More Auditors to be Hired to Audit Incurred Costs

For contractors waiting for DCAA (Defense Contract Audit Agency) to perform their annual incurred cost audits so that they can close out old contracts and bill for remaining costs and fees, relief may be in sight. DCAA released its fiscal year 2013 budget estimate this month and is planning to significantly increase the resources dedicated to auditing incurred costs. The Agency is proposing to increase the number of staff years dedicated to incurred costs by 50 percent, from 1,409 staff years in fiscal year 2012 to 2,118 staff years in fiscal year 2013. Some of this will come from new hires and the rest from shifting priorities from other audit areas. The Agency wants to hire 506 new audits or fiscal year 2013 on top of the 484 it is hiring this fiscal year. That represents a 25 percent increase in audit staff over a two year period.

The budget documents put it this way:

The FY 2013 budget estimate contains a significant increase for the specific purpose of reducing the backlog of unaudited contractor incurred costs. Over the past 3 years, DCAA shifted resources away from audits necessary to close contracts (incurred cost audits) in order to focus on performing Generally Accepted Government Auditing Standards (GAGAS) - compliant audits for large contract proposals where audits can help contracting officers negotiate lower prices. This resulted in an increase in the incurred cost backlog of approximately $420 billion between FY 2008 and FY 2011. DCAA will use the increased funding in FY 2013 for additional audit staff specifically to reduce the backlog. Beginning in FY 2012, DCAA is establishing incurred cost teams who will focus all of their efforts on the incurred cost audits until the backlog is reduced to an acceptable level. These dedicated teams will increase efficiencies by lowering learning curves and eliminating disruptions from competing audit assignments. DCAA is also seeking authority to examine only a sample of incurred-cost audits that pose lower risk. Clearing the incurred cost backlog is necessary to (1) assist in achieving auditable financial statements, a Secretary of Defense priority; (2) provide DCAA with data needed for forward-pricing audits; and (3) prevent undue delays in payments of fees to contractors (a portion of fees to contractors is delayed until the contract is closed).

Many contractors cringe at the idea of becoming a training ground for hoards of new and inexperienced auditors. They tend to require a significant amount of support effort and cause other inefficiencies. For very small contractors where employees wear several "hats", these inefficiencies detract from other productive work.