in this presentation are DCAA's views and not necessarily the views of other DoD organizations Page 1 One Agency One Mission Presentation Overview Organization and Staffing Incurred Cost Strategy and Progress Compensation Outreach to Small Business Page 2 1

2 DCAA Organization Internal Review Angela Janysek Director Anita Bales Deputy Director Vacant Executive Officer Joe Garcia 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 Martha McKune Eastern Region Dave Johnson Mark Richards Northeastern Region Ron Meldonian Vacant Mid-Atlantic Region Ken Saccoccia Chris Andrezze Western Region Donald Mullinax Steve Hernandez Field Detachment Karen Cash Terry Schneider Page 3 Regional Boundaries Afghanistan Br European Br Iraq BO R R R Pacific Br R R No. of Field Audit Offices Eastern Northeastern Central Mid-Atlantic Western 24 FD 15 R = Regional Office Page 4 2

3 5,400 Agency End Strength and Workyears 5,200 5,160 5,115 5,000 4,800 4,725 4,851 4,712 4,938 4,907 4,891 4,824 4,600 4,471 4,400 4,200 4,179 4,057 4,328 4,126 4, End Strength Workyears Estimate Page 5 $4.5 Annual Net Savings in Billions $4.2 $4.4 $4.0 $3.5 $3.5 $3.0 $2.9 $2.5 $2.5 $2.0 $1.5 $1.0 $0.5 $ Represents more than a 75 % growth in Net Savings over the average Page 6 3

4 $8.00 DCAA Return on Investment $7.50 $7.30 $7.00 $7.00 $6.70 $6.50 $6.20 $6.00 $5.80 $5.50 $5.00 $5.40 $5.00 $5.20 $5.30 $5.10 $5.10 $4.50 $ Page 7 Incurred Cost Strategy 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 (the subject of a recent GAO review). Eliminating the Incurred Cost Backlog is an initiative under DoD s Better Buying Power 2.0. The Agency s plan is to eliminate the current backlog by FY 2014 and be completely current by FY Page 8 4

5 10,000 9,000 DCAA is Making Progress Completed Incurred Cost Years By Fiscal Year 9,580 8,636 8,000 7,000 6,000 5,000 4,000 4,088 3,000 2,000 1, FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Thru August Page 9 Status of Current Backlog Current backlog defined as all years 2009 and before. Original base line at the end of FY ,352. Since the end of FY 2011 more than 1,600 additional submissions have come in (all more than 2 years late). New backlog baseline is more than 21,000 incurred cost years. DCAA has completed more than 16,000 or 76% of the backlog years. Page 10 5

6 Incurred Cost Looking to the Future DCAA has put in place the policies, training and infrastructure to effectively address the incurred cost backlog. DCAA is on track to complete nearly 11,000 incurred cost years in FY The Agency receives about 4,500 incurred cost submissions each year. The Agency is currently completing over 2 years worth of incurred cost inventory every year. The Agency has relatively few Statute of Limitation issues and these problems will decrease each year. Page 11 Compensation Recent Legislation that Impact Compensation: 2012 NDAA Act Includes any Contractor Employee (not just executives) NDAA Required a report on the effect of reducing allowable contractor compensation Bipartisan Budget Act (BBA) Established $487,000 compensation limit. Page 12 6

7 2012 NDAA Legislative Impact on Compensation 2012 NDAA Act amended section 2324 of Title 10 to include any contractor employee. Applies only to DoD, NASA, & Coast Guard contracts (Title 10). Cap will apply to all costs incurred after Jan. 1, Source of data remains top five from benchmark corporations. Data based on proxy information required to be filed with the SEC. Page NDAA Legislative Impact on Compensation Requires a report on the effect of reducing the allowable costs of contractor compensation of employees to the amount payable to the President under section 102 of title 3, United States Code, or to the amount payable to the Vice President under section 104 of such title. No actual change to Limitations at this time: Source of data remains top five from benchmark corporations. Data based on proxy information required to be filed with the SEC. NDAA based on language/concepts in Senate Bill to amend Title 10, U.S.C. Page 14 7

8 2013 BIPARTISAN BUDGET ACT (BBA) Section 702 Compensation Limitation Changes Established $487,000 Compensation Limitation: Applies to All Contracts (Defense and Civilian). Effective on contracts awarded on or after 6/24/14. Agency Head allowed to grant exceptions for narrowly targeted categories (i.e. scientists, engineers). Annual escalation based on Employment Cost Index (ECI). Repeals DCAA s annual requirement to provide recommendation on limitation amount. Issued as an interim rule in Fed. Reg. on 6/24/2014. Recognizes potential for multiple rates. Page 15 BBA Impact to Audits (Claimed Costs) The cap for 2012 and 2013 will still be calculated based on recommendation from DCAA. The new cap of $487,000 will take effect for all contracts signed on or after June 24, Incurred Cost For 2014 and beyond. Auditors will have to ensure the contractor appropriately applies the compensation cap based on effective contract dates. Forward Pricing MRD 14 PPR 004(R) dated 4/7/14. Any forward pricing audits that are ongoing now should use the new $487,000 cap in determining compensation (unless they are aware the contract will be signed before the June 24, 2014 date). Additional guidance will be issued after Final Rule published and we receive guidance from OFPP. Page 16 8

9 2013 BIPARTISAN BUDGET ACT (BBA) Implementation Mr. Shay Assad, Director, Defense Procurement and Acquisition Policy and Strategic Sourcing (DPAP) currently reviewing implementation. Cutoff for public comments was 8/25/14. Several industry sources have proposed various implementation methods. Page 17 DCAA Outreach to Small Business DCAA established a Small Business focal point. DCAA is speaking at Small Business forums across the country and briefing on audit expectations. Reworked the Information for Contractors manual available on our public web site. Working with the DoD s Office of Small Business Programs to develop seminars specifically designed for small businesses. Examples include: Compliant accounting systems. What to expect in a labor floorcheck. How to put together an acceptable incurred cost submission. Page 18 9

10 Small Business Committee DCAA is working with a subcommittee established by NDIA to address DCAA issues. DCAA has held several meetings with the subcommittee. The meetings have been very productive and have resulted in changes to Agency policies and procedures related to small businesses. For example, DCAA recently issued revised guidance related to consultant costs. We are also working with the subcommittee in revising our guidance on patent costs. Page 19 Defense Contract Audit Agency Additional information on DCAA and Points of Contact available at Page 20 10