Kenneth J. Saccoccia Assistant Director, Policy and Plans Breakout 710 April 25, 2007

1. Current Initiatives Within Defense Contract Audit Agency Kenneth J. Saccoccia Assistant Director, Policy and Plans Breakout 710 April 25, 2007

2. Topics • DCAA Mission Statement and Organizational Placement • Summary of Audit Results • Staffing (Auditor Workforce) • DCAA Initiatives/Current Issues

3. DCAA Mission DCAA Charter - DoD Directive 5105.36 Mission – Defense Contract Audit Agency (DCAA) shall: • Perform all necessary contract audit for the Department of Defense and provide accounting and financial advisory services regarding contracts and subcontracts to all Department of Defense components responsible for procurement and contract administration. These services will be provided in connection with negotiation, administration and settlement of contracts and subcontracts. • Provide contract audit service to other Government Agencies, as appropriate.

4. Department of Defense (DoD) Organization

5. Director Deputy Director Executive Officer General Counsel Defense Legal Service Assistant Director Policy & Plans Assistant Director Operations Assistant Director Resources Regional Offices (5) Field Detachment Director Deputy Director Regional Offices (5) Central, Eastern, Mid-Atlantic, Northeastern, and Western DCAA Organization

6. DCAA Performance Plan • Annual agreement between the Under Secretary of Defense (Comptroller) and DCAA Director. • Articulates expectations for DCAA’s performance. • Developed using implementing guidance from the Office of the Secretary of Defense.

7. DCAA Performance PlanPresentation of the Measures Sample Chart: Competitive Sourcing Benchmarking Rates (Constant 2006 Dollars) • Performance plan is presented in the form of bar charts to present historical trend data • Each measure contained in the plan is identified with a target (goal) objective as the deliverable • Narrative identifies: • objective & definition • data quality discussion • observations FY06 Public Firm Rate = $162.81 FY 2006 Goal $116.24

8. Procurement/ RDT&E* 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Procurement/RDT&E Budget Authority in Constant Dollars vs. DCAA Staffing % Change from FY 2002 Values $173.1 B $124.7 B 3,759 DCAA** Staffing 3,971 *Source: March 2006 National Defense Budget Estimates for FY 2007 (Green Book), Table 6-8 **Straight-time workyears

9. Summary of DCAA Audit ResultsPrior Complete Years and FY 2006 Results Net Savings (in Billions) Effective Auditing Produces Results

10. DCAA FYs 2005 and 2006 Audit ResultsBy Audit Area Incurred Cost. Includes audits of historical costs, internal control systems, and final contract closings. Forward Pricing. Includes audits of price proposals, estimating systems, and forward pricing rate agreements. Other. Includes Cost Accounting Standards, operations audits, and Truth-in-Negotiations (Defective Pricing Audits).

11. DCAA Staffing (Auditor Workforce)

12. Staffing (Auditor Workforce)

13. DCAA Auditor WorkforceHistorical Auditor Attrition Rate

14. Eligible Actual DCAA WorkforceRetirement - Eligibility versus Actual

15. DCAA Auditor WorkforceEntry Level Auditor Hires for FY 2006 (as of 9/30/06)

16. DCAA Initiatives/Current Issues • Multi-Segment Contractor Organizations • Audit Efficiencies Gained Through Improved Internal Controls and Electronic Access • Direct Billing • Financial Capability • Contract Closeout • Other Initiatives/Current Issues

17. Multi-Segment Contractor Organizations • Contractor organizational structures continue to evolve and increase in complexity due to mergers, acquisitions and reorganizations. • DCAA must maintain an understanding of the multi-segment contractor’s changing organizational structure • to ensure efficient and effective audit coverage, including internal control, incurred cost, and CAS compliance audits • to facilitate audits at CAS segments and offsite locations. • Objective is to assure: • causal/beneficial relationships continue to exist between indirect costs and final cost objectives at all levels of a contractor’s organization (e.g., home offices, segments and offsite locations) • appropriate audit coverage and resources

18. Audit Efficiencies Gained Through Improved Internal Controls • Audit approach considers the impact of contractor’s efforts (e.g., internal control audits) when planning the scope of audits. Auditor may consider the potential for: • relying on the work of others since contractor’s are already performing the effort, and • we can reduce our audit effort. • DCAA audits may consider efforts by contractor internal audit staff as well as external reviews. • Generally, the larger DoD contractors have performed efforts to meet the Sarbanes-Oxley requirements and have briefed DCAA on their Sarbanes-Oxley implementation plans.

