Friday, March 15, 2013

Why Do DCAA Audits Seem to Go On Forever?

Many contractors have complained to us about the protracted duration of DCAA audits. There is no doubt that audits conducted today are much more in depth than they were a few years ago. On the other hand, DCAA is addressing "risks" differently so that fewer audits are being performed then previously. For example, small contractors with less than $15 million of cost incurred under cost-type contracts have only a one percent chance of being selected for audit, if previous audits were "clean" or had only minor exceptions.

That said, there are still some audits out there that leave us scratching our heads over the depth of audit analysis being performed. Take billing rates for example. Not too long ago, DCAA reviews of billing rates were rather perfunctory, especially at very small contractors. The risk to the Government was considered very low as provisional billing rates are typically adjusted to actual rates at year-end. The only damage to the Government, if the rates were too high was the time-value of money for a short period of time, usually less than a year. Presently, there are reviews of billing rates going on at very small contractors that are approaching two months in duration and who knows how many hours expended.

According to DCAA, there are a number of factors that influence the time it takes to perform a given audit. These include:

  • Past audits at the contractor (this is obvious - if you can recycle some past work, you should shave time)
  • Knowledge and status of contractor business systems (good business systems reduce the amount of required transaction testing, in theory)
  • Scope of audit 
  • Areas of risk (highly judgmental but very important)
  • Required assist audits (especially in audits of forward pricing proposals)
  • Hours needed to complete audit steps (usually influenced by the aforementioned factors)
  • Available audit resources (there's always a shortage, isn't there? What agency complains of having too much staffing?)
  • Time needed to prepare draft audit reports and address any management review comments (a very significant factor these days, given the attention that GAO and the DoD-IG on the quality of DCAA audits).

So, if you're feeling picked on these days, rest assured that you have not been singled out and you are not alone.

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