DCAA's Third Annual Report to Congress

DCAA's (Defense Contract Audit Agency) Third Annual Report to Congress, dated March 24, 2014 was recently posted on DCAA's website. This annual report is required under the National Defense Authorization Act (NDAA) for Fiscal Year 2012 and provides an overview of DCAA's mission, audit performance and recommendations to address significant deficiencies identified by DCAA during the conduct of its audits. The first and second annual reports are also available on DCAA's public website.

Sections 1 and 2 are boilerplate background information on what the Agency does and the staffing structure (did you know that almost 27 percent of the audit staff are CPAs (Certified Public Accountants)? These sections haven't changed much from earlier reports. Section 3 recaps the Agency's audit performance during the year (fiscal year ended September 30, 2013) and shows some evidence the the Agency is reducing the backlog of incurred cost audits that have piled up in recent years. And, while there was marginal improvement in the time it took to complete an audit of a price proposal, the average of 97 days is far too long for contracting officers' needs.

Section 4 is probably the most interesting part of the report from a contractor's perspective. In this section, Significant Deficiencies and Recommended Actions to Improve the Audit Process, DCAA tells Congress what statutes or regulations need changing in order for them to do their job better. Following is a recap of some of those issues. Many are carried over from the previous year which illustrates how slowly things move in the Government.

1. DCAA believes that there needs to be additional clarification to the regulations concerning commercial pricing at the subcontract level that outlines prime contractor management responsibilities related to its subcontracts. Without changes, documentation supporting commercial prices at the subcontract level will continue to be inconsistent and, in many cases, insufficient.
2. A carryover from the prior year is a recommendation that Congress expand DCAA's subpoena authority to include "data other than certified cost or pricing data." Currently, DCAA's subpoena authority (which has never been used successfully to our knowledge) is limited to cost or pricing data. DCAA noted that DoD has submitted a legislative proposal to that effect.
3. The lack of access to contractor internal audit reports continue to befuddle DCAA's ability to audit. Reading between the lines, DCAA is not pleased with the current state of affairs where justification and documentation and training and limiting access is the norm.
4. The lack of access to contractor online data is another area of significant concern. Read-only access would greatly assist DCAA in effectively planning and performing its audits. Last year, DCAA stated that it was contemplating a legislative proposal that would require contractors to provide online access to electronic data.  This year, DCAA downgraded its action plan and will now merely seek regulatory clarification.
5. Finally, DCAA submitted a legislative proposal for FY15 to support DCAA's right of access to contractor employees and to avoid any future confusion on DCAA's ability to interview employees. This legislative change will ensure DCAA has access to employees, which will allow DCAA to conduct audits in accordance with professional standards. 

It is fairly obvious from the foregoing that DCAA wants more and more access to contractor data, information, and employees.