Tuesday, April 28, 2015

Improving the Efficiency of the Defense Contract Audit Agency

The Chairman of the House Armed Services Committee, Rep Thornberry, yesterday released the FY16 NDAA (National Defense Authorization Act), The full committee will meet tomorrow to consider the proposal. Someone in Congress is listening to the cries of contractors