DCMA and DCAA Criticized for Lack of Progress in Auditing Contractor Business Systems

Here's a post that will be of interest to major contractors - those contractors charging $100 million or more to cost type (CPFF, CPIF, FPI, T&M, etc) contracts annually.

DCAA (Defense Contract Audit Agency) is about to shift 250 auditors from performing incurred cost audits to performing audits of contractor business systems. DCAA's responsibility for oversight of contractor business systems (CBS) include (i) accounting, (ii) estimating, and (iii) MMAS or material management and accounting systems.

GAO (Government Accountability Office) recently published a report critical of the progress made by DCAA in completing these audits and of DCMA's oversight in ensuring that issues raised in those audits are resolved in a timely manner. In fiscal years 2015 through 2017, DCAA completed only three accounting system audits (none of those reported deficiencies) and nine estimating system audits (seven of which reported significant deficiencies). Some of these reviews took two to three years for DCAA to complete. Some took four and five years to resolve reported deficiencies.

According to the GAO Report, the effort expended by DCAA in auditing contractor business systems has been negligible. Normally these reviews are to be conducted on a three-year cycle however DCAA has abandoned any pretense of maintaining such a schedule. Instead, the Agency has focused on completing incurred cost audits - arguably a higher priority for the contracting community.

GAO noted that DCMA and DCAA do not have mechanisms to monitor and ensure that CBS audits are conducted in a timely manner. DCMA relies on the DCAA offices that perform the reviews of the three systems (accounting, estimating, and MMAS) to maintain the information on the reviews completed and to plan for future reviews, but DCMA does not centrally track its reviews or whether audits conducted by DCAA are being completed within the required time-frames (i.e. 70 days).

GAO recommended that DCMA and DCAA collaborate to develop a mechanism to monitor and assess whether contractor business systems reviews are being completed in a timely manner. DoD concurred.