NCMA MEETING 1 PREPARING FOR A DCAA PRICE PROPOSAL AUDIT JUNE 8, 2011 Denise M. Hunt DCAA LM Mt. Laurel Resident Office Forward Pricing Technical Specialist
DCAA OVERVIEW AND PRICE PROPOSAL AUDIT PROCESS A. History of Agency B. Organizational Structure C. DCAA Website D. DCAA Audit Process E. Questions 2
DCAA HISTORY Military Contract Auditing in existence for 70 years. Initially each branch of military had its own audit group and rules and guidelines. 1939 Navy and Army Air Corp Perform Joint Audits 1942 Navy, Army Air Corps and Ordnance Department establish audit coordination committees June 1952 the Contract Audit Manual was issued by the Navy Army Air Corps and Ordnance Department May 1962 Secretary Department of Defense established a study which resulted in the decision to establish a single contract audit capability. 3
DCAA HISTORY Defense Contract Audit Agency y( (DCAA) formed on January 8, 1965 4 William B. Petty named Director, formerly Deputy Comptroller of the Air Force Edward T. Cook named Deputy Director, formerly Director of Contract Audit for the Navy.
Auditors 4,114 DCAA HISTORY 5 Staff - As of December 6, 2010 Other Professionals 191 Professional Support 472 Total 4,777 CPAs 1,127 Professional Qualifications College Graduates 4,332 Advanced Degrees 1,292
DCAA ORGANIZATION Headquarters, Fort Belvoir, VA 5 Regional Offices: Central Region, Irving, TX Eastern Region, Smyrna, GA Mid-Atlantic, Philadelphia, PA Northeastern, Lowell, MA Western, La Mirada, CA Field Detachment, Chantilly, VA DCAA Liaison Offices 6
DCAA Organization 7
DCAA MISSION 8 What Does DCAA Do? DCAA Mission Per DoD Directive 5105.36 dated January 4, 2010 The DCAA, while serving the public interest as its primary customer, shall perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services regarding g contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services shall be provided in connection with negotiation, administration, and settlement of contracts and subcontracts to ensure taxpayer dollars are spent on fair and reasonable contract prices. DCAA shall provide contract audit services to other Federal agencies, as appropriate.
DCAA AUDIT SERVICES Preaward Contract Audit Services Price Proposals Preaward Surveys Forward Pricing i Labor and Overhead Rates Postaward Contract Audit Services Incurred Costs/Annual Overhead Rates Truth in Negotiation Act Compliance Cost Accounting Standards (CAS) Compliance and Adequacy Claims 9
DCAA AUDIT SERVICES Contractor Business System Audits Accounting Estimating Electronic Data Processing (EDP) Billing Material Management Negotiation Assistance Factfinding and analysis of contractor information after audit Procurement liaison assistance 10
DCAA Website www.dcaa.mil/ DCAA WEBSITE 11 Types of Information found on the Website: DCAA Office Locator Audit Guidance Standard Audit Programs Contract Audit Manual (CAM) Forward Pricing Adequacy Checklist Information for Contractors
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INFORMATION FOR CONTRACTORS GUIDEBOOK Information for Contractors Chapter 1- Intro to DCAA Chapter 2 Preaward Surveys of Prospective Contractor Chapter 3 Pi Price Proposals Chapter 4 Cost Accounting Standards Chapter 5 - Contract Financing and Interim Chapter 6 - Incurred Cost Proposals Chapter 7 Contract Types Chapter 8 Forms Appendix A Acronyms and Abbreviations Appendix B Far Subpart 4.7 13
SOURCES OF INFORMATION AVAILABLE TO THE CONTRACTOR Information for Contractors Chapter 3p provides Guidance for Contractors in Completing a Proposal and identifies the criteria in FAR 15.408, Table 15-2 Instructions ti for Submitting Cost/Price Proposals When Cost or Pricing Data are Required 14
15 DCAA Contract Audit Manual (CAM) Chapter 9-000 Audit of Cost Estimates and Price Proposals Evaluating Adequacy of Cost or Pricing Data as well as Information Other than Cost or Pricing Data Evaluating Direct Labor, Direct Material, ODC, Indirect Cost Estimates
16 Forward Pricing Audit Programs Audit Program for Price Proposals V 1.3 dated May 2011 Audit Program for Cost Element Review V 1.2 dated May 2011 Audit Program for Audit of Forward Pricing Rate Agreement V 4.12 dated August 2010
17 Open Guidance 10-PAS-035 Effective December 15, 2010 Provide Contractor Notification Letters during the planning phase of the audit 10-PSP-030(R) Effective September 17, 2010 Provides the Increased Thresholds for Price Proposal Audits FFP > $10M Cost-type > $100M Thresholds do not apply to assist audit requests nor do they apply to the requirement for cost or pricing data threshold of $700,000
18 10-PSP-021(R) Dated August 24, 2010 Audit Alert on Budgetary Data Supporting Forward Pricing Rates Far Part 15 requires contractors to indicate how indirect rates were computed and applied and include trends and budgetary data with explanations to support reasonableness of rates First Year: detailed management approved budget Subsequent Years: Adjustments to operating budget based on strategic or long-range forecasts
19 10-PSP-018(R) Dated June 4, 2010 Audit Alert On Reporting Forward Pricing Rates in Pricing Proposals Provided guidance on reporting on forward pricing rates in price proposals when DCAA has not completed the audit of indirect rates at time of report issuance. In order to meet GAGAS requirements DCAA will disclaim an opinion on the proposal taken as a whole in those situations ti where DCAA has not completed their examination of the forward pricing rates. DCAA may provide unaudited rate data to contracting officers if information is provided in a separate MEMORANDUM and clearly identifies that the rate data being provided has not been audited and states that the work performed does not constitute an audit or attestation engagement under GAGAS.
