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July 13, 2010
FAR 52.203-13, Implements Significant Compliance RequirementsNew rule affecting a contractors compliance and internal control systems is codified by FAR 52.203-13. Actually the
clause has been around for a while. It was established in 2008. The rule has been heavily debated with back and
forth but is now implemented. In addition DCAA has started an initiative to audit against it. The new rule is
applicable to contracts exceeding $5 Million and 120 days of contract performance. Certain parts of the rule apply to small
business. The rule requires:
1. Contractors maintain written standards of conduct, be diligent in the prevention
and detection of criminal conduct and maintain a culture of ethical conduct/compliance. It also requires contractors
to disclose in writing to the Office of the Inspector General incidents where there is credible evidence that a violation
has occured of criminal law or the civil False Claims Act.
2. Contractors must implement an ongoing
employee awareness program regarding standards of conduct and reporting incidents, an internal controls system that is designed
to detect incidents of noncompliance and corrective measures are implemented and carried out. The rule goes on to describe
minimum requirements including periodic audits, testing and monitoring. This item only applies to large businesses,
small businesses are exempt from the internal control system requirement.
This is an alert and is intended to notify
contractors of the new rule and is a summary. It is not an analysis of the new rule as it is a substantial rule with
detailed requirements. I encourage contractors to get a copy of FAR 52.203-13 and review the clause in its entirety.
This new rule imposes substantial compliance responsibility upon large and small businesses. Small businesses
are only subject to the standards of conduct policies, training and the reporting provisions of this new rule.
I encourage all contractors to review its compliance policies, procedures and monitoring in light of this rule. I encourage
contractors to enhance its policies, procedures and internal control programs to comply with this complex but important
rule. In regards to the reporting to the Office of Inspector General I strongly encourage contractors to seek legal
counsel regarding its rights in light of disclosure. Contractors should engage qualified professionals and
possibly legal counsel as needed.
Tue, July 13, 2010 | link
May 5, 2010
Reminder: Incurred Cost Submissions Due For Certain ContractorsContractors that execute cost reimbursable contracts or other contracts that invoke the Allowable Cost and Payment Clause
(FAR 52-216-7) are required to submit its Incurred Cost Proposal submission within six months after the the completion of
the accounting year. This proposal establishes final direct cost and indirect rates for the fiscal year.
For calendar year contractors the due date is June 30. The proposal submission must be considered adequate
for audit. Use of the DCAA Incurred Cost Electronically(ICE) Model is the expected format. This model is a very
substantial submission.
As a reminder the June 30 date for calendar year contractors is soon approaching.
If you have questions about this submission or its requirements please contact me.
Wed, May 5, 2010 | link
Government Makes Changes to Allowable Air Fare CostsThe Government revised the Air Fare allowable cost rules (FAR 31.205-46) by further limiting allowable costs to the lowest
air fare available to the contractor. DCAA chimed in and issued revised audit guidance by its MRD dated March 22, 2010.
In this guidance DCAA is instructing its auditors to make assessments of contractor policies and procedures to secure the
lowest air far available. It even goes as far as requiring its auditors to investigate the use of nonrefundable
air fares or lower fares that have been negotiated by the contractor with airlines, travel agents, credit card companies,
etc. Auditors will be making assessments of contractor policies relative overall travel management and advance planning
to get the lowest possible air fares. It will also be investigating whether utilizing nonrefundable air fares will benefit
the government net of cancellation fees.
I guess the government made a straight forward regulation more
complicated. The added costs of administration may very well erode any real savings the government thinks it may recieve.
DCAA is complicating this further with the added evaluation of non refundable airfares. In any event contractors
should evaluate their policies and procedures relative to travel management and be aware that DCAA may be questioning normal
coach air fare costs if there are possible lower cost air fares available to the contractor. Nonrefundable airfares will now
be considered if the contractor's history of cancellation fees does not outweigh any savings from non refundable air
fares.
This regulation like most is aimed at the larger Defense contractors. In most cases these
regulatory changes trickle down to small contractors. Small contractors are not immune to this new rule nor the DCAA
audit guidance.
Wed, May 5, 2010 | link
April 26, 2010
Over a year ago DCAA made an abrupt change in how it handles audits by considering even minor deviations from compliance requirements
a major deficiency. As a result, it has been recommending a host of negative actions including rejecting the adequacy
of accounting systems for government contracting. Initially this was aimed at large DoD businesses. However it
is also being applied to small businesses. I personally have witnessed these actions across the country at many small
business locations. However, the DCAA application of this radical change in audit guidance has been very inconsistent.
It varies by location and even by auditor. I have successfully turned many of these scenarios around for the contractor
and to facilitate the award of contracts. But this required lots of work. I have also seen situations where
the government procurement personnel have avoided DCAA essentially circumvented this guidance to get past the DCAA audit report,
amazing.
The bottom-line is this, if you get one of these auditors that is following this guidance then the
smallest deviations in accounting policy or practices, once considered to be immaterial, now render your systems
to be inadequate. For a small business this may very well prevent you from securing contracts or a host of other
negative consequences. Suggest systems, practices and policies/procedures be closely reviewed and corrective actions
be taken immediately.
Mon, April 26, 2010 | link
February 8, 2010
DCAA Provided Guidance on Indirect Cost Limit For Research ProjectsThis is an information post. DCAA on December 10, 2009 provided direction and audit guidance to its auditors to
determine compliance with the 2009 Appropriations Act. This Act limits indirect costs on DoD research grants and
other contract vehicles. The limit is 35% of total costs. DCAA has instructed its auditors to verify compliance with
this requirement and to audit the contractor's internal controls regarding this compliance requirement.
Contractors
should keep this in mind understand its indirect costs invoicing will be to limited to this cap and make adjustments in its
billing procedures to not exceed this limitation. Should you have questions on this or been requested by DCAA to demonstrate
your system meets this requirement please contact me.
Mon, February 8, 2010 | link
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