Tuesday, June 21, 2016

Wait a Minute, What? A Defense Cost Accounting Standards Board?

The Senate Armed Services Committee has included a provision in the 2017 NDAA (National Defense Authorization Act) that would establish a new Cost Accounting Standards Board within the Department of Defense.

The Committee expressed concern that the current cost accounting standards favor incumbent defense contractors and limit competition by serving as a barrier to participation by non-traditional, small business, and commercial contractors. To level the competitive playing field to access new sources of innovation, it is in the government's interest to adopt more commercial ways of contracting, accounting, and oversight. According to the committee, the provision requires that cost accounting standards developed shall to the maximum extent practicable align with Generally Accepted Cost Accounting Principles (whatever that means), thereby minimizing the requirement for government-unique cost accounting systems.

The Committee expressed disappointment that the Federal Cost Accounting Standards Board does not currently have a quorum of members and has not met in over three years. Due to this situation, it is doubtful that any credible reform will emanate out of the CAS Board in the future and believes that a DoD board will be better suited to meet national security needs.

There are other aspects to the NDAA proposal such as a requirement for indirect costs to be audited by commercial firms, rather than by the Defense Contract Audit Agency (DCAA) for most contractors. Pretty soon, DCAA is not going to have a mission.

The White House opposes the proposal. They believe that the action would result in unnecessary overlap and duplication with the functions of the existing Government-wide CAS Board and could result in contractors with both Defense and civilian contracts having to comply with two different standards for the same cost issue. Additionally, requiring the use of Generally Accepted Auditing Principles (GAAP) would impose inappropriate constraints on the Board's ability to carry out its responsibilities. GAAP focuses on reporting the financial results of overall operations and addresses neither the allocation of costs to individual contracts nor the allowability of contract costs. Finally, the White House believes that the proposal imposes inappropriate limitations on DCAA despite its historical success in savings.

This provision, to us, seems like a long shot, simply because it was sprung on an unsuspecting constituency so suddenly. Chances are good that defense contractors are lobbying hard to have it dropped.

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