CAS Board Gets a New Chair

The Senate recently confirmed an Administrator of the Office of Federal Procurement Policy (OFPP). He's Michael Wooten and as the Administrator, he's also the de facto Chair of the Cost Accounting Standards Board (CASB). Mr. Wooten replaces Lesley Field who had been the Acting Administrator for OFPP (Office of Federal Procurement Policy). The OFPP sets procurement policies and priorities for the Federal Government.

During his confirmation hearing last May, Mr. Wooten said he would focus on innovation, cost efficiency, cybersecurity protections, small business partnerships and category management (we're not sure what he means by category management. Category management is usually about bundling items. Buyers look for items purchased across the organization and consolidate disparate agreements into a single contract. A category is essentially any group of similar items which the organization wishes to buy under a single deal. We'll just have to wait and see how he intends to implement category management concepts within Government procurement).

Prior to taking over at the OFPP, Mr. Wooten was the senior adviser for federal student aid at the Education Department. Previous to that, he was deputy chief procurement officer for the District of Columbia, an instructor at the Defense Acquisition University, and at the University of the District of Columbia. He is also a retired Marine Corps officer. Nothing in this background indicates him having any accounting expertise or experience which would be a nice to have as CAS Board Chair. Guess he'll have to rely upon his staff and other Board members.

Other CAS Board members include Laurie Schmidgall, Director of Cost Policy at Boeing, Evan Farley, Deputy CFO at GSA (General Services Administration), Yvonne Hinson with the AICPA (American Institute of Certified Public Accountants) and Anita Bales, Director of DCAA (Defense Contract Audit Agency).

What Has the CAS Board Been Up To Lately?

The Cost Accounting Standards Board (CASB) recently published the agenda for its forthcoming meetings on July 25th and August 21st. These are closed meetings so the public is not invited. Guess we'll have to wait until the minutes are published before we learn whether any significant actions will have been taken.

Agenda topics include:

1. Conformance of CAS to GAAP (Generally Accepted Accounting Principles). The 2017 NDAA (National Defense Authorization Act) requires the CAS Board to review and conform CAS, where practicable, to GAAP. The CAS Board will discuss a Staff Discussion Paper (SDP) addressing conformance of CAS 411 (Materials) and CAS 404 (Capitalization of Tangible Assets) to GAAP.
2. Review of CAS applicability recommendations by the Section 809 Panel. Specifically, the CAS Board will discuss two legislative proposals that were advanced by OMB; the elimination of the Defense CAS Board (which has never gotten off the ground anyway) and decoupling the monetary threshold for CAS applicability from the threshold for TINA (Truth in Negotiations Act). The Section 809 Panel recommended that CAS applicability threshold be raised from $2 million to $15 million.
3. Review of Court and Board Decisions Related to CAS. The FY 2017 NDAA also requires the CAS Board to review on an annual basis disputes before the various BCAs (Board of Contract Appeals) or Federal courts involving its standards to determine whether greater clarity in CAS could avoid such disputes. The Board will discuss recent decisions.
4. CAS Board Working Groups. The Board will assess the need for additional support on its pension harmonization working group and evaluate the need for a dedicated working group to support ongoing work associated with the CAS-GAAP conformance project.

President Appoints New Cost Accounting Standards Board Chair

The President has nominated Dr. Michael E. Wooten to become the Administrator, Office of Federal Procurement Policy (OFPP). As OFPP Administrator, Dr. Wooten will also serve as the Chair of the CAS Board (Cost Accounting Standards Board). Currently, those positions are filled by Lesley Field, the 'Acting' Administrator of OFPP. This appointment is subject to Senate approval.

The CAS Board met three times in 2018 and once so far in 2019. We're not sure what exactly was discussed or decided because no minutes have been published. However, based on the Board's published agendas, it seems that their current focus is on trying to conform CAS to GAAP (Generally Accepted Accounting Principles).

Here is Dr. Wooten's biography as published on the Education Department's website where he is currently the Deputy Assistant Secretary for Community Colleges. The emphasis is ours to highlight his experience in Government contracting.

