UPDATES AND INITIATIVES OF THE DCMA & DCAA - Presented by: Kristen Soles, CPA, Partner Christine Williamson, CPA, PMP, Partner
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UPDATES AND INITIATIVES OF THE DCMA & DCAA Presented by: Kristen Soles, CPA, Partner Christine Williamson, CPA, PMP, Partner October 6, 2021 CohnReznick LLP
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2
REPORTS REFERENCED IN PRESENTATION
• Federal Registers • DCAA & DCMA FY22 President’s
Budget - March 2021
• DCAA Report to Congress – March 2021
• GAUGE Reports
• IG reports:
• Executive Orders
• 2/6/21 - Evaluation of DCMA actions on
DCAA report findings #DODIG-2021-056 • DCMA & DCAA websites/articles
• 3/5/21 - Peer Review of DCAA #DODIG- • NDAA updates
2021-059
3
AGENDA
• State of the Agencies – DCAA/DCMA
• FY22 Budget and NDAA Progress
• Audit Concerns over the CARES Act 3610 and Loan Forgiveness
• Business System Updates
• Recent Reports to Congress
• Reports from the GAO and Others
• Impact of Executive Orders
• Cybersecurity & Infrastructure Update
• Reminders
4
WHO’S DCMA AND DCAA?
Christine Williamson, CPA, PMP (DCMA)
Senior Partner, Government Contracting Practice Advisory Leader
Kristen Soles, CPA (DCAA)
Managing Partner, Global Solutions &
Government Contracting Industry Practice
5
STATE OF THE AGENCIES – DCMA/DCAA
DCMA AND DCAA DIRECTORS
Lt. General David Bassett Anita Bales
7
DCMA AND DCAA BY THE NUMBERS
Date as of 1/2021 Date as of 3/31/2021
Civilians 10,994 Auditors 3,843
Number of Military (4.5%) 564 Support Staff 524
Total 12,556 Total 4,367
Corporate Operation Directorates 3 Corporate Operation Directorates 4
Contract Management Offices 47 CPAs 917 (21%)
Serviced Contractor Locations 13,631 Other Professional Certifications 1,524
Number of Active Contracts 257,803 Advanced Degrees 2,250
DCAA - CADS 1) Massachusetts (Raytheon, General Dynamics, BAE) 2) Virginia
(Northrop Grumman) 3) Missouri (Boeing, Honeywell), 4) Texas (Lockheed Martin)
8
DCAA AND DCMA PRESIDENT’S BUDGET 2020 – 2022 ($ IN THOUSANDS) 9
DCAA AND DCMA PRESIDENT’S BUDGET 2020 – 2022 CYBER! ($ IN THOUSANDS) 10
DCMA STRUGGLES/SUCCESSES • Bassett took over during the pandemic (June 2020) • Tracked # of closures, partial closures, average time to reopen, and other stats during COVID-19 • Essential to DIBs – DCMA deemed critical to workforce • Lewis (previous director) quoted “if you’re open, we’re open” • CBAR System – moving to new system • No spike in retirements or departures - 10% per year - however can’t replace • 4 findings in IG report • Focus on high risk/high priority programs (strategic goal) • Included in the DOD consolidated audit (DCAA is not) – remediate material weaknesses (property is one big one) 11
DCAA STRUGGLES / SUCCESSES • COVID Auditing • Peer Review • Hiring Stagnant / Increasing Cost of Labor • By the numbers: 12
DCAA SUCCESSES 13
DCAA REPORT TO CONGRESS HIGHLIGHTS
AUDITS COMPLETED 15
AUDITS COMPLETED – METHODS CLOSED 16
INCURRED COST AVERAGE DAYS TO COMPLETE 17
BACKLOG! 18
COST QUESTIONED SUSTAINED 19
COST QUESTIONED SUSTAINED 20
IR&D AND B&P
Treatment of Incurred Independent Research and Development Costs (DFARS Case 2017-D018)
DoD is proposing to amend the DFARS to implement section 824 of the NDAA for FY 2017. Section 824 amends 10 U.S.C. 2372 to
require that regulations may not infringe on the independence of a contractor to choose which technologies to pursue in its
independent research and development (IR&D) program if the chief executive officer of the contractor determines that IR&D
expenditures will advance the needs of DoD for future technology and advanced capability. Section 824 removes from 10 U.S.C.
