Friday, October 10, 2014

DoD Inspector General Blasts DCMA for Inadequate Contract Case Files

Beating up on DCAA (Defense Contract Audit Agency) has become somewhat passe' so the DoD-IG (Inspector General) is turning its focus on DCMA (Defense Contract Management Agency). In a recently issued report, the IG was heavily critical of DCMA's practices and procedures for reviewing contractor indirect expense rates - rates which were used to negotiate at least $70 billion in contracts.

Basically, the IG's criticism involved the lack of documentation - so much so that it was unable to ascertain whether the contracting officer responsible for negotiating indirect rate agreements knew what they were doing. It was certainly not evident from the working papers (the IG calls them Contract Case Files) that the Government's interests were protected in six of the eight DCMA offices reviewed. In fact, the IG stated that the working papers were so deficient that it could not determine whether the Government (or, they should have said "taxpayers") achieved fair and reasonable pricing.

This breakdown was foreseeable. First of all, DCMA has never emphasized the importance of working papers. One former contracting officer quipped that if he could not write the information down on his cuff, he didn't need it. DCAA, on the other hand, has always stressed the importance of adequately documenting in working papers the risks and the planning and the actual work performed. Bur, more importantly, the Government has always been at a disadvantage when it comes to figuring out the propriety of contractor indirect expense rate forecasts. The Government could never match the hoards of contractors' minions with insider knowledge involved in the preparation of rate forecasts. But when you remove the most important piece to understanding and attesting to the reliability of these rates (i.e. DCAA), the Agency with the expertise, the background, the continuity, the historical perspective, and the professional standing (e.g. CPAs), an awful void is left that is hard to fill.

It's not that DCMA isn't trying. They've done a lot over the past few years to advance their knowledge, skills, and abilities in evaluating indirect costs and indirect expense rates (including hiring away a lot of DCAA auditors) but that is not their strong suit. They are not (generally) accountants and they do not have a propensity for understanding job costing, adjusting journal entries, or accounting accruals. Sure, they can tally up a list of numbers on a spreadsheet, but to understand the meaning of those numbers often requires someone with accounting expertise. DCAA was best suited for that job.

You can read the entire IG audit report here.

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