20 10-PSP-009(R) March 2, 2010 Guidance on Inter-Organization Transfers in Forward Pricing Rate Proposals FAR 15.408, Table 15-2 requires all work performed by the prime contractor, including any inter-organization work, be included in the prime contractor s own cost or pricing data and submitted to the Government. Therefore, inter-organizational transfers should be considered d the same as the prime contractor s t own cost or pricing i data. Therefore, requirement for conducting cost or price analysis of proposed subcontractor costs does not apply to inter-organization transfers based on price or cost. However, DCAA may require audit assistance from the auditor cognizant of the inter-organizational location in order to evaluate the reasonableness of the proposed inter-organization price.
21 09-PSP-011(R) Dated June 30, 2009 Audit Guidance on Performing Audits of Subcontract Forward Pricing Proposals The prime contract auditor should report proposed subcontract costs as unsupported when the prime contractor has not completed its price or cost analysis of the subcontract proposal, regardless of whether an assist audit is being performed. Audits of subcontractor proposals can be performed when requested by the contracting officer or prime contract auditor prior to submission of the prime contractor s signed proposal or subcontract analyses provided all of the following are met: 1. Subcontractor Proposal has been approved by subcontractor management 2. Prime Contractor has submitted subcontractor s proposal to the government with assertion from prime contractor management of intent to contract with this subcontractor 3. Subcontractor s Proposal is adequate based on FAR 15.4 4. Contracting officer or prime contract auditor request assist audit and informed subcontract auditor that the subcontract audit support is required in accordance with on DFARS PGI 215.404-3a(i).
Prime Contractor s Responsibilities 22 Performing audits of subcontract t proposals, either before or after the completion of the prime contractor s proposal, does not relieve the prime contractor of its responsibilities under FAR. FAR 15.404-3(b), Subcontractor pricing considerations, requires the prime contractor or higher-tier contractor to conduct appropriate cost or price analysis to establish the reasonableness of proposed subcontract prices and include the results of these analyses in the prime contractor s proposal. The prime contractor is also responsible for ensuring that the subcontractor s forward pricing proposal is adequate to support the prime contractor s price or cost analysis as well as any necessary examination by the contracting officer and DCAA.
Prime Contract Auditor s Responsibilities 23 Determine if prime contractor has completed cost or price analysis of subcontracts. Review adequacy of prime contractor t analysis. If analysis is not complete, determine completion schedule. Identify subcontracts for which prime has not completed analysis and report subcontract costs as unsupported. Assess need for assist audit and request assist audit, if necessary. Incorporate results of assist audit report.
Forward Pricing Adequacy Checklist Cit Criteria i for Adequate Contract t Pricing Pii Proposals General Requirements Materials and Services InterOrganizational Transfers Direct Labor Indirect Costs Other Costs Royalties and Licenses Cost of Money Change Orders, Modifications and Claims Price Revision/Redetermination 24
Based on these references determine adequacy of the proposal. 25 1. Adequate = Proposal Audit is performed 2. Inadequate = Letter stating proposal is inadequate and why is prepared and addressed to the PCO/ACO
26 Example of an Inadequate Proposal Letter
27 QUESTIONS? CONTACT INFORMATION Denise M. Hunt Forward Pricing Technical Specialist DCAA LM Mount Laurel Resident Office Moorestown Suboffice Phone No. 856-722-2083 E-mail: denise.hunt@dcaa.mil