2372 the list that limits the allowability of IR&D costs to seven activities of potential interest to DoD. In addition, section 824
decouples IR&D and bid and proposal (B&P) costs by moving the language pertaining to B&P costs out of 10 U.S.C. 2372 and
placing it in the new 10 U.S.C. 2372a. Consequently, this proposed rule separates DFARS coverage of B&P costs from coverage of
IR&D costs. Finally, section 824 amends 10 U.S.C. 2313a by adding a requirement for the Defense Contract Audit
Agency to submit an annual report to Congress of all incurred IR&D and B&P costs of contractors in the prior Government fiscal
year. This proposed rule requires contractors to submit information to support this reporting requirement.
212020 RESULTS TO CONGRESS
• CSP (Contractor Submission Portal) for ICE submissions. Phase 1 complete
(60 contractors participating)
• Future phase vision:
• DCAA is continuing to develop the CSP using an iterative approach. Future
phases include integration with DCMA for a single point of entry to the
Government and converting the ICE model to a web-based input form built into
the CSP itself thereby allowing for real time error checking and validation
routines. We envision “wizard-driven” screens, built-in data checks between
schedules, and simultaneous submission to both DCAA and DCMA.
22DCAA – RESULTS & INITATIVES
NEW MRDS 24
STRATEGIC PLAN FOCUS (21-25) • Better Serve the Department by Strengthening Strategic Alliance • Align our Products and Services to be Flexible and Responsive to Customer Needs • Recruit, Cultivate, and Retain a Highly Skilled, Flexible, and Empowered Workforce 25
DCAA PEER REVIEW • Received a rating of pass with deficiencies • Deficiency 1, The DCAA auditors for 19 audits (32%) did not obtain sufficient, appropriate evidence to support their opinion. • Deficiency 2, The DCAA auditors for 17 audits (28%) did not comply with planning standards. • Deficiency 3, The DCAA auditors for 14 audits (23%) did not comply with reporting standards. • Deficiency 4, The DCAA auditors for 14 audits (23%) did not prepare audit documentation in sufficient detail. 26
DCAA PEER REVIEW • Deficiency 5, The DCAA auditors for 7 audits (12%) did not obtain perform reviews that complied with standards. • Deficiency 6, The DCAA auditors for 6 audits (10%) did not exercise professional judgment. 27
DCMA PRIORITIES, INITIATIVES & CBAR UPDATES
DCMA ORGANIZATION CHART
Leadership changes:
• Airforce in 2023?
ARMY
• Army – 2020 thru 2023
3-year tour if enlisted
• Navy – 2017 thru 2020
• Airforce – 2014 thru 2017 ARMY
NAVY AIRFORCE
29DEFENSE ACQUISITION COMMUNITY 30
ROI COMPARISON OF 2018 TO 2020
DCMA budget compared to savings
2020 2019 2018
Savings to Govt $2.9B $2.8B $4.83B
Budget $1.48B $1.44B $1.37B
ROI 2.1 : 1 2:1 3.5 : 1
Cost Recovered $591M $639M $1.68B
Cost Saved $29.8M $37M $353M
Cost Avoided $2.3B $2B 2.81 B
Recovered - litigation, CAS, Fraud, ICS settlements, and property claims
Saved - Contract terminations
Avoided - Commercial pricing, property & Plant clearance, and surge support efforts
31DCMA = THE NATION’S WARFIGHTER PRODUCT DELIVERY ORGANIZATION
32DCMA 5 GOALS FY19-22 ALL EMPLOYEES RESPONSIBLE 33
FY22 BUDGET PRIORITIES
• Key items in budget
̶ $1.2B in salaries
̶ Contract Closeout support $12.9M
• Spending more on high risk/high reward
̶ Control contractor indirect cost – examine FPR, resolve claims/disputes and make final
determinations on CAS
̶ Ensure business systems compliance
̶ Influence negotiations with commercial item determinations and contract cost and pricing
̶ Return workload on service contracts back to other Defense Agencies – help to pay for
facilities and IT needs
34IG REPORT ON DCMA COMPLYING WITH DCAA REPORTS
• 30 DCAA audit reports sampled out of 222*
• 14 reports had FAR noncompliances
̶ 8 instances of Inadequate documentation or explanation for disagreeing and
not upholding DCAA findings of $97M in questioned cost
̶ 6 instances of untimely notification of CAS noncompliance (15 days)
Factors that contributed to the noncompliances
̶ Lack of legal review
̶ Ineffective supervisory oversight
̶ Inadequate contract file documentation
* Two of the largest DOD contractors audit reports were settled inappropriately from 2016.
Will be reopened and contractors notified.
