DCAA Audit & Compliance Boot Camp

Boot Camp Day 1 – Wednesday, July 24, 2013

7:30 Registration Opens & Continental Breakfast

8:30 Co-Chairs’ Opening Remarks

Nicholas A. Sanders 
Senior Manager, Government Accounting
Raytheon Space and Airborne Systems (Irvine, CA)

Claude Ognibene 
Pricing Manager
ViaSat, Inc. (Carlsbad, CA)

8:45 KEYNOTE ADDRESS AND Q & A - DCAA Speaks on Audit & Policy Priorities, Recent Changes and What They Mean for Contractors Going Forward

Don Mullinax
Regional Director, Western Region
Defense Contract Audit Agency (La Mirada, CA)

FOCUS ON INCURRED COST SUBMISSIONS & AUDIT BACKLOG

9:15 The Nuts and Bolts of Preparing an “Adequate” Incurred Cost Submission: How to Meet DCAA and DCMA Standards for Reasonableness, Allowability, and Allocability

David Johnson 
Deputy Regional Director, Western Region
Defense Contract Audit Agency (La Mirada, CA)

Nicholas A. Sanders 
Senior Manager, Government Accounting
Raytheon Space and Airborne Systems (Irvine, CA)

Paul Bailey 
Managing Director
KPMG (Tysons Corner, VA)

Through a review of sample submissions, the expert speakers will discuss the nuts and bolts of preparing incurred cost submissions, and lessons learned from past mistakes. Topics will include:

• Satisfying requirements for filing an incurred cost submission and available resources to complete the submission
• Classifying your incurred cost proposals as High or Low Risk
• What is Incurred Cost Electronically (ICE) model, and how are contractors complying with its strict requirements
• Preparing Schedule H, I, J, K
• Ensuring adequate documentation to support your costs
• Concentrating on DPAP/DCAA identified high risk incurred cost proposals for major contractors, including overseas contingency operations
• Scope of documentation required to support incurred costs
• Determining allocability
• Preparing a cumulative allowable cost spreadsheet
• What systems you need to have in place
• The required level of sampling to render an opinion, and the most effective sampling techniques
• Practical impact of the FAR contract closeout rule on annual incurred cost proposals

10:45 Networking Coffee Break

11:00 What to Expect, and How to Manage an Incurred Cost Audit: How to Operate amid More Detailed Sampling, Submission and Supporting Documentation Standards

Scott Thatcher 
Director of Financial Reporting and Regulatory Compliance
Salient Federal Solutions (San Diego, CA)

James W. Thomas
Partner
PricewaterhouseCoopers LLP (McLean, VA)

Thomas Lemmer 
Partner
McKenna Long & Aldridge LLP (Denver, CO)

• How incurred cost audits have become more detailed and complex: How DCAA and DCMA assess reasonableness, allowability, and allocability
• DCAA and DCMA audit priorities under Chapter 6 of the DCAM
• What has triggered the ramifications of non-compliance, including disqualification from direct billing, and civil/criminal penalties for claiming unallowable costs
• Complying with DCAA and DCMA auditing standards for reasonableness, allowability, and allocability
• Working closely with the auditor and Contracting Officer to provide information in a timely, efficient manner
• Identifying areas of increased risk through internal evaluations of previous audits
• Ensuring adequate documentation to support your costs and making it readily accessible to the auditor upon request
• Working closely with the auditor and Contracting Officer to provide information in a timely, efficient manner

12:15 Recordkeeping under FAR Subpart 4.8 amid the DCAA Backlog: Developing Record Retention, Destruction and Management Policies and Procedures

Brett Petruzzi
Managing Partner
RAS & Associates (Denver, CO)

Christine J. Wade 
CEO/Partner
Caasus, LLC (Washington, DC)

• The latest DCAA record retention guidance: DCAA expectations for your retention practices
• How long to retain supporting records: Pros and cons of using the FAR vs. a longer timeframe
• Determining how far beyond the FAR requirements to keep records due to DCAA backlog
• Weighing the need for “adequate” support for costs vs. when to destroy supporting records
• If, when and how DCAA is auditing documents created outside the FAR timeframe
• Record destruction requirements under the FAR
• Setting up internal procedures to ensure consistent company-wide recordkeeping and documentation policies
• Centralizing and storing worldwide data in anticipation of an audit
• Developing procedures for tracking direct and indirect costs
• Complying with record destruction procedures under the FAR
• Privilege and other key legal considerations

