Feinberg memo shifts DoD from CAS to GAAP
The September directive embraces commercial accounting, but Feinberg's August memo demanding direct access to company cost data pulls in the opposite direction, and no one has reconciled the two.
TL;DR
Deputy Defense Secretary Steve Feinberg issued a memo Tuesday directing the Pentagon to shift from Cost Accounting Standards to Generally Accepted Accounting Principles, framing the move as adopting "the accounting every American company already uses." The push follows months of CAS-to-GAAP conformance rulemaking by the CAS Board, which has already rescinded two standards outright and gutted two others. But procurement expert David Berteau flagged an unresolved tension: Feinberg's August 18 memo, which floated the possibility of DoD installing software in company systems to pull cost data directly, appears to require the very granular cost tracking that GAAP doesn't provide. "How do you go one way and then go in the opposite way?" Berteau told Federal News Network.
The CAS-to-GAAP project has been moving through the rulemaking machinery for over a year. The Cost Accounting Standards Board, housed in OMB, has already issued final rules wholly rescinding CAS 408 and 411, rescinding most of CAS 404 and 409, and, as of a September 1 Federal Register notice, eliminating CAS 407, stripping more than 10,000 words of regulatory text and 68 of 72 individual requirements across those actions. The board is currently working to eliminate a fifth standard and increase CAS thresholds.
So the Feinberg memo is not starting a new conversation. It's throwing DoD's weight behind one that was already well underway. Rich Brady, CEO of the Society of Defense Financial Management, told Federal News Network that GAAP "is the framework that auditors, creditors, investors and the markets already rely on," and that making it the baseline allows DoD to reserve government-unique requirements for situations where they are "truly necessary."
The problem is the August 18 memo. That directive, as described by Federal News Network, suggested the Pentagon could install its own software in company data systems "to pull cost information directly." David Berteau, a former DoD executive and procurement expert, told the outlet he doesn't see how compliance with that memo is possible without cost accounting standards. GAAP allows companies to aggregate and calculate average costs over time; cost and pricing data requirements (of the kind the August memo seems to contemplate) demand per-item tracking. "I don't know how they are going to reconcile these two memos," Berteau said.
Feinberg's September memo attempts to soften the tension by saying the department will seek cost and pricing data only "when necessary to foster transparency and fairness," and promises no new accounting systems or special data formats. But Berteau noted that the government has historically reserved the right to make company data available when it deems doing so in the government's interest. Who decides what's in the government's interest, he asked, "not the companies."
Implementation will take time. Berteau called the September memo a "huge step" but warned it's "a long journey between this memo and actually implementing it in contracts." The universe of affected contracts and the speed of resolution are both unsettled. Until the Pentagon clarifies how the August and September directives coexist, contractors are being asked to head in two directions at once.
Published ·Deep Fathom