35BUSINESS SYSTEM RESPONSIBILITIES – DCMA & DCAA 36
DCMA CBAR UPDATE • CBAR (Contractor Business Analysis Repository) • CBAR eTool System - A secure system to share information between DOD procurement and DCMA – will be migrated to PIEE (Procurement Integrated Enterprise Environment) in next 45-60 days (been in operation since 2014) • Information about DOD contractors • Supports price negotiations and awards • Ask for your CBAR results and often • Accounting, Property and Purchasing are the top 3 reviewed (in DMV area replace Property with Estimating as top 3) 37
BUSINESS SYSTEMS DISAPPROVALS • PCO should insert the clause or delegate authority to do so (if missing) – DCMA Manual 2031-01 • Significant deficiency - a shortcoming that materially affects the DOD to rely upon the information produced by the system • DCMA HQ CBS REVIEW PANEL – – Meet to review the disapproval before the contractor is notified in writing – 374 disapprovals since September 2011 – Final determination 30 days after contractors reply – Corrective Action Plan – Provide withhold instructions 38 Data Source: CBAR eTool, as of August 31, 2021
APPROVAL STATUS– WHAT IS THIS SAYING?
Data Source: CBAR eTool, as of August 31, 2021
39WHAT BUSINESS SYSTEM IS MOST COSTLY?
Data Source: CBAR eTool, as of August 31, 2021
40BUSINESS SYSTEMS UPDATE – YEAR OVER YEAR –
AND WHY THEY ARE IMPORTANT
Data Source: CBAR eTool, as of August 31, 2021
Data Source: GAUGE 2021
41DCMA WAVE CHART
Contract Closeouts
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-20
Number of Overage
18,582 14,271 9,435 6,227 7,624 10,253 13,656 17,396 22,008 28,594 38,856 55,988 65,257 71,653 69,580 63,446 59,921 48,641 37,456
Contracts
42BAD TO THE BONE! 43
INFRASTRUCTURE & BUILD BACK BETTER SPENDING, EXECUTIVE ORDERS AND CMMC
WHAT'S THE DEAL? WHAT'S THE #? WHAT'S THE DATE?
Two bills into one initiative…
Social Spending Plan - $1.5T, $1.9T, Infrastructure Spending Plan - $1.2T
$2.2Tor $3.5T? ̶ Roads and bridges: $110 billion
̶ How much is the right #? ̶ Railroads: $66 billion
̶ Reshaping Medicare and Medicaid ̶ Power grid: $65 billion
̶ Corp taxes ̶ Broadband: $65 billion
̶ Climate change ̶ Water (especially pipes): $55 billion
̶ Immigration ̶ ‘Resilience’: $47 billion
̶ Education – early childhood, community ̶ Public transit: $39 billion
colleges, etc. ̶ Airports: $25 billion
̶ Remediation: $21 billion
̶ Ports: $17 billion
̶ Safety: $11 billion
̶ Western water infrastructure: $8 billion
45EXECUTIVE ORDERS 63 orders since taking office - unprecedented • 2021-02038 - Made in America 1/28/2021 – procure goods/services from American co • 2021-09263 – Minimum Wage for Federal contractors – increase to $15/hr. beginning 1/30/2022 • 2021-10139 – Climate Control Support office – establish the office • 2021-10460 – Improve Nations Cybersecurity – standardizing and improving response to vulnerabilities and incidents • 2021-14127 – DE&I and accessibility in the Federal Workforce • 2021-19927 – COVID-19 Vaccination protocols for Federal employee 46
CMMC TIMELINE
• Cybersecurity Maturity Model Certification (CMMC) framework was released in January 2020.
• The CMMC ecosystem is comprised of many professionals including training publishers,
training providers, registered practitioners, and certified assessors.
• The CMMC program is currently under review by the DoD and the results of the review will be
released end of 2021.
• Starting late 2021/early 2022, industry should begin to see the CMMC requirements as part of
Requests for Information (RFIs) and Request for Proposals (RFPs).
January 2020-2021 Oct 20212 Late 2021/Early 2025
2020 2022
Finalization CMMC
training and All RFI’s and
Completion Initiation of CMMC Initial inclusion of CMMC
assessment RFPs will have
of CMMC training for third-party requirements in RFIs
guidelines the CMMC
Model v1.0 assessment and RFPs
requirements
organizations (C3PAOs)
47
2020-2022 2025COVID-19 IMPACTS
WHAT HAVE WE LEARNED FROM THE PANDEMIC
• CARES ACT
• PPP loan and forgiveness
• 3610
• Remote working is almost 100% possible
• FFCRA, Employees Retention Credit, Deferral of SS Tax
• Vaccine Protocols
• State affects of PPP and employees moving
Data Source: GAUGE 2021
49HOW WILL CREDITS BE APPLIED TO CONTRACTS
OR INDIRECT RATES?
