Much ado has been made of DCAA's (Defense Contract Audit Agency's) subpoena authority. We've been in meetings where auditors threatened to subpoena records. However, DCAA has been very reluctant to use its subpoena authority and as far as we know, DCAA has never been successful in issuing a subpoena. We could be wrong but it seems we would have heard about it if the Agency was successful.
DCAA tried once. DCAA issued a subpoena to force Newport News Shipbuilding to turn over internal audits and other records of management "reviews". Newport News appealed and in 1988, the United States Court of Appeals, Fourth Circuit shot the Agency down on the basis that the records it sought were not those covered by the statute that authorizes DCAA's subpoena authority.
So, what is the extent of DCAA's subpoena authority?
Public Law 99-145 (codified into 10 USC Section 2313) authorizes the Director of DCAA to issue subpoenas when a contractor refuses to grant DCAA access to records relating to negotiations, pricing, or performance of a particular contract. DCAA takes a very broad view of what records relate to negotiation, pricing and performance. Insofar as internal audit reports are concerned, an identified internal control deficiency could impact the propriety of costs charged to Government contracts. Identified internal control deficiencies could help the auditor perform better risk assessments when auditing incurred costs. The Court however, took a much narrower view. The Court could not find a nexus between negotiations, pricing, and performance of a contract and internal audit reports. That case was pretty substantial as contractors have used it over and over again to deny access to whatever it is they don't want the auditors to see.
Records in the context of 10 USC 2313 includes books, documents, accounting procedures and practices, and other data, regardless of type and regardless of whether such items are in written form, in the form of computer data, or any other form. Those records however must pertain to the negotiations, pricing, and performance of a contract. Obviously, certified cost or pricing data submitted in response to a solicitation would meet this definition. Also, historical costs upon which billings or progress payments are based would fall into this category. There is usually no reluctance among contractors to provide this information. After all, there is an incentive; contractors want the contract and they want to be paid. Controversies arises when the auditors begin to request documentation that does not bear directly on pricing or billings. Internal audits are one example. Other examples might include audit reports from the independent public accountants, internal control reviews and reports required by the Sarbanes-Oxley Act, investigative reports, profitability information, data related solely to commercial sales, and cash flow forecasts, to name a few.
DCAA is seeking to broaden its subpoena authority. It has a powerful ally in GAO (Government Accountability Office). Should their efforts fail, DCAA may take another run at a court to see if they can elicit a more favorable ruling than the Newport News case.