Practically speaking, DCAA’s performance/productivity has been abysmal for several years. Irrespective of what DCAA’s Management reports on the state of its operations, it cannot justify an average of one audit report issued per auditor per year, or approximately 4,000 total audit reports. Compare those statistics to a time in the not-too-distant past, when the Agency as a whole annually issued over 44,000 audit reports with slightly fewer auditors. There are many reasons for this reduction, not the least of which is DCAA’s own overreaction to GAO reports issued in 2008 and 2009, as well as recommendations around the same time frame by the Wartime Commission.
DCAA has also struggled with a tremendous backlog of incurred cost audits. Some of this backlog is a result of its own doing, such as the inexplicable increases in audit resources devoted to audit risk assessments and the over-proliferation of quality control functions. Admittedly, some of these activities are justified; but not to the extent we see today. However, a major contributor to the backlog is the two wars our country has fought over the past decade. Simply put, DCAA’s number one priority always has been and always should be the review of pricing proposals. During any war, the numbers of pricing proposals will increase dramatically due to the demand for goods and services by our military. With that in mind, DCAA’s auditors will understandably reduce its efforts in areas not directly related to pricing proposals.
Although fighting continues, it is much less than what our military experienced just a few years ago. One result of this (from a procurement standpoint) is that now DCAA auditors are freed up to concentrate on audit areas other than pricing proposals. Although justifiable, the level of effort directed toward the incurred cost backlog has significantly increased; to the point that DCAA will most likely claim it is “current” with respect to this area.
This “currency” will then afford DCAA Management the opportunity to begin delving into long dormant audit areas. DCAA has almost completely divorced itself from all forms of CAS reviews. The agency will assert that it has continued with compliance reviews, but in reality it has not. CAS compliance reviews are mostly ancillary type audits, but in the future DCAA will likely concentrate more on standalone reviews of individual CAS standards. CAS Disclosure Statement reviews have almost gone the way of the Dodo bird. Expect much more effort devoted to these types of audits, especially when DCAA Management finally realizes that other government agencies have positioned themselves to perform these, possibly at the expense of DCAA.
Due to the promulgation of the DFARS Business Systems Rule, the numbers of systems within DCAA’s cognizance has been reduced about 70% compared to the old ICAPS days. Although the inventory of unaudited business systems is significantly smaller, this should translate into more audit coverage for defense contractors subject to the DFARS Business Systems Rule.
Many hours will now be available for DCAA to finally fulfill its obligations with respect to claims, defective pricing, and terminations. Non-DoD agencies can probably expect DCAA to get back into their arena. Unless there are revisions to the FY 2017 NDAA, it will rescind those FY 2016 provisions that forbade DCAA from performing non-DoD audits.
When will all this happen? In this writer’s opinion, this could happen as early as FY 2017, which actually begins in October of this year. What does this mean for both DoD and non-DoD contractors? This could indicate more DCAA involvement than we’ve seen in several years. This increased involvement will most assuredly suggest issues across a broader spectrum of audit types. What should contractors do? Engage firms like Redstone to (i) assess your business systems for compliance, (ii) assess all aspects of your CAS compliance, (iii) train your team in claims, defective pricing, and terminations. But above all else, be proactive. Don’t wait for that auditor’s knock at the door and hear them say “I’m here to help you.”
