“This is a huge step, but it’s going to be a long journey between this memo and actually implementing it in contracts,” David Berteau said.
The Pentagon is moving away from government-unique Cost Accounting Standards to Generally Accepted Accounting Principles, more commonly known as GAAP, that are used in the commercial sector to make it much easier for commercial firms to do business with the department.
In a memo released on Tuesday, Deputy Defense Secretary Steve Feinberg said the department will shift from CAS to the “accounting every American company already uses and push those benefits to every tier of the supply chain.”
The new memo, however, appears to be at odds with the controversial directive Feinberg issued in August that suggested that the Pentagon could install its own software in company data systems “to pull cost information directly.”
“I do not see how it is possible to comply with the August 18 memo unless you are following cost accounting standards. You cannot produce the kind of cost and pricing data that DoD wants and currently can require through GAAP,” David Berteau, a former DoD executive and procurement expert, told Federal News Network. “I don’t know how they are going to reconcile these two memos. How do you go one way and then go in the opposite way? I think this creates confusion and begs for further clarification and implementation,” Berteau said.
Instead, Feinberg said the department will only ask companies for the cost and pricing data “when necessary to foster transparency and fairness.”
He also said that no new accounting systems or special data formats will be required, and that any data companies provide will only be used for “authorized government purposes and never made available to another company for its own use.”
“He can promise that but that has not been the practice of the government either in the Defense Department or in other agencies. They almost always reserve the right to make it available if it is in the government’s interests. Who determines what’s in the government’s interest? Not the companies,” Berteau said.
The decision to move away from CAS is a long-awaited step in modernizing defense financial management — for decades, there has been a debate over whether the government can shift from CAS toward an approach more closely aligned with the rest of the U.S. economy.
The federal government has already been working to conform cost accounting standards to GAAP to make the accounting more similar to the private sector. The Office of Management and Budget and the Cost Accounting Standards Board have already fully rescinded two and gutted most of the other two cost accounting standards.
“CAS has created an onerous, costly and burdensome accounting regime that is unique to government contracting, while GAAP is the framework that auditors, creditors, investors and the markets already rely on for comparable and consistent financial information. Government accounting should not be different simply for the sake of being different,” Rich Brady, chief executive officer of the Society of Defense Financial Management, told Federal News Network.
“By making GAAP the baseline and reserving government-unique requirements for situations where they are truly necessary, the department can reduce unnecessary compliance costs, lower barriers to entry and make it easier for commercial companies to do business with the department,” he added.
Berteau said the memo is a “huge step,” but it will also be a “long journey between this memo and actually implementing it in contracts.”
“It is not clear to me how big a universe of contracts that is going to be, or how fast we are going to resolve the implementation questions associated with that,” Berteau said. “The real question is how fast they go, how fast the department can go in reducing those compliance burdens on current contractors.”
The Defense Department has 30 days to review how the military services are implementing requirements reform.
If you would like to contact this reporter about recent changes in the federal government, please email anastasia.obis@federalnewsnetwork.com or reach out on Signal at (301) 830-2747.
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