Dr. Michael Eric Wooten serves as the Acting Assistant Secretary and Deputy Assistant Secretary in the Office of Career, Technical, and Adult Education. He provides leadership, direction and management for over $2 billion dollars in initiatives supporting career and technical education, adult education, correctional and re-entry education, and community colleges. These initiatives collectively serve over 25 million students annually. Dr. Wooten leads the Divisions that administer the Adult Education and Family Literacy Act (AEFLA) under the Workforce Innovation and Opportunity Act (WIOA) and the state formula and discretionary grant programs under the Carl D. Perkins Career and Technical Education Act. Dr. Wooten establishes national leadership activities to enhance the quality and rigor of educational programs, and he promotes the development of strategies that support student success. He brings more than one third of a century of government experience to the department.

Previously, Dr. Wooten served as the Deputy Chief Procurement Officer for the District of Columbia where he managed $5.2 Billion in annual contract spending through a workforce of 166 professionals. He also served as the Chief Learning Officer (CLO) for District of Columbia’s Office of Contracting and Procurement. As CLO, he designed and implemented a competency-based certification program for the District’s contract specialists. Additionally, Dr. Wooten served for seven years as a member of the Northern Virginia Community College Board; he was elected chairman of the board from 2014 through 2016. He was also selected to serve as an interim school board member for Prince William County Public Schools..

Prior to joining the District’s Office of Contracting and Procurement, Dr. Wooten served for ten years in various academic posts at Defense Acquisition University. Chief among these posts, he served as a professor of contract management, deputy department chair, and special assistant to the President of Defense Acquisition University. Mike Wooten is a 20 year veteran of the U.S. Marine Corps. His Marine Corps career culminated with service in Afghanistan followed by command of a unit of 1,200 Marines. He was retired at the rank of major.

Dr. Wooten first earned an associate’s degree from Georgia Perimeter College before earning a bachelor’s degree in psychology from Chapman University. He also holds master’s degrees from Norwich University (leadership and organizational management), the Naval Postgraduate School (acquisition and contract management), and the George Washington University (education and human development). He earned his doctorate from the University of Pennsylvania in higher education management.

Does CAS Compliance Require Companies to Depart from Generally Accepted Auditing Standards (GAAP)?

Last week, the CAS Board (Cost Accounting Standards Board) published an agenda for its November and January meetings. There are four topics on the agenda (see CAS Board Meeting) including a couple that we have decided to cover in more detail for its potential impact on small businesses. Even though small business contractors are exempt from CAS, most of the 19 existing standards have been folded in part or in whole into the FAR (Federal Acquisition Regulations) over the years. Yesterday we covered Agenda Topic #4 which consists of a discussion on the Section 809 Panel's recommendation to eliminate the Defense CAS Board, a Board that was created by the 2017 NDAA but has yet to organize (see Will the Newly Created Defense CAS Board Survive?). Today we will cover Agenda Topic #2, Conforming CAS to GAAP (Generally Accepted Accounting Principles).

Agenda topic #3 reads as follows:

Conformance of CAS to Generally Accepted Accounting Principles (GAAP). Section 820 requires the CAS Board to review and conform CAS, where practicable, to GAAP. The Board intends to discuss development of an SDP (Staff Discussion Paper) addressing conformance of CAS 404, Capitalization of Tangible Assets, and CAS 411, Accounting for Acquisition Costs of Material, to GAAP. This is the second SDP addressing CAS-GAAP conformance and will build on the first SDP (under final review for publication and public comment) that (i) lays out a proposed conceptual framework and guiding principles to prioritize the evaluation of whether and to what extent CAS may be conformed to GAAP and (ii) presents an initial comparison of CAS 408, Accounting for Costs of Compensated Personal Absence, and CAS 409, Cost Accounting Standard Depreciation of Tangible Capital Assets, for public comment. The Board intends to receive and review public comment on the first SDP before publishing the second SDP.

