CAS Disclosure Statements - Audits for Compliance

We are continuing our series on Cost Accounting Standards Disclosure Statements today by looking at the second required audit. As you recall from last Friday, once a contractor submits a Disclosure Statement, the contract auditor will review it for adequacy and report back to the contracting officer. The contracting officer, in turn, will declare the Disclosure Statement adequate (or not adequate). At this point, there should not be too many cases of inadequate determinations. We recall a few (a very few) somewhat obstinate contractors over the years who were not inclined to agree to any auditors' recommendations to modify a description of an accounting practice. But such an attitude is very short-sighted. The Disclosure Statement is simply a description of the accounting practices that a contractor will use to account for costs on Government contracts. If the contract auditor thinks a description is not descriptive enough, it is no big deal to modify the description. Just do it. How long can it take - five minutes?

After the Contracting Officer determines the Disclosure Statement to be adequate, the contract auditor will initiate a second review to determine whether the Disclosure Statement is compliant with both the CAS Board rules, regulations, and standards, and acqusition regulations. This second audit is supposed to be completed within 60 days of the contracting officer determination but rarely is.

With only  60 days to accomplish the compliance review, the audit coverage is often very high level. There is no way that auditors can perform in-depth reviews in this time span. The in-depth reviews of compliance with the 19 Cost Accounting Standards are performed on a cyclical basis over a three-year cycle. There are however, eight different noncompliances that can result from ths initial review:

1. Disclosed practices not in compliance with CAS
2. Disclosed practices not in compliance with FAR
3. Actual practices of estimating costs not in compliance with CAS
4. Actual practices of estimating costs not in compliance with FAR
5. Actual practices of estimating costs not in compliance with Disclosure Statement
6. Actual practices of accumulating or reporting costs not in compliance with CAS
7. Actual practices of accumulating or reporting costs not in compliance with FAR
8. Actual practices of accumulating or reporting costs not in compliance with Disclosure Statement

In practice, unless there is some glaring compliance matter, contractors (and prospective contractors) generally scoot by during the initial compliance review. Once contract performance begins however, the process of testing for compliance becomes continuous. The contract auditor will be looking for compliance in every audit performed.

We should point out that the Government makes a very big deal out of consistency in estimating and accumulating/reporting costs. The practices need to be the same. Also, the actual practices of estimating, accumulating, and reporting costs need to be consistent with what has been written - the disclosed practices. If the disclosed practices don't work, change the description. Its too easy for auditors to find cases where actual practices do not comply with disclosed practices.