1:00 Networking Luncheon for Speakers and Attendees

FOCUS ON BUSINESS SYSTEMS

2:00 How to Define “Inadequate”, “Materiality” and “Significant Deficiency”: A Comprehensive Review of What Can Trigger Payment Withholdings for Business System Deficiencies

Keith A. Palmer
CACO / DACO Team Supervisor
DCMA-AQKDN
Defense Contract Management Agency (Carson, CA)

Marie J. Petracek
Manager - Cost Policy
United Launch Alliance (Centennial, CO)

David Eck 
Director 
Dixon Hughes Goodman LLP (Tysons, VA)
Former Regional Director, DCAA Central and Mid-Atlantic Region

Tom Tagle 
Partner
Baker Tilly Virchow Krause, LLP (Vienna, VA)

This interactive session will delve into core concepts that underpin DCAA Business System Audits, and recent experiences that illustrate how to interpret these concepts. Participants will have an opportunity to ask their questions, and submit them in advance as well.

• Defining a “significant deficiency”
• Degree of materiality for identifying a significant deficiency: Quantitative and qualitative factors guiding DCAA’s risk assessment
• Meeting standards for materiality
• When deficient subcontractor data can lead to an “inadequacy” finding
• How DCAA verifies the adequacy of estimating and other systems
• Key weaknesses to avoid in contractor business systems
• Applying FAR’s guiding principles under Part 1
• What leads to payment withholdings and other remedies: Key system inadequacies and deficiencies
• Recent examples of what is “material”
• What can lead to additional costs of non-compliance, including lost business and other forms of financial liability
• What level of documentation is required for compliant business systems

3:15 Networking Coffee Break

3:30 Business Systems Audits under the New Rule: A Practical Guide to Preparing and Conducting a Systems Demonstration for Your DCAA Auditor

Nicholas A. Sanders
Senior Manager, Government Accounting
Raytheon Space and Airborne Systems (Irvine, CA)

Sajeev Malaveetil
Director, Government Contracts Practice
Berkeley Research Group LLC (Washington, DC)

Ken Lowe
Managing Director
Capital Edge Consulting (San Diego, CA)

• How system audits are being structured
• How DCAA audits all components of a system
• How much to prepare for the audit under the new rule
  • what changes to make internally due to the new rule: what additional detail and supporting documentation must be prepared
  • assigning subject-matter experts to each system: key considerations
• Do’s and don’ts for preparing a systems demonstration: Key considerations for each business system
• Explaining to DCAA how your internal controls work
• Educating DCAA on what you are relying on for your systems
• Developing a corrective action plan in advance for your known deficiencies
• What leads to payment withholdings and other remedies: Key system inadequacies and deficiencies to look for before it’s too late
• What can lead to additional costs of non-compliance, including lost business and other forms of financial liability
• What level of documentation is required for a compliant system, and when you need to have written policies and procedures

CASE STUDIES: CONTRACT TERMINATIONS, RESTRUCTURINGS & DEDUCTIVE CHANGES

4:45 How to Maximize Cost Allowability in the Context of Contract Terminations, Restructurings and Deductive Changes: The Nuts and Bolts of Developing Your Termination Proposal, and Satisfying Cost or Pricing Data Requirements

Nancy Turner 
Director, Ethics & Compliance
Orbital Sciences Corporation (Dulles, VA)

Patricia Meagher 
Partner
Rogers Joseph O’Donnell (San Francisco, CA)

Through a discussion of concrete examples and hypothetical scenarios, this session will take you through the key cost or pricing issues that have been arising in the context of contract terminations, restructurings and deductive changes. The speakers will also review sample termination proposals and key legal risks toward discussing best practices and lessons learned. Topics will include:

