Thursday, December 29, 2016

Defense Cost Accounting Standards - Part 4

We've spent this week covering most of the provisions of Sec 820 of the fiscal year 2017 National Defense Authorization Act (NDAA). On Monday we discussed how Congress intends to rejuvenate the CAS (Cost Accounting Standards) Board. On Tuesday, we discussed the new Defense Cost Accounting Standards Board (DCASB) and yesterday, we discussed the impending privatization of a significant portion of DCAA's (Defense Contract Audit Agency's) workload, e.g. audits of contractor indirect costs.

The whole idea of a Defense Cost Accounting Standards Board (DCASB) began with the Senate version of the 2017 NDAA. The House version did not have a similar provision. The Senate had no confidence in the current CAS Board structure. It wrote:
The committee is disappointed 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 board in the future and the committee believes that a DOD board will be better suited to meet national security needs.
The Senate also expressed the following concern:
...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 governments interest to adopt more commercial ways of contracting, accounting, and oversight.
When the bill went to compromise committee, the Senate version prevailed although it was somewhat watered down from what the Senate had proposed initially. Instead of giving up on the CAS Board, the compromise language seeks to improve the workings of the CAS Board and supplement it with a Defense CAS Board (DCASB) to address DoD-unique cost accounting standards (whatever those might be). Instead of promulgating new standards under the Senate version, the final NDAA allows the DCASB to advise the CASB on cost accounting standards that need changing.

The idea of privatizing some of DCAA's workload was retained in the final NDAA even though the Executive Branch opposed it, stating that audits by both DCAA and commercial audit firms would create burdens and inefficiencies for both contractors and Government agencies.

Although not part the of the NDAA, the conferees included language in its explanation of the compromises to "encourage the Director, Defense Contract Audit Agency (DCAA) to examine the potential for electronic quality management systems to improve the ability of DCAA to conduct thorough and timely audits." Not sure what the conferees had in mind here but perhaps we'll learn more later.

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