Memorandum USA002547-19: What Does It Mean for Government Property Managers?

On December 16, 2019, Ms. Ellen Lord, Under Secretary of Defense for Acquisition and Sustainment, released Memorandum USA002547-19. Though this memo is short, it will likely have a significant impact on many defense contractors.

Let’s dig into the content of Memo USA002547-19, what led to it, and how it may affect government property managers for defense contractors.

What Memorandum USA002547-19 Says

One important excerpt from the memo is the following:

“DCMA shall assess contractor compliance by reviewing the records and physical inventory controls within the contractors’ property management systems. This is to occur on an annual basis for systems with greater than one hundred million dollars’ worth of government property. The confidence level for these reviews shall be raised to the 97th percentile, and the populations shall include all DoD GFP at those contractor locations.”

Memorandum USA002547-19

According to DCMA, 116 contractors are reported to manage an inventory of DCMA-administered government property that is valued at or greater than $100 Million, thus meeting the memo’s threshold.

Behind USA002547-19

The increased government property oversight we see such as in this memo is likely driven by the FIAR audit. For example, the memo states:

“The Financial Improvement and Audit Readiness efforts have documented continued challenges with the government property records…”

Memorandum USA002547-19

The FIAR efforts aim to improve DoD financial accountability. This includes business systems such as government property management.

The FIAR audit is in response to many trends, including findings reported by government oversight entities such as DCMA and the Government Accountability Office (GAO). In 2019, the GAO reported several DoD areas on its “High-Risk” list, including financial management aspects such as asset management.

The DoD expects that the independent public accountants (IPAs) performing the Financial Improvement and Audit Readiness (FIAR) audit planned to increase frequency of onsite contractor visits. The DCMA activity described in the memo aims to increase the confidence level of the DoD and IPAs, thus limiting the need for onsite IPA inspections.

Additionally, DCMA Government Property Administrators (GPAs) have expressed concern that completing PMSAs every 2-3 years lowers their ability to identify deficiencies that need to be corrected.

Memo USA002547-19 applies to a relatively small number of contracting companies. However, these contractors manage a majority of contractor-held government property. According to DCMA Director Andrew Obermeyer, the “Big Six” contractors account for 69% of total Government property administered by DCMA.

For the DoD, this means that performing the audit described in USA002547-19 will serve as an effective means to meeting Department FIAR goals. For government property managers, this means an incredible amount of work is ahead.

What Exactly Does This Mean?

For the contractors who meet the $100 million threshold, this memo requires DCMA to complete an assessment of their two property system elements annually. It also requires near-perfect confidence level for all managed government property.

During the National Defense Industrial Association (NDIA) Government Property Systems Committee meeting, AssetWorks was provided a clarification letter from the DCMA Acting Director, Mr. Robert Brown. Mr. Brown’s letter aims to clarify which contractors will qualify for the additional DCMA scrutiny. He explains:

  • The population will consist of all Department of Defense Government property to include Contractor Acquired Property (CAP) and Government Furnished Property (GFP)
  • The population will consist of all Department of Defense Government property under the contractor’s property management system which is being assessed in the PMSA, regardless if DCMA has administration.
  • The contractor only meets the one hundred-million-dollar threshold if the contractor has reported they have one hundred million dollars or more of Government property in their possession under DCMA administered contracts.

Mr. Brown goes on further to provide examples of contractors that would and would not qualify. Contractors can access Mr. Brown’s letter through this link. A quick summary is also provided here.

Conclusion

On day two of the NDIA Government Property Committee meeting, DCMA Director Mr. Andrew Obermeyer and Under Director Mr. Len Salazar made themselves available to the NDIA Government Property Systems Committee to answer clarification questions about the Ms. Lord Memo. Their input, in addition to Mr. Brown’s input, has been invaluable in navigating these changes.

For property managers who work for one of the 116 contractors to whom this memo applies, they can expect increased attention from DCMA and other accountability agencies. For other contractors, this memo does not directly affect their compliance requirements. However, we would like to note that the Ms. Lord memo may only mark the beginning of a new level of scrutiny on all government property management.

While there is push-back to this memo, as of writing we cannot be sure of any future changes. For contractors to whom this memo applies, it will likely soon be vital to comply with the memo. Although it is not explicitly stated, noncompliance with this memo may lead to serious consequences, including payment withholding.

Currently, we suggest all government property managers who work for defense contractors to investigate methods of achieving the results required by the Ms. Lord memo. For example, government property managers may want to look into switching from spreadsheets for property management.

For those who would like additional support in navigating these changes, feel free to contact our expert team.

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