Jeffery A. White, C.P.M. President/CEO J.A. White & Associates, Inc. December 7, 2004

2. The Value-Added CPSR Approach Jeffery A. White, C.P.M. President/CEO J.A. White & Associates, Inc. December 7, 2004 Time 2:10 – 3:20

3. We’re drowning in information and starving for knowledge. -Rutherford D. Rodgers

4. Topics • Traditional View of Subcontract Audits • The CPSR Process • The Value Added Approach

5. Subcontract Audits - Traditional View • Focus on: • Financial Risk Management • Production Management • Laws and Regulations • Compliance with Policies/Procedures

6. Subcontract Audits - Traditional View • Conducted by: • Internal (financial) Auditor • Customers (DCMA/DCAA) • Reactive in Nature • Adversarial in Nature

7. CPSR – The Customer’s Review • FAR 44.3 Outlines the Specific Objectives, Requirements, and Limitations of the CPSR.

8. CPSR – The Customer’s Review • Measures How Efficiently and Effectively a Contractor Spends Government Funds and; • Evaluates Compliance With Government Subcontracting Policies, Regulations, and Laws.

9. CPSR – The Customer’s Review • The CPSR Ultimately Provides the ACO with the Insight Required to Determine if a Contractor’s Purchasing System Approval Should be Granted, Withheld or Withdrawn.

10. CPSR – The Customer’s Review • Contractor’s Government Business Volume Exceeds $25 Million (Excluding Competitive FFP, Competitive FFP/EPA Contracts and Commercial Item Acquisitions) • Whenever an ACO or PCO specifies

11. CPSR Risk Assessment: Basis for Selection • CPSR Approval History • Identified by PCO or ACO • Pre-Award Surveys • Increased Government Sales • Growth • Major/High Visibility Programs • Other Audits • Self Assessment Activities

12. Opportunities for Success or Failure • 98% of firms will not pass their initial CPSR

13. Source Selection Implications Past Performance Implications Losing A Competitive Proposal Loss of Revenue Increased Overhead Expenses Negative Impact on Competitive Acquisitions Impact of an Unsuccessful CPSR on Contractors:Losing The Competitive Advantage!

14. DCAA/IG’s and Other Audit Agencies Alerted Other Audits Will Follow Possible Negative Press Government Oversight Implications Impact of an Unsuccessful CPSR on Contractors:Long-Term Impact…

15. Increase ACO Surveillance Delay in Placing Orders Increase Administrative Expenses Delayed Billings & Collections ACO will not waive ACO Consent to Subcontract Impact of an Unsuccessful CPSR on Contractors:Administrative/Procedural Burden

16. Must Correct Issues Change Processes Change Culture Implement Training Program Prepare for Follow-Up Audit Corretive Action Plan with Specific Tasks, Milestones, and Preparation for a Follow- Up Review Impact of an Unsuccessful CPSR on Contractors:Administrative/Procedural Burden

17. Review and Approve Corrective Action Plan Review Subcontracts Initiate Additional Audits Conduct Follow-up Review Additional Government Oversight Impact of an Unsuccessful CPSR on the Government:Administrative/Procedural Burden

18. The Value-Added CPSR Approach • CPSR Training Guide Discusses the Concept of Self-Governance • Encourages Contractor Participation in CPSR • Encourages the Use of Contractor Self-Assessments as Part of the CPSR Process

19. Why Self Governance? • Pro-Active Compliance • Legal • Ethics • Cost Avoidance • Pro-Active Process Improvement • Changing Customer Oversight Environment • Commercial Focus • Customer Relations • Competitive Edge

20. Self Governance Process Market Concept Develop Audit Plan Conduct Self Assessments Develop MOU Re-visit Audit Plan Baseline CPSR Implementation

21. Self Governance Process • Develop Audit Plan • Audit Frequency • Audit Duration • Audit Personnel • Audit Protocol • Tools/Reports Formats • Corrective Action Process

22. Self Governance Process • Conduct Self Assessments • Could Lead to: • Training Initiatives • Process Improvements • Process Re-engineering • Standardization • Identification of Staffing Needs

23. Self Governance Process • Potential Weaknesses Identified During Self Assessments: • Inadequate Procurement Lead Time • Violation of Public Laws • No or Poorly Written or Implemented Policies • No or Weak File Documentation • Lack of Upper Management Commitment to Compliance with Procurement Regulations

24. Self Governance Process • Self Assessment Methods • Peer Reviews • Management Reviews • Dedicated Audit Teams • External Resources

25. Self Governance Process • Internal and External Marketing • Champions Include: • Executives • Requisitioners/Project Managers • CPSR Team Leaders • ACO • Management Councils • DCMA • DCAA

26. Self Governance Process • Baseline CPSR • Joint Contractor/Government Review • Review Validates Self Assessment Efforts • Ensures Apples-to-Apples Interpretations and Processes

27. Self Governance Process • Re-visit/Adjust Audit Plan • Q&A Issues • Sampling Process • Regulatory Updates • Review New Processes

28. Self Governance Process • Develop MOU • Incorporate Audit Plan • Frequency of Reporting to ACO • Follow-up Joint Reviews

29. Self Governance Process • Benefits of Implementation • Real-Time Compliance Management • Real-Time Corrective Actions • Real-Time Training • Pro-Active Customer Oversight • Refinement of Business Processes • Cost Savings • Competitive Advantages

30. Presented by: Jeffery A. White, C.P.M. President J.A. White & Associates, Inc. 2425 Hollingshed Road Irmo, SC 29063 803.407.1399 x101 803.407.0256 (fax) Jawhite@jawhite.com www.jawhite.com