Update on Audit Guidance Regarding Unallowable Costs for Ineligible Dependent Health Care Benefit Costs.
From the Director of Defense Pricing (DDP) to the Directors of DCAA and DCMA regarding unallowable costs for ineligible dependent health care benefits.
The DDP memorandum states that costs incurred for ineligible dependent health care are unallowable under FAR 31.201-3 and violate the selected cost principle at FAR 31.205-6(m);
However, these unallowable costs are not expressly unallowable. Therefore, auditors should not pursue application of penalties under FAR 42.709 to the questioned ineligible dependent health care benefit costs. Accordingly, auditors also should not cite contractors that fail to exclude these costs from Government contracts for noncompliance with CAS 405.
Notes Added by Paul Gunn: Evidently, DCAA and DCMA auditors and their offices have been incorrectly citing contractors for noncompliance and incorrectly recommending penalties for expressly unallowable costs!
This typically means that the guidance IS NOT being followed as intended and that the Contractor (especially the small contractor) is being unfairly treated on the issue.
So, remember, be courteous and kind, but Know Your Rights and the Policy Guidance!!! How? Simply review the guidance for yourself and discuss it with those you trust. And don’t assume that the auditor is always right.
Now, what can you do if you as a contractor have been, are in the process of, or may find yourself in the future being cited for noncompliance and/or expressly unallowable penalties? I recommend you review the direction provided to the DCAA and DCMA below. It will let you know how they have been instructed to handle the situation and should provide insight as to how to follow-up. Paul Sr.
In instances where a FAO (Field Audit Office) issued a report in which it identified ineligible dependent health care benefits costs as expressly unallowable and recommended the application of penalties, the FAO will need to supplement the report or document that a supplement would not serve a useful purpose. If the FAO issued a report citing the contractor for noncompliance with CAS 405, the FAO should consider the DDP memo a subsequent event that, if known at the time the FAO issued the audit report, would have affected the audit results.
When this type of event occurs, Generally Accepted Government Auditing Standards (GAGAS) require that the auditor disclose this information to the parties currently relying on or likely to rely on the audit report. The disclosure to the contracting officer should describe the nature of the subsequently acquired information and the affect it would have had on the audit report. It should advise the recipient not to rely upon the audit report. The FAO also should include adequate documentation in the working papers and the FAO’s permanent files to ensure that auditors no longer rely on the audit report.
March 28, 2013 PAC 730.3.B.01/2012-04 13-PAC-004(R) SUBJECT: Updated Audit Guidance Regarding Unallowable Costs for Ineligible Dependent
Keep in a better position to deal with these situations. Regularly visit your online contractor community and read, review, re-read, and contemplate the information/guidance provided for you.