DCAA Writing Off More Incurred Cost Claims

DCAA (Defense Contract Audit Agency) recently revised policies and procedures for low-risk cost proposals less than $250 million ADV. ADV. Annual Dollar Volume represents the total costs incurred on flexibly priced contracts (e.g. CPFF, CPIF, FPI, T&M, etc) during a given year.

As part of ongoing monitoring of low-risk incurred cost proposals as well as feedback from auditors actually conducting incurred cost audits, DCAA determined that to improve efficiency, the Agency needed to expend more of its scarce resources on high dollar proposals and less on the low-dollar proposals.

So, instead of identifying low risk proposals as absolute dollar amounts, DCAA is using percentages.

1. For proposals with ADV under $1 million, if questioned costs were less than 10 percent of the last completed incurred cost audit, its low risk. Previously, this strata was set at $15 thousand. Ten percent is fairly high. On a $1 million proposal, it would total $100,000. Not too many proposals will meet this threshold.

2. For proposals with ADV between $1 million and $5 million, the question cost percentage drops to 5 percent.

3. For proposals  with ADV between $5 million and $250 million, the cost question threshold is $250 thousand. I guess that for $250 thousand, the potential benefits outweigh the cost of an audit.

High risk proposals and anything over $250 million get audited. Low risk proposals get dumped into sampling pools. Low risk proposals under $1 million have zero chance of being audited. Proposals between $1 and $50 million have a 5 percent chance of being audited. That jumps to 10 percent for proposals between $50 and $100 million and 20 percent between $100 and $250 million.