19. Using Electronic Submissions to Improve Productivity % of Proposals Received Electronically Agency-wide Results

20. Direct Billing

21. Direct Billing • DCAA is the authorized representative of the contracting officer for authorizing direct submission of interim contract vouchers to the payment office. • Contractors must meet certain criteria to receive approval to direct bill (otherwise DCAA may rescind such authority): • Approved billing system • No significant internal control deficiencies • No suspended or disallowed incurred costs • Indirect cost rate proposal submitted timely • Final vouchers submitted timely

22. Direct Billing FY 2007 Major Contractors Currently Submitting Public Vouchers (Total of 354 Major Contractors) Status as of February 20, 2007 Total Major Contractors Submitting Vouchers Reasons for Ineligibility

23. Direct Billing FY 2006 Non Major Contractors Currently Submitting Public Vouchers (Total of 5,912 Non-Major Contractors) Status as of February 20, 2007 Total Non-Major Contractors Submitting Vouchers Reasons for Ineligibility

24. Financial Capability

25. Financial Condition Risk Assessments and Financial Capability Audits at Parent and Subsidiary Locations • Financial Condition Risk Assessments and Financial Capability audits will generally be performed at the Parent location Exceptions: • DCAA does not have access at the Parent location (i.e., DCAA does not perform an incurred cost audit at the parent) • The parent does not “sweep” cash and guarantee the performance of its subsidiaries • Parent auditors will perform a risk assessment or audit of the corporation as a whole and, if applicable, assess the need for additional effort at the subsidiary location

26. Contract Closeout

27. Contract CloseoutReducing the Number of Late Incurred Cost Submissions No. of Overdue Indirect Cost Rate Proposal Submissions FY 2007 data as of 2/20/2007

28. Contract CloseoutClosing Contracts using Cumulative Allowable Cost Worksheet (CACWS) • CACWS shows total allowable costs incurred by contract (using indirect rates that are negotiated/finalized). • Larger contractors have more challenges developing CACWS than smaller contractors: • Varied legacy systems due to mergers & acquisitions • Many are committed to providing CACWS going forward • Use of CACWS is a win, win, win situation • Contractor can submit final voucher directly to ACO • Eliminates need and time for audit • ACO closes contracts without a final voucher audit

29. All Incurred Cost Audit Reports Cumulative Allowable Cost Worksheet% Incurred Cost Audit Reports Issued with a CACWS

30. Other Initiatives/Current Issues

31. Pension Protection Act of 2006 • The Pension Protection Act (PPA) was signed on August 17, 2006 and may require contractors to contribute more monies to the pension plan than are reimbursable on Government contracts under the CAS 412 & 413 rules. • Significant factors affecting the PPA minimum funding are: • Use of corporate bond rates for assumed rates of investment return • 7 year amortization period for unfunded liabilities • Deferred PPA implementation for the largest defense contractors ($5 billion of defense sales in the previous year) until the earlier of: • CAS Board “harmonize” the CAS with the PPA requirements (no later than January 2010), or • Year 2011

32. Cost Accounting Standards Board Members

33. Cost Accounting Standards BoardMeetings • CAS Board met on February 6, 2007 and April 4, 2007 • Expect to Meet Bimonthly • Upcoming agenda items: • Pension Protection Act • CAS exemption for contracts executed and performed outside the United States

34. Proposals Under DFARS Threshold • PGI 215.404-2(a): • Field pricing support not required for cost-type proposal less than $10 million • Two Exceptions – Price concerns due to: • A lack of knowledge about the contractor or • Sensitive conditions • Guidance - auditor should • Understand reason for request • Discuss/ascertain if a different level of service could meet the customer’s need

35. Positive Responsible Involved Decisive Interactive Professional Flexible Ethical Leadership Values

36. Questions?