In recent months, expressly unallowable costs have emerged as a focal point for the Defense Contract Audit Agency (DCAA). DCAA has issued two Memorandums for Regional Directors (MRDs) providing auditors with new guidance on identifying expressly unallowable costs, much to the dismay of contractors who believe that the guidance does not align with the intent of the applicable cost principles. These MRDs likely mean that contractors will receive more penalty recommendations than in years past, in addition to potential assertions of CAS 405 non-compliances. Continue reading Updated DCAA Guidance on Expressly Unallowable Costs
By: Mary Karen Wills
On February 17, 2012, Shay Assad, the director of Defense Procurement and Acquisition Policy (DPAP), issued a memorandum regarding “Unallowable Costs for Ineligible Dependent Health Care Benefits.” This memo reiterated that costs incurred by contractors for ineligible dependent healthcare are unallowable as they represent invalid claims made by employees. The memo affirmed that DoD would not pursue penalties under FAR 42.709 related to these costs, but that DoD intended to amend the DFARs in this regard to enable it to pursue penalties in the future.
Fast-forward to March 28, 2013: DCAA issues Audit Guidance Memorandum 13-PAC-004(R) transmitting the DPAP guidance to its auditors (http://www.dcaa.mil/mmr/13-PAC-004.pdf. DCAA affirms that auditors should not pursue application of penalties under FAR 42.709 related to questioned ineligible dependent healthcare benefit costs. In addition, DCAA auditors are instructed not to cite contractors for CAS 405 noncompliance when they fail to exclude these costs from Government contracts.