FFCRA (Medical/Sick) &
3610 – reduce the amount you
Employee Retention Credit PPP – if forgiven….what benefit
apply for by PPP, ERC and
(ERC) – thru your 941 within the does the govt get and how:
FFCRA
fringe accounts you’ve set up
• Separate account #’s to • Lowest bill rate of LCAT level • thru billings?
identify credits • No fee • thru indirect rates?
• ERC extended thru 2021 • Audits are starting now • thru final bills?
• 2021 much larger $$ and • Extended thru 2021 • thru a special audit?
more favorable for companies • No benefit, no credit, not
to comply sure…..
• PPP2 in 2021
• Have you filed for
forgiveness?
50FAR RULES PENDING AND ESG RFI
FAR RULES PENDING • 86 FR 40980 Amendments to the FAR Buy American Act Requirements • 48 CFR Parts 19, 42, and 52 Federal Acquisition Regulation: Good Faith in Small Business Subcontracting • 48 CFR Parts 19 and 52 Federal Acquisition Regulation: Revision of Limitations on Subcontracting • Executive Order on Ensuring Adequate COVID Safety Protocols for Federal Contractors • Phasing out DUNS and implementing Unique Entity ID (UEI) 52
ESG RFI
• 7/8/21 DOD published an RFI soliciting input on sustainability initiatives and climate-related
disclosures.
̶ Voluntary efforts in measuring and reporting on ESG and Supply Chain
• Crowell Moring Alert nicely tied in:
̶ Section 103 of E.O. 14008 which noted Biden administrations treatment of climate change
as a national security risk
̶ E.O. 14030 directs the FAR Council to consult with the Council on Environmental Quality
to consider requiring major federal contractors disclose GHG emissions, incorporate into
procurement decisions giving preference to suppliers with lower GHG
53REMINDERS
SOMETHING OLD, NEW, & BORROWED
• Review Business System Policies and
CBAR (OLD)
̶ Use the business system checklist
(resource found on ON24)
• Use the 2021 GAUGE for budgeting and
proposal success (NEW)
̶ Compare your indirect rates and FTEs
̶ Maybe it’s time to reengineer your
indirect rates?
• Update Training – use good examples from
websites (BORROWED)
̶ Unallowables
̶ Code of Conduct
̶ OCI
̶ DE&I
Data Source: GAUGE 2021
55YEAR-END CLEAN UP OF INDIRECTS • Analyze Compensation of the top 5 highly paid – NOT JUST EXECs • Document compensation analysis with survey findings, resumes, financial benchmarks • Document your bonus plan with performance metrics and support calculations in writing • Review for legal and other sensitive accounts for expressly unallowable items • Voluntarily delete the amounts before sending trial balance to auditors or before filling out ICE 56
DUE DATE REMINDERS • 10/15 - Corp & Individual tax returns due • 10/15 – Class Deviation Memo deadline to incorporate Vaccine protocols in ongoing contracts – new tasks, extensions, option exercise, etc. (11/14 for new contract awards) • 10/18 - Debt ceiling deadline Yellen says we will run out of $$ (current US debt $28.5 Trillion) • 12/3 - Temporary funding to keep government open expires • 12/8 – Federal Contractors comply with Vaccine Mandate (fully vaccinated) – so that means employees need to get your vaccine by Nov 22nd • December 2021 – NDAA FY22 to be signed – defense spending approx. $740B; big funds for Cyber/CMMC; 2.7% pay increase and requires women to register for draft • Financial deadlines - 2021 - Reports (Opinion) on all Financials will be updated; 12/31/2022 - Lease 842 standard for non-public 57
THANK YOU FOR ATTENDING!
For more government contracting insights, visit us at:
Coronavirus Resource Center https://www.cohnreznick.com//covid19
Infrastructure Resource Center https://www.cohnreznick.com/insights/infrastructure
GovCon360° Resource Center https://www.cohnreznick.com/insights/govcon360
Read the GAUGE 2021 Report
https://www.cohnreznick.com/insights/2021-gauge-report-creating-winning-proposal
Benchmarking Tool https://bit.ly/3lenG4M
58CONTACT US
Christine Williamson, CPA, PMP Kristen Soles, CPA
Christine.Williamson@cohnreznick.com Kristen.Soles@cohnreznick.com
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