B-205208.2, OCT 21, 1986, OFFICE OF THE GENERAL COUNSEL

B-205208.2, OCT 21, 1986, OFFICE OF THE GENERAL COUNSEL

PROCUREMENT - CONTRACT MANAGEMENT - FEDERAL PROCUREMENT REGULATIONS/LAWS - REVISION - COST ACCOUNTING DIGEST: GAO SUGGESTS THAT ACTION ON A PROPOSAL TO INCORPORATE THE COAT ACCOUNTING STANDARDS (CAS) INTO PART 30 OF THE FEDERAL ACQUISITION REGULATIONS (FAR) BE SUSPENDED PENDING CONSIDERATION OF LEGISLATION THAT WOULD REESTABLISH A CAS BOARD. IF THE PROPOSED PLAN IS CARRIED OUT, GAO RECOMMENDS THE ESTABLISHMENT OF AN INDEPENDENT, EXPERT BODY TO PROVIDE COUNSEL ON THE CAS, AND SUGGESTS THE CAS PREAMBLES ALSO BE INCORPORATED INTO THE FAR.

MS. MARGARET A. WILLIS:

FAR SECRETARIAT

GENERAL SERVICES ADMINISTRATION

THIS RESPONDS TO YOUR LETTER OF JUNE 4, 1986, REQUESTING OUR COMMENTS ON A PROPOSAL TO INCORPORATE INTO FEDERAL ACQUISITION REGULATION (FAR) PART 30 THE STANDARDS AND SELECTED RULES AND REGULATIONS PROMULGATED BY THE COST ACCOUNTING STANDARDS BOARD. CONFORMING CHANGES TO OTHER FAR PARTS ALSO ARE PROPOSED. THIS IS FAR CASE NO. 86-31.

THE COST ACCOUNTING STANDARDS (CAS) WERE PROMULGATED BY THE CAS BOARD UNDER THE AUTHORITY OF SECTION 719 OF THE DEFENSE PRODUCTION ACT OF 1950, AS ADDED BY PUB.L. 91-379, 50 U.S.C. APP. SEC. 2168 (1982). THIS PROVISION ALSO AUTHORIZED THE BOARD'S PROMULGATION OF RULES AND REGULATIONS TO IMPLEMENT THE CAS. IN ITS 10-YEAR EXISTENCE, THE BOARD DEVELOPED A SET OF 19 COST ACCOUNTING STANDARDS TO GOVERN THE PROPER ALLOCATION OF COSTS INCURRED UNDER NEGOTIATED DEFENSE CONTRACTS. THE BOARD BECAME INACTIVE ON SEPTEMBER 30, 1980, DUE TO THE LACK OF A FISCAL YEAR 1981 APPROPRIATION.

THE FEDERAL REGISTER NOTICE CONCERNING THE PROPOSED CHANGE STATES THAT INCORPORATION OF THE CAS AND ASSOCIATED RULES AND REGULATIONS INTO THE FAR WILL BE EFFECTED WITHOUT CHANGING THE SUBSTANCE OF THESE PROVISIONS. THE NOTICE STATES FURTHER, HOWEVER, THAT FUTURE REVISIONS OF THE STANDARDS AS INCORPORATED INTO THE FAR WILL BE PROCESSED IN ACCORDANCE WITH THE NORMAL PROCEDURES FOR REVISING THE FAR. IN EFFECT, THEREFORE, THE CAS WILL BECOME SUBJECT TO CHANGES BY THE AGENCIES RESPONSIBLE FOR THE FAR.

EVER SINCE THE CAS BOARD CEASED OPERATIONS, THIS OFFICE HAS SUPPORTED EFFORTS TO REINSTITUTE THE BOARD'S FUNCTIONS. THE ENVIRONMENT IN WHICH THE ACCOUNTING STANDARDS EXIST IS DYNAMIC AND SOME MECHANISM FOR CHANGING THE CAS OR ISSUING ADDITIONAL CAS WHEN NECESSARY SHOULD BE AVAILABLE. THE LOCATION OF AN ORGANIZATION EMPOWERED TO CARRY OUT ANY BOARD FUNCTION, HOWEVER, IS IMPORTANT. OUR POSITION HAS BEEN THAT THOSE RESPONSIBLE FOR FUNCTIONS OF THE CAS BOARD SHOULD MEET TWO CRITERIA: (1) SHOULD BE INDEPENDENT OF THE ECONOMIC AND INCENTIVE FACTORS THAT INFLUENCE FEDERAL PROCUREMENT POLICY; AND (2) MUST HAVE SUFFICIENT ACCOUNTING EXPERTISE AND EXPERIENCE TO MAINTAIN THE INTEGRITY OF THE PROMULGATED STANDARDS.

