Monday, March 11, 2013

DoD Engages in Self-Flagellation

Late last week, the DoD Inspector General's office (DoD-IG) issued their long-awaited and long-delayed audit report on audits conducted by DoD's Contract Audit Agency (DCAA). Perhaps you read about it already - it made some news.

The DoD-IG found that DCAA "did not exercise professional judgment in performing 37 (74 percent) of the 50 assignment reviewed." Among the deficiencies disclosed were:

  • external impairments to independence (allowing the contractor to withhold requested information)
  • inadequate planning 
  • poor communications with the requester and contractor
  • insufficient evidence (to support conclusions and recommendations)
  • unsupported or untimely reports (a case of the pot calling the kettle black)
  • poor documentation
  • ineffective supervision
  • ineffective quality control

We haven't read the entire 100 page report and if we get around to it, we may want to provide additional coverage here in this blog. In the meantime, we have a couple of observations regarding this report.

This stuff is very old. The DoD-IG reviewed 50 reports issued in Fiscal Year 2010. Much of the actual audit effort was performed earlier than that. Many were begun in Fiscal Year 2009 which means that work could have begun as early as October 2008. The DCAA of 2013 is not the same as the DCAA of 2008, 2009, or even 2010. A lot of changes have occurred - new leadership, revised policies, more rigorous quality control, and significantly more time allocated to each audit. Someone should ask how DCAA is doing today, not how it was doing four or five years ago.

Perspective. The DoD-IG found deficiencies in 37 of 50 reports. Big deal. Give us a few years with 50 reports and we could find some kind of deficiency in all of them (including our own). But what is the significance of those deficiencies? Do they rise to the level where the overall audit conclusions and recommendations are invalid? So, if an auditor finds that a contractor is has poor timekeeping practices (e.g. employees do not complete their timesheets in a timely manner), does it matter to the overall finding that the auditor did not document supervisory discussions? Someone needs to put these deficiencies into perspective.

Impact on taxpayers. DCAA audits are advisory to contracting officers. The contracting officers use the information to make decisions, negotiate contracts, and ultimately, ensure that taxpayer dollars are well-spent. If the contracting officers do not have confidence that DCAA's reports are any good, they won't be sticking their necks out to support the audit position. Even now, there is doubt among contracting officers over whether DCAA audit reports have merit. Why cast additional doubt on the veracity of audit positions/recommendations when such doubt is not merited?

Contractor Defense. The first thing a contractor is going to ask when presented with a DCAA audit report with findings is what steps has the contracting officer taken to ensure that the DCAA audit findings are valid, responsible, proper in the circumstances, and whether the audit was "adequate" - i.e. based on the application of Generally Accepted Government Auditing Standards - or whether the report were such that if the DoD-IG reviewed it, would recommend that it be rescinded. In other words, contractors will undoubtedly use this DoD-IG report to cast doubt on the validity of future DCAA reports.

You can read the entire DoD-IG Audit Report here.

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