The Board has already identified four CAS standards that may or may not require deviation from GAAP. Two of them, the capitalization and depreciation standards (CAS 404 and 409), are not inconsistent with GAAP. It just that GAAP allows companies to be more flexible than CAS in their capitalization and depreciation practices. Whatever issues there are involving capitalization and depreciation however have very little impact on Government contracts. Its a "pay me now or pay me later" situation. If a contractor expenses something, it is reimbursed in the year of expenditure. If a contractor capitalizes an asset, it is reimbursed for the cost over a period of years through depreciation. But what about the time value of money, you ask? In theory, the Government benefits from capitalization because it defers the cost to future years. However, whatever imputed time value of money may accrue to the Government, is offset by FCCM (Facilities Capital Cost of Money) where Contractors earn interest on the undepreciated value of assets. So its a wash. One just doesn't see any capitalization/depreciation disputes brought to the Boards of Contract Appeals for that reason - there is no significant cost impact.

The Board identified two other CAS standards for discussion on aligning them with GAAP - material costs and employees absences - without any explanation as to how compliance might require deviation from GAAP.  We were unaware that these standards (409 and 411) involved departures from GAAP. Guess we'll have to wait for the SDP to learn the Board's concerns.

Will the Newly Created "Defense CAS Board" Survive?

We ended last week's blog with a news article about the CAS (Cost Accounting Standards) Board's upcoming meetings and the agenda topics for the Board's November and January meetings (see CAS Board Meeting). Today and tomorrow we want to take a closer look at two of the agenda topics for their potential impact on small Government contractors.

Agenda topic #4 reads as follows:

Review of Section 809 Panel Recommendation on Defense Cost Accounting Standards Board (Defense CAS Board). The Board will discuss the analysis and recommendation made by the Panel (in Volume 2 of its report) to repeal the provisions in Section 820 of the FY 2017 NDAA (National Defense Authorization Act) that created the Defense CAS Board. See Section 820(b), which amends title 10 by adding a new section 190.

Section 820 of the 2017 NDAA had several purposes:

• Revive the Cost Accounting Standards Board
• Establish a Defense Cost Accounting Standards Board (Defense CAS Board), and
• Privatize some of the audit work being performed by the Defense Contract Audit Agency (DCAA)

With respect to item no. 2, the Defense CAS Board enumerated duties include (see Defense Cost Accounting Standards - Part 2 for more detailed information):

1. review cost accounting standards established by the CASB and recommend changes to such cost accounting standards to the CASB
2. has exclusive authority with respect to the Department of Defense to implement such cost accounting standards to achieve uniformity and consistency in the standards governing measurement, assignment, and allocation of costs to contracts with the DoD, and
3. shall develop standards to ensure that commercial operations performed by Government employees at the DoD adhere to cost accounting standards that inform managerial decision-making.

Last June, the Section 809 Panel (officially the Advisory Panel on Streamlining and Codifying Acquisition Regulations) issued Vol. 2 of this three volume report. In that report, the Panel recommended abolishing the Defense CAS Board (even before it had a chance to organize). Concerning the Defense CAS Board, the report concluded:

Creation of the Defense CASB is an attempt to solve the problem of the non-functioning CASB. Adding another regulatory organization is the wrong solution. Government and industry representatives who spoke with the Section 809 Panel expressed they do not support creation of a Defense CASB. Stakeholders are concerned by the many unanswered questions raised by creating this board, including whether the new board will be biased toward DoD issues, and if the two boards will create competing sets of CAS. Creation of a Defense CASB would almost certainly be counter-productive.

We're not sure what the current CAS Board might discuss with respect to its new sibling, the Defense CAS Board other than give credence to and endorse the recommendation of the Section 809 Panel. The creation of the Defense CAS Board was statutorily derived so another statute will be necessary to abolish the Board. Its not something that the CAS Board can do on its own.

What? The Moribund CAS Board is Meeting?

The OFPP (Office of Federal Procurement Policy (OFPP), Cost Accounting Standards Board (CAS Board) published notification of planned meetings this month and January 2019. The public notification is required but the meeting itself is closed to the public. The last meeting of the CAS Board was more than seven years ago - October 5th, 2011.

