Thursday, October 30, 2014

CAS Disclosure Statements - Adequacy and Compliance

CAS Disclosure Statements are written descriptions of contractor cost accounting practices and procedures. In general, it is required for fully CAS covered contractors and must be completed prior to the award of a CAS covered contract of $50 million or more. You can read more about CAS Disclosure Statements requirements by clicking here.

Once a CAS Disclosure Statement has been submitted, it is subject to a variety of reviews and administrative actions by the Government. Most of these are covered in FAR (Federal Acquisition Regulations) Part 30.

Essentially, the Government will need to determine whether the CAS Disclosure Statement is adequately describes the contractor's cost accounting policies and procedures and whether those policies, procedures, and practices are compliant with FAR Part 31 and Cost Accounting Standards. This is usually referred to as "adequacy and compliance".

According to FAR 30.202-6, the cognizant ACO (usually DCMA or Defense Contract Management Agency), is responsible for determinations of adequacy and compliance of the CAS Disclosure Statement. But, in order to make such a determination, the ACO must rely upon the consultation and advise of the contract auditor (usually DCAA or Defense Contract Audit Agency).

The contract auditor conducts initial reviews of CAS Disclosure Statement to ascertain whether they are current, accurate, and complete. The auditor then reports the results of the review to the cognizant ACO. The ACO then makes a determination whether or not the Disclosure Statement adequately describes of contractor's accounting practices. It is almost unheard of that the ACO will go against the advice of the auditor if the auditor finds the Disclosure Statement adequate. On the other hand, its not uncommon for the ACO to reject the auditors opinion when the auditor finds deficiencies in the Disclosure Statement. ACOs and auditors often have different views on the significance of deficiencies.

After the ACO notifies the contractor that its CAS Disclosure Statement is "adequate", the auditor then jumps back in and conducts a "detailed compliance review" to determine whether or not the disclosed practices comply with FAR Part 31 and with applicable Cost Accounting Standards (see FAR 30.202-7(b)). Noncompliances are reported back to the ACO. The ACO can take several possible actions when noncompliances are reported. The ACO may (i) require the contractor submit a revised Disclosure Statement, (ii) may require adjustments to contract prices or cost allowances, or (iii) dispose the audit report without any further action if he/she disagrees with the audit report.

In the next couple of postings, we will look at specific audit steps that the auditor will perform when testing for adequacy and compliance.

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