Monday, October 20, 2014

New Government Policies and Procedures for Billing Oversight - Part 1

Back in August 2012, DFARS (DoD FAR Supplement) was revised to eliminate the "Direct Billing Initiative". The Direct Billing Initiative was a program that allowed contractors to submit their public vouchers (i.e. cost reimbursement vouchers) directly to the paying office without having to go though the process of having DCAA (Defense Contract Audit Agency) review and approve the vouchers before payment. The idea was sound policy - if contractors had adequate billing systems, regularly updated their indirect billing rates, and were timely in submitting their annual incurred cost submissions, they could be approved for direct billing, thereby shaving a few days off of number of days it took to get paid. The concept was great but the implementation was horrible. DCAA set an extremely high bar for approving contractors for direct billing. Perhaps they didn't want to see their work volume diminish. For smaller contractors, the bar was insurmountable because their size didn't allow them resources to develop the strong internal control systems demanded by the contract auditors. For other contractors, the additional cost of getting their payments two to five days earlier than normal, was not worth the cost of haggling with the auditors.

Finally, DoD had enough and heard enough contractor complaints so they killed the Direct Billing program entirely. In its place, they authorized every contractor to bill directly - effectively by-passing the auditor.  To protect the Government's interests however, DoD included a provision that allowed for a risk-based sampling process. They idea here is that a risk-based sampling process would be a more effective and efficient approach to validating billings by allowing for the evaluation of selected vouchers on a pre-payment basis. Under the new rule, auditors would need to assess the risk of overbilling and then select a few billings for further review prior to payment. The sampling would be performed within the WAWF (Wide-Area-Workflow) billing system. Contract auditors would go into the WAWF system and intercept vouchers for review prior to their being paid.

Now, more than two years later, DCAA has come up with their new billing oversight plan that corresponds to the new DoD policy. (We're not sure what they were doing in the intervening two years). Essentially, the new procedures requires a determination of whether contractors are considered high-risk or low-risk and a sampling plan that corresponds to that determination. Over the next few days, we will be diving into more of the details of that plan and what contractors can expect when their billings are selected for pre-payment reviews.

Click here for Part 2.

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