• Scope of allowable termination costs: Cost principles related to settlement proposals
• Special considerations related to partial vs. complete terminations
• Cost or pricing data required to support a termination proposal, and how to demonstrate reasonableness
• Which costs to include in a termination proposal, including;
  • indirect costs and re-classifying them as direct: creative costing and pricing methodologies
  • dealing with cost overrun on contracts
  • constructive changes
  • tracking individual costs
  • building up costs (rate and burdens) and the necessary systems to have in place
  • determining overhead rates
• Common areas of cost disagreements in the context of terminations
• How price fairness is assessed when a fixed price contract is converted into a cost-plus contract
• Negotiating a termination settlement: Successful strategies
• How the U.S. Government approaches contract restructurings
• What to do if your program is on the brink: How to work with the U.S. Government to “lean out” a program and manage the impact of cost overrun
• Unique considerations for deductive changes

5:45 Boot Camp Adjourns

Boot Camp Day 2 – Thursday, July 25, 2013

8:30 Co-Chairs’ Opening RemarksFOCUS ON AUDIT MANAGEMENT & WORKING WITH DCAA

8:35 Best Practices for Working with DCAA Auditors, Resolving Disagreements, and Dealing with Unfavorable Audit Findings: Lessons Learned from Recent Experiences

Marie J. Petracek
Manager - Cost Policy
United Launch Alliance (Centennial, CO)

Brian M. Russ 
Senior Counsel - Litigation and Investigations
The Boeing Company (Seal Beach, CA)

James W. Thomas
Partner
PricewaterhouseCoopers LLP (McLean, VA)

Patricia Meagher 
Partner
Rogers Joseph O’Donnell (San Francisco, CA)

At this interactive discussion, speakers will discuss their recent experiences in working and negotiating with DCAA auditors. Learn which techniques have been most effective, what has been unsuccessful, and how to navigate the contractor-auditor relationship going forward. Audience members are encouraged to ask questions and contribute their insights toward sharing best practices and lessons learned.

10:00 Networking Coffee Break

FOCUS ON PRICING

10:15 How to Meet New Criteria for Forward Pricing Rate Proposals: How to Support Reasonableness of Rates under FAR Part 15

Keith A. Palmer
CACO / DACO Team Supervisor
DCMA-AQKDN
Defense Contract Management Agency (Carson, CA)

Paul Bailey 
Managing Director
KPMG (Tysons Corner, VA)

Paul Cederwall
Partner
Pacific Northwest Consultants LLC (Kent, WA)

• New criteria for forward pricing rate proposals
  • more required detail for forecasting
  • how to manage rates by pool
• Requisite level of detail in a of forward pricing rate proposal, and how much is too much
• What to expect during audits forward pricing rate proposals, including proposal walk-through
• How auditors have determined if the data provided adequately supports the contractor’s proposed rates
• Completing forward pricing rate negotiations in a timely manner
• Close-out proposal requirements
• Lessons from key GAO and court decisions on cost or price analyses of proposals
• What triggers findings of inadequacies: How auditors have determined if the data provided adequately supports the contractor’s proposed rates
• Requirements for cost-plus, time & material and sub-tier proposals
• Computing and applying indirect rates, including cost breakdowns
• Supporting the reasonableness of the rates under FAR Part 15
• Completing forward pricing rate negotiations in a timely manner
• Coordinating and ensuring your proposals are consistent

11:30 Conducting Cost or Price Analyses of Subcontractor Proposals: How to Prevent DCAA Rejections of Your Findings

Claude Ognibene 
Pricing Manager
ViaSat, Inc. (Carlsbad, CA)

Ken Lowe 
Managing Director
Capital Edge Consulting (San Diego, CA)

• Analyzing cost or pricing data of vendors over and under the TINA threshold
• Obtaining records from subcontractors: Best practices for communicating your requests and how to resolve key challenges
• To what extent DCAA will reject a prime contractor’s analysis of subcontractor cost estimates
• When in the procurement cycle does the analysis need to be completed: When it is sufficient to provide a schedule at the proposal stage
• What constitutes an adequate price analysis
• Determining whether a price is fair and reasonable: Key pitfalls to avoid in evaluating “price reasonableness” of subcontractor cost or pricing data• What is expected for conducting market research
• What is required under FAR 15.404-3
• Ensuring adequate price competition: Impact of DoD cost and productivity initiatives, and what to do if a price competition does not yield enough bidders
• Positioning your purchasing systems to identify responsible prospective subcontractors and vendors
• Strengthening your procurement system to monitor fair and reasonable pricing over a long term agreement
• When to use third party consultants to evaluate subcontractor cost or pricing data, and when DCAA will reject third party findings

