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The Defense Contract Audit Agency (“DCAA”) recently made public its Fiscal Year 2017 Report to Congress, which, among other things, provides an update on incurred cost audits.  Specifically, the report explains that DCAA:

  • Closed “6,786 incurred cost years” using a variety of methods, namely reports and memos, but also for other reasons (e.g., per the FY 2016 NDAA, DCAA was prohibited “from providing audit support to non-DoD agencies”);
  • Sustained audit exceptions for incurred costs audits 28.6% of the time;
  • Reduced the backlog related to incurred cost audits “to an average age of 14.3 months;” and
  • Is “on track to eliminate the backlog by the close of FY 2018” as it now has “under 3,000 incurred cost years in [such] backlog….”
  • “[W]ill be current on incurred cost based on a two-year inventory of audits” by FY 2018 and “will move to one year of inventory as required” in the FY 2018 NDAA.

Continue Reading The End is Near: DCAA Projects End of Incurred Cost Backlog by FY 2018

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Contractors that use a fiscal year ending 12/31 submit their annual cost submissions in June of the following year.  For 2010 incurred cost submissions (ICS) submitted in June 2011, many contractors may receive affirmative claims from the Government seeking to disallow some or all of those incurred costs, because the Government has a 6-year statute of limitations to bring such claims (i.e., June 2017).  Due to DCAA’s audit backlog, COs may receive Audit Reports right around the SOL deadline, and issue Final Decisions in order to avoid missing that deadline.  Contractors that do receive Final Decisions disallowing costs should be aware of the 90 day limit to appeal the Final Decision, whether they intend to negotiate or litigate.

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The past twelve months have seen major developments on cost and pricing issues relevant to the “top of the ledger” – as well as the bottom line.  On May 26, 2016, at 11:00 am -12:00 pm, Crowell & Moring attorneys Terry Albertson, Steve McBrady, Rob Burton, and Skye Mathieson will highlight some of the most significant cost and pricing issues facing contractors in today’s marketplace, including an update on the application of the CDA statute of limitations to cost accounting disputes, the Raytheon decision and offsets among multiple simultaneous changes in cost accounting practice, as well as the following regulatory developments:

  • Growing Restrictions on Allowability of Independent Research and Development Costs
  • NDAA Provisions Affecting DCAA
    • DCAA Audit of Non-DOD Contracts Restricted
    • Required Identification of Materiality Standards Used by DCAA

Check back in the coming days for more updates as we count down to the events on May 18 (L.A.) and May 25th (in DC)! You can also check for updates on Twitter using the hashtag #cm2016oops, and at crowell.com/OOPS.

Click here to register for OOPS on May 25-26th in Washington, DC.

Click here to register for West Coast OOPS on May 18th in Los Angeles, California.

OOPS-2016

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The 2016 National Defense Authorization Act prohibits the Defense Contract Audit Agency from providing “audit support” to any non-DOD agency until the Secretary of Defense certifies that DCAA has reduced its backlog of incurred cost audits to 18 months or less, a restriction that could cause some disruption for contractors when DOD contracts are not a majority of the contractor’s government work and when audit support has been provided by DCAA in the past. On January 7, 2016, DCAA issued guidance to its auditors that appears to limit the prohibition on “audit support” to incurred cost audits, leaving DCAA auditors free to provide other accounting services to non-DOD agencies, specifically permitting DCAA to perform incurred cost audits that include both DOD and non-DOD contracts when auditors determine that inclusion of the non-DOD contracts involves “de minimis” incremental effort by DCAA, and offering guidance about how to handle such “mixed” audits when the non-DOD contracts will create more than “de minimis” incremental effort.

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On October 1, the DoD IG released a report titled “Evaluation of Defense Contract Management Agency Actions on Reported DoD Contractor Business System Deficiencies,” asserting that DCMA contracting officers “repeatedly” failed to comply with DFARS requirements involving reported business system deficiencies.  The report, which is similar to a report issued on June 29, 2015 regarding DCMA’s treatment of estimating system deficiencies (available here), focused its criticisms on DCMA, despite DCMA’s comments noting flaws in the IG’s logic (such as the IG’s suggestion that DCMA, rather than DCAA, is responsible for determining whether a “significant” business system deficiency exists).

 

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On February 25 at 12 pm ET, I’ll be joining Joseph McCaffrey from BDO for a webinar focusing on the market for government contractors.  We’ll be talking about DCAA trends, high priority compliance and ethics matters, new final and proposed regulations impacting the industry, and insights into recent M&A activity and financing trends. It will be an interesting session and we hope you can make it.  Click here to register.

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In December, I had the pleasure of speaking with Law360 regarding “Government Contracts Cases To Watch In 2015.” To no one’s surprise, the continuing DCAA audit backlog, and the Contract Disputes Act statute of limitations, are among the topics that contractors will be following with interest in 2015. In an upcoming post, we will discuss in greater detail the Federal Circuit’s recent decision in Sikorsky, and its impact with respect to the CDA statute of limitations. Stay tuned. (Full article linked here).