Thursday, May 31, 2012

Statute of Limitations on Incurred Costs?

Those who follow the Government contracting industry are no doubt aware that DCAA (Defense Contract Audit Agency) is significantly lagging in its audit production. There were some revelations last week that helped put some of this in perspective. POGO (Project on Government Oversight) followed by a number of other news organizations reported that the backlog of incurred cost dollars waiting to be audited now sits at $560 billion. the Commission on Wartime Contracting estimated this backlog will approach $1 trillion by fiscal year 2016.

DCAA has a five-year plan to address this deficiency. By the end of fiscal year 2016, it plans to have the backlog all but eliminated. However, judging from comments by current and former DCAA auditors, DCAA will need to drastically change the way in which it conducts audits if that goal is ever to be achieved. They believe that given the existing culture, the audit programs and procedures, the inordinate number of supervisory/managerial reviews, and the unrealistic demand for perfection, will conspire against the Agency ever achieving that goal.

There were some intriguing comments pertaining to a statute of limitations in the various news articles on this subject. According to the POGO source:

If DCAA audits occur more than six  years after a cost has been incurred and paid, the government may lack a basis for disallowing the costs even if it should not have been paid.

DCAA is evidently aware of this statute of limitations because the same article quoted a DCAA spokesperson saying that DCAA does not agree with the interpretation:

DCAA disputes this definition of the six-year limitation. In some cases, the exact nature of the charges cannot be determined until DCAA examines the underlying records.

There must be something to this six-year limitation because this same DCAA spokesperson adds:

DCAA is prioritizing the oldest audits to reduce the chances of exceeding the limitation.

If you've got incurred cost submissions pushing this six-year mark, it might be beneficial to consult with legal counsel to determine the propriety of DCAA performing an audit on costs for those years.

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