A number of years ago, when we still published our quarterly newsletter, we took a stab at guessing where the various contract oversight agencies would be concentrating their efforts in the year ahead. As I recall, we were not very accurate in our predictions. Contract oversight is such a dynamic field that it takes only one scandal, one Congressional hearing, one investigation, or one audit report to completely alter carefully planned-out oversight activities. Many things that seemed very important in January are back burner topics by June, not because they've been completed or resolved but because newer concerns always seem to take precedence. So even though we are not very good prognosticators, we will take another shot at identifying the main focuses of contract oversight agencies in 2011.
DCMA's ascendancy in contract pricing. Last September, the Department of Defense instructed contracting officers to no longer request audits of fixed price proposals under $10 million and cost reimbursable proposals under $100 million. This was done to "... align DCAA audit resources to those areas with greatest risk." and effectively removed $92 billion in pricing activities from DCAA oversight. Well, someone has to review contractor proposals so DCMA is stepping in to fill the void. Its "standing up" a pricing function within its organization to provide that service. Read more.
New rules on contractor business systems. The DoD recently published the second iteration of proposed regulations requiring contractors to maintain adequate business systems including accounting, estimating, purchasing, MMAS, EVMS, and Government property. Contractors that fail to maintain adequate systems will have some of the billings withheld until such time as the deficiencies are corrected. While these regulations have not yet been finalized, they probably will be in some form or another. And when they are finalized, expect DCAA and DCMA to be rather aggressive out of the gate. There is a lot of judgement involved in determining whether internal control systems are sufficient to reduce risks to an acceptable level. Sometimes it seems the Government's definition of "acceptable level" is much lower than a contractors'. Read more.
Payment Recapture Audits. The Obama Administration has made payment recapture audits one of its cornerstones in trimming spending, ferreting out fraud, waste, and abuse, and improving the overall efficiency of the Government. It announced the initiative last March and by November, the OMB (Office of Management and Budget) had issued requirements for all Executive Agencies to get moving. The OMB estimated that there were $110 billion in improper payments made to various organizations in FY 2009 and set a goal to reduce that amount by $50 billion. DCAA issued a new audit program to assess contractor billing systems as part of this initiative and has already initiated some reviews. This is expected to be a significant audit area for DCAA in fiscal year 2011. Read more.
Increased Scrutiny on Small Business Status. There is widespread concern that the programs designed to assist small business are being significantly abused. The Office of Federal Procurement Policy stated recently that there has been inadequate oversight on the Government's "overuse" of Alaska Native Corporations (ANCs) for expediency reasons, contractor's ability to self-certify their small business status, and "ill-conceived" teaming arrangements that allow non-small businesses to take on the bulk of the work intended to be set aside for small business enterprises. Expect oversight hearings once the new Congress gets rolling. Read more.
So, there they are, the emphasis of contract audit oversight activities for the coming year. Check back with us in December to see how well we did with our forecasts, or didn't.
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