DCAA Audit Policy Implementing Trump’s 2 for 1 Regulatory Reductions

Virtually all government contractors and anyone else hoping for regulatory relief from the new administration is aware of the Executive Order (EO) requiring a 2 for 1 reduction in agency regulations for each new regulation. In an effort to show that DCAA is politically savvy and much more positive and proactive than most agencies (who are less than enthusiastic about this EO), DCAA has begun to vet some “similar to” audit strategies. The following are some of the highlights of a DCAA Press Conference to announce a broad range of “2 for 1 reductions”.

Unfortunately, the DCAA “Press Conference” was actually an internal staff conference and the following are “leaks” from those who did attend the staff conference; at least our invaluable inside sources portend to have been in attendance. At any rate we disclaim any suggestion that this information might have been derived from listening devices (aka “bugs”) strategically placed in microwaves at Ft. Belvoir. DCAA’s Director provided some opening comments, and then turned it over to DCAA’s Director for Creative Regulatory Adjustment Processes or “CRAP”.  

The following are some of the CRAP director’s statements along with some of the Q&A:

DCAA has self-initiated multiple brainstorming sessions to jumpstart its efforts to be one of the first government agencies to conceptually deploy the Administration’s 2 for 1 reduction in regulations. DCAA notes that the 2 for 1 initiative can’t really start because it will eliminate two existing regulations for each new regulation; however, the Administration has also put a hold on new regulations. As an independent audit agency, DCAA has determined that it has the authority to proceed with its CRAP rather than waiting on further direction from the President, OMB (Office of Management and Budget) or DOD (Department of Defense).

Question.   What gives DCAA the authority to act on its own; isn’t DCAA an agency of the Executive Branch of Government?

Answer: Generally Accepted Government Auditing Standards or GAGAS, notably the auditor independence standard. This standard requires DCAA to be free from undue influence from all sources, including the President, Congress and the Judicial Branch.   Auditor independence is what allows DCAA to ignore everyone else as long as DCAA is protecting the taxpayer.

Question. DCAA can’t actually reduce regulations; that being said, how can DCAA implement its 2 for 1 CRAP?

Answer. DCAA has identified all of the following, each embracing the 2 for 1 reduction, at least in form:

• Audit Programs will be reduced by eliminating every other audit step. In order to retain the content of eliminated steps, the content will be embedded in retained steps. Thus, the number of steps will be cut in half, meeting the objective of the CRAP.
• Audit findings will be reduced by 50% by consolidating audit results into fewer findings. For example, audits which previously reported 4 significant deficiencies (business systems) will only report 2 significant deficiencies. The audit team will review the preliminary results and multi-vote to decide on those to report as significant deficiencies; the others will be relegated to those reported as “not quite significant” deficiencies. Truth be known, no one really knows the difference.  
• Audit reports will be reduced by 50% by reducing the word count using a baseline of average word count for audit reports issued between October 1, 2016 and March 31, 2017.   Future audit reports will use 50% fewer words, but each word will be more relevant.
• Audit testing will reduce transaction testing by only testing for compliance with every other cost principle (FAR 31.205.01-31.205-52) and every other Cost Accounting Standard.   DCAA will use random sampling to identify regulations which will not be tested.
• Audits of forward pricing (bid rates) will only cover every other indirect expense pool or every other direct labor rate.   For example, for a contractor with four indirect pools/bases/rates, DCAA will randomly audit two of four and apply the results to all four.
• Adequacy checklists will receive a 2 for 1 adjustment by eliminating every other word within the adequacy checklist.   Noting that the remaining sentences will be nonsense, it is highly unlikely that anything reviewed will ever be adequate, which is not much different than the current processes.
• Audit teams will be reduced by 50%; what used to require a team of 4 for a month, will now involve a team of 2 for two months.

Question.  Surely these aren’t serious considerations? Many are form over substance and others defy all logic (for example; randomly eliminating regulations from testing rather than auditing those which pose more compliance risk).   Additionally, how can you selectively audit an indirect pool/base/rate (forecasted), then apply the results to a different rate?

Answer.   These are all being given serious consideration, and what’s Shirley got to do with it? There may be some minor flaws in logic, but that can’t block successful implementation of CRAP. Finally form over substance is obviously a universally accepted hierarchy or why would we have the phrase form over substance?

Happy April Fool’s Day 2017!