WE DO NOT OBJECT TO THE INCLUSION OF THE STANDARDS, RULES AND REGULATIONS IN THE FAR PER SE. HOWEVER, INCLUSION OF THE STANDARDS IN THE FAR WITH THE EXPLICIT INTENTION OF AMENDING THEM OR ISSUING NEW STANDARDS WOULD NOT SATISFY THE CONCERNS EXPRESSED IN CRITERIA (1) AND (2) ABOVE.

LEGISLATION RECENTLY HAS BEEN INTRODUCED IN THE HOUSE OF REPRESENTATIVES THAT WOULD REESTABLISH A COST ACCOUNTING STANDARDS BOARD. H.R. 5479, 99TH CONG., 2D SESS. (1986). WE ALSO UNDERSTAND THAT THERE IS INTEREST IN SIMILAR LEGISLATION IN THE SENATE. WE SUGGEST THAT ACTION ON FAR CASE NO. 86-31 BE SUSPENDED UNTIL CONGRESS HAS HAD A REASONABLE AMOUNT OF TIME TO CONSIDER SUCH LEGISLATION. IF NO LEGISLATIVE ACTION IS TAKEN ON THIS SUBJECT, WE WOULD SUPPORT THE ESTABLISHMENT OF A CAS ORGANIZATION WITHIN THE EXECUTIVE BRANCH.

IF THE PROPOSED PLAN CONCERNING RESPONSIBILITY FOR THE CAS IS CARRIED OUT, HOWEVER, WE RECOMMEND THAT IN ORDER TO MAINTAIN THE INTEGRITY OF THE STANDARDS AN INDEPENDENT ADVISORY BOARD BE ESTABLISHED TO PROVIDE THOSE RESPONSIBLE FOR FAR REVISIONS WITH COUNSEL REGARDING THE STANDARDS, RULES, AND REGULATIONS. THE ADVISORY BOARD COULD BE CONSTITUTED IN A MANNER SIMILAR TO THE ORIGINAL CAS BOARD, I.E. WITH THE COMPTROLLER GENERAL OR HIS REPRESENTATIVE AS CHAIRMAN AND FOUR ADDITIONAL MEMBERS HAVING ACCOUNTING BACKGROUND AND EXPERIENCE. AS AN ALTERNATIVE MEANS OF ASSURING THAT SUFFICIENT ACCOUNTING EXPERTISE AND EXPERIENCE ARE BROUGHT TO BEAR, THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS COULD BE REQUESTED TO APPOINT AN ADVISORY BOARD TO PROVIDE COUNSEL. WE BELIEVE THAT EITHER OF THESE SUGGESTIONS WOULD AID IN ACHIEVING THE INDEPENDENCE AND ACCOUNTING EXPERTISE REQUIRED.

FURTHER, WE NOTE THAT THE PROPOSAL WOULD NOT INCORPORATE THE PREAMBLES (PREFATORY COMMENTS) INTO THE FAR ALONG WITH THE STANDARDS. WE BELIEVE THIS WOULD BE A SERIOUS OMISSION. THE PREFATORY COMMENTS HAVE PROVEN USEFUL TO AUDITORS, CONTRACTORS, BOARDS OF CONTRACT APPEALS, AND OTHERS WHO USE THE STANDARDS. ALTHOUGH SUCH EXPLANATORY MATERIAL ORDINARILY IS NOT CODIFIED, THE GOVERNMENT PRINTING OFFICE PUBLISHED THE PREAMBLES WHEN IT CODIFIED THE STANDARDS, RULES AND REGULATIONS IN TITLE 4 OF THE CODE OF FEDERAL REGULATIONS. WE BELIEVE THE SPECIALIZED NATURE OF THE CAS WARRANTS INCLUDING THE PREAMBLES IN ANY PUBLICATION OF THE CAS.