The current slate of CAS Board members include three Government reps, one industry rep and one rep from academia:

• Lesley Field, Chair, Acting Administrator, OFPP
• Anita Bales, Director DCAA
• Laurie Schmidgall, Director of Cost Policy, Boeing
• Evan Farley, CFO for GSA
• Yvonne Hinson, Senior Director & Academic in Residence, Association of International CPAs

The agenda topics include the following:

1. Review of Advanced Notice of Proposed Rulemaking for Pension Adjustments for Extraordinary Events - such as CAS pension segment closing adjustment requirements.
2. Conformance of CAS to GAAP (Generally Accepted Accounting Principles) - The 2017 NDAA requires the CAS Board to review and conform CAS, where practicable, to GAAP.
3. CAS Applicability Threshholds - Consider the recommendation by the Section 809 Panel to increase certain CAS Applicability thresholds.
4. Eliminate the Defense CAS Board - Consider the recommendations made by the Section 809 Panel to eliminate the Defense CAS Board. The Defense CAS Board was created by the 2017 NDAA.

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.

New CAS Board Chair Approved by Senate

The Senate recently confirmed Joseph Jordan as the Obama administration's Administrator of the Office of Federal Procurement Policy (OFPP). The OFPP Administrator is also the de facto Chair of the Cost Accounting Standards Board.

Before joining OFPP last December as a senior adviser on procurement issues, Jordan spent three years as the Small Business Administration's associate administrator of Government contracting and business development. That office oversees programs and services that help small business win government set-aside contracts.

Before joining the SBA, Jordan spent two years as a McKinsey manager, two years with a dot com startup, and two years as an associate producer for Chris Matthews.

During the confirmation hearings some Senators felt that Jordan did not have the requisite experience for the position. However, Jordan's predecessor, Daniel Gordon came to bat for him with a positive recommendation: "During his time in government, Jordan has shown he understands and knows how the work within the contracting community.

During the hearings, Mr. Jordan made the following statements:

• I will work to have federal agencies buy smarter
• I will redouble federal efforts to document and share contractor past performance information
• I will maximize contracting with small and disadvantaged businesses
• Our agencies must be prepared to give appropriate consideration to suspension and deparment to fight the waste and abuse of bad actors
• The acquisition workforce should be strengthened.

Where have we heard all that before?

New CAS Board Member

Laurie Schmidgall, Director of Cost Policy at the Boeing Company Corporate Office in Chicago, IL has been appointed to replace Bruce Timman as the Industry Representative on the Cost Accounting Standards Board. Mr. Timman, Director, Government Accounting Compliance, Honeywell, Inc's term expired March 31, 2012.

The following information comes from Ms. Schmidgall's bio:

Ms. Schmidgall has extensive expertise in interpreting the Cost Accounting Standards and Federal Acquisition REgulations, providing guidance to ensure compliance to these regulations for Government contracting, and responding to regulatory activities. Ms. Schmidgall works directly with Department of Defense personnel, including the Defense Contract Management Agency and the Defense Contract Audit Agency to address Government compliance concerns. She is also experienced with the preparation and negotiation of forward pricing rates and final indirect costs.

Ms. Schmidgall is active in several industry organizations, including the Aerospace Industries Association, National Defense Industrial Association, and Financial Executives International. As an industry representative, she has analyzed the impacts of a number of regulatory changes, drafted many comment letters on proposed rules, and briefed interested Government parties. She has also held leadership roles on various committees of these associations.

Prior to joining The Boeing Company, Ms. Schmidgall worked for a few other companies, such as Zenith Electronics, where she developed broad experience in a variety of accounting and related disciplines, including preparation of financial statements, SEC filings, asset management, tax filings, ERP system conversions, inventory management, internal audit, accounts payable, compensation plans, medical insurance plan administration, corporate liability risk management, mergers and acquisitions, and pensions. 

Ms. Schmidgall completed her accounting education at DePaul University in Chicago and is registered in Illinois as a Certified Public Accountant. She is also a member of the Illinois CPA Society.