A CASB Disclosure Statement is a form whereby a US Government Contractor discloses its cost accounting practices, for which it is required to demonstrate CAS compliance for the life of its active CAS (Cost Accounting Standards) covered awards. The CASB Disclosure Statement, otherwise known as DS-1, has a very rigid format with eight different parts:
- Part I – General Information
- Part II – Direct Costs
- Part III – Direct vs. Indirect Costs
- Part IV – Indirect Costs
- Part V – Depreciation and Capitalization Practices
- Part VI – Other Costs and Credits
- Part VII – Deferred Compensation and Insurance Cost
- Part VIII – Home Office Expenses
Each part has numerous sections called items which vary in applicability to the contractor, depending on the contractor’s cost accounting practices. While each item is generally constituted by selection boxes and multiple-choice questions, certain responses require the contractor to detail information in longer narrative form, on “continuation sheets”.
When is a CASB Disclosure Statement Required?
The requirement to submit a CASB Disclosure Statement depends on the CAS covered contracts a contractor maintains. In a nutshell, CAS is applicable to individual contracts and the applicability of CAS is triggered based on dollar thresholds. Whether or not CAS is applicable to a given contract is determined by the contract type, the size of the business receiving the contract, and the amount awarded. A CASB Disclosure Statement is required if Full-CAS coverage applies to a contractor. [Click here] to learn more about types of CAS coverage and CAS applicability.
Any CAS-covered contract of $50 million or more requires a Disclosure Statement prior to the contract award. CASB DS-1 should not be submitted prior to Full-CAS coverage applicability. The solicitation usually provides clarification on when exactly the Disclosure is required. Typically, if the requirement is in the solicitation, and it is the Contractor’s first Disclosure, then submission is due at the time of the proposal.
If a CAS-covered contract under $50 million is awarded, and the Contractor received net CAS-covered awards in the prior accounting period totaling more than $50 million, then the Contractor is required to file a Disclosure Statement prior to the contract award. However, if the award is within the first 90 days of the proceeding accounting period, then the contractor is not required to file until the end of the 90 days.
If a contractor anticipates future Full-CAS coverage, it is prudent to have the Disclosure Statement prepared and ready (i.e., not submitted to the Government).
CASB Disclosure Statement Adequacy and Compliance
When a CASB Disclosure Statement is required, it must be submitted to the Contracting Officer (CO) and the Cognizant Federal Agency Official (CFAO). All Disclosure Statements will be reviewed and audited based on two major factors (1) adequacy, and (2) compliance.
CASB Disclosure Statement Adequacy
The adequacy of a CASB Disclosure Statement is determined by how the DS-1 is formatted and filled out based on the applicability of the 19 Cost Accounting Standards to the contractor. For example, if a contractor accumulates Home Office expenses and allocates such expenses to various business segments, but it does not complete Part VIII of the Disclosure Statement, the Disclosure Statement would be deemed inadequate.
Ensuring adequacy on a CASB Disclosure Statement is not easy, and it can be a grueling process to pass adequacy with DCAA. DCAA’s adequacy checklist evaluates the DS-1 for completeness and proper formatting, oftentimes resulting in many rounds of back and forth before a Disclosure Statement is accepted for audit. This erodes auditor confidence and burns costly time on behalf of the Government and the contractor.
Our experience suggests that at least 50% of inadequacies can be avoided simply by filling the DS-1 out with all the required information in proper format. As a result, we designed a proprietary software – CASB DS-Done – to facilitate an adequate Disclosure Statement. The software is built with control integrity to hit on all the required fields and continuation sheets with user-friendly prompts avoiding the countless hours of formatting and inadequacy rejections. [Click here to learn more about DS-Done].
Contractor Compliance With Disclosed Accounting Practices and Procedures
The Defense Contract Audit Agency (DCAA) maintains eight types of noncompliance based on CASB rules, regulations, and standards, and FAR Part 31:
- Disclosed practices not compliant with CAS;
- Disclosed practices not compliant with FAR;
- Actual practices of estimating costs not compliant with CAS;
- Actual practices of estimating costs not compliant with FAR;
- Actual practices for estimating costs not compliant with the practices disclosed in the Disclosure Statement;
- Actual practices for accumulating or reporting costs not compliant with CAS rules and regulations;
- Actual practices for accumulating or reporting costs not compliant with FAR; and
- Actual practices for accumulating or reporting costs not compliant with the practices disclosed in the Disclosure Statement.
What Are the Penalties of CASB Disclosure Statement Inadequacies or Noncompliance?
Inadequate formatting of CASB DS-1 greatly hampers the progress of a contractor’s Government Contracts program from an operational, accounting, and billing standpoint. To ensure all contract estimates, procurements, and billings are conducted properly under CAS rules, regulations, and standards, and FAR part 31, the accounting practices of Full-CAS covered contracts or companies/business segments are audited via initial Disclosure Statement audit.
Such audits will only be initiated once the CFAO has deemed the CASB DS-1 to be adequate. Delays in Disclosure Statement adequacy translate to delays in Disclosure Statement audits, and delays in Disclosure Statement audits degrade both contractor and Government confidence in the contractor’s cost accounting reliance. It can also result in delayed contract award, in addition to unnecessary resource consumption on both parties to resolve inadequacies that can be avoided with upfront diligence.
Penalties for Noncompliance
Depending on the nature of the non-compliance there can be a variety of penalties for noncompliance. In its simplest sense, the U.S. Government will be entitled to repayment of any material non-compliance if it resulted in increased cost to the Government. If the CFAO determines that noncompliance is material, the contractor is required to submit a description of any accounting practice change needed to bring the practices into compliance, which the auditor will review for adequacy and compliance. If the proposed change is both adequate and compliant, the contractor must submit a cost impact detailing the effect the non-compliance had on all effected CAS covered awards.
The CFAO will evaluate the cost impact and if the result was increased cost to the Government, the CFAO will administer contract and/or billing adjustments, plus applicable fines and interest to repay the amounts due as a result of the noncompliance. Noncompliant cost impacts take time to develop, negotiate, and are a significant burden and expense to both the contractor and the Government to administer. It can require going back years into your historical contract and accounting records to obtain the necessary information to perform a cost impact analysis.
Adding to the risk of CAS non-compliances is the risk of perceived, or actual, False Claim Act (FCA) allegations from the customer. In many instances, the U.S. Government customer may assert that the contractor was aware, or should have been aware, of the non-compliance and, as such, the Government is entitled to False Claim damages up to treble damages. In short, CAS non-compliances only come in 2 varieties: bad and worse.
“CAS noncompliance” is among the short list of bad words you never want associated with your organization; right along with false claims and defective pricing – words that often get attached to CAS noncompliance if the Government feels the noncompliance was purposeful. Be diligent upfront and ensure you can demonstrate compliance with CAS.