12:30 Networking Luncheon

1:45 DCAA AUDIT CASE STUDIES and Q & A: How to Deal with the Expected and Unexpected, and Practical Tips for Managing the Process from A to Z

Sajeev Malaveetil 
Director, Government Contracts Practice
Berkeley Research Group LLC (Washington, DC)

Patricia J. Mensch 
President
Mensch & Associates, CPA (San Diego, CA)

Through a review of common and uncommon DCAA audit scenarios, the expert panelists will highlight their approaches to addressing DCAA questions and concerns, and resolving disagreements. Take away practical tips for addressing real-time issues that can arise during a DCAA audit. In addition to best practices, learn what NOT to do through a discussion of “nightmare” scenarios. Ample time will be left for Q & A, so come prepared!

• The Entrance Conference: Understanding the purpose and plan for audit and types of documentation and data to be requested
• During the Audit: Documenting all communications with the auditor
• Exit Conference: Implementing the draft report from the auditor
• Establishing a qualified audit liaison function to document all communications and information provided to the auditor
• Remaining compliant with FAR 52.215-2 amid DCAA’s expanding interpretation of access
• What to do when an auditor contacts you directly

EXECUTIVE COMPENSATION

2:45 What Is and Isn’t “Reasonable” Compensation: Successful Approaches for Using Survey Data to Support Your Position

Nancy Turner 
Director, Ethics & Compliance
Orbital Sciences Corporation (Dulles, VA)

Ed Rataj
Managing Director, Compensation Consulting
CBIZ Human Capital Services (St. Louis, MO)

• DCAA methodology for reviewing executive compensation
• Allowable and unallowable compensation components under DCAA guidelines
• What is “reasonable, and how to prove it vs. what is “unreasonable”
• Using survey data to support compensation
• Recent case law (J.F. Taylor and Metron decisions) and potential impact on compensation methodologies

3:30 Networking Coffee Break

COMMERCIAL ITEM STATUS

3:45 How to Prove Commercial Item Status: The Extent of Cost or Pricing Data Requirements, Exceptions and Required Level of Detail in Your Pricing Submissions

Claude Ognibene
Pricing Manager
ViaSat, Inc. (Carlsbad, CA)

Paul Cederwall
Partner
Pacific Northwest Consultants LLC (Kent, WA)

• Meeting the standards for commercial item determinations
• When cost or pricing data is requested, and how to respond
• The extent of cost or pricing data exceptions for commercial items, and how they are being applied:
  • certified cost or pricing data disclosure requirements
  • FAR Part 31 and CAS coverage
  • conducting a price analysis for commercial item contracts
  • proving commercial status: providing market data, and demonstrating technical similarities to already existing items
• The extent of required detail for pricing submissions
• Demonstrating fair and reasonable pricing for commercial items
• What supporting data to use to demonstrate the commercial nature of a product
• When certified cost or price-related data might be requested for commercial-items contractsCPSRs

4:45 An Inside Look at a Contractor Purchasing System Review (CPSR): How to Strengthen Your Purchasing and Subcontracting Practices to Reduce the Risk of System Deficiencies

Tom Tagle 
Partner
Baker Tilly Virchow Krause, LLP (Vienna, VA)

Christine J. Wade 
CEO/Partner
Caasus, LLC (Washington, DC)

• Understanding DCMA expectations and preparing for an increase in CPSRs: Update on 2011 DPAP memorandum on aligning DCMA and DCAA processes
• Role of ACO in determining deficiencies and how you should respond to any deficiency determinations
• Evaluating the financial ramifications of potential contract withholds based on purchasing system deficiencies
• Ensuring a proper analysis of quoted prices, a reasonable attempt to negotiate with vendors, and a reasonable basis for vendor selection
• Expediting delivery of materials to the customer where appropriate
• Implementing reasonable internal controls over placement and administration of orders
• The scope of subcontractor responsibilities under the FAR

5:45 Boot Camp Concludes