Yesterday we discussed the results of a DoD Inspector General's (DoD-IG) report that found significant deficiencies in a DCAA (Defense Contract Audit Agency) audit - the audit was not conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS). If you missed Part 1, read it here. There was a second finding in the DoD-IG's report related to the method used by DCAA to disallow costs, the "DCAA Form 1". According to the DoD-IG, DCAA made "significant errors on DCAA Form 1, Notice of Contract Costs suspended and/or Disapproved". This form is attached to audit reports of incurred costs when there are audit exceptions disclosed by the audit.
As we mentioned yesterday, DCAA inappropriately questioned 20 percent of subcontract costs (approximately $6.6 million) because, in the auditor's opinion, the costs were not adequately supported. DCAA included the $6.6 million on the Form 1. DCAA also included an additional $3.9 million of subcontract costs where the assist audits had not yet been completed. These amounts were termed "qualified costs". The problem here is that there is duplication in the two amounts. The $6.6 million, representing 20 percent of total subcontract costs, included subcontracts that were also "qualified". This could have led to the contracting officer making an unintended or premature final determination on improper amounts.
The DoD-IG also noted that, according to DCAA's own guidance, a DCAA Form 1 should include only DoD contracts and non-DoD contracts where the auditor has been granted audit authority. In this instance, the DCAA Form 1 included costs for 13 contracts where DCAA had not been granted audit authority by other Government agencies. As a result, DCAA overstated disallowed costs on its Form 1 by an additional $288 thousand.
It would be interesting to know who called the DoD hotline on this audit. Seemingly, it would have been the contractor or an auditor who disagreed with the way in which the audit results were reported. If you have any insight into this matter, let us know. If it was a contractor representative, this might herald in a new mechanism to resolving differences with auditors - especially when it is evident that the audit position is not defensible. Certainly, if a contractor cannot get a contracting officer's interest in a matter, they can always pick up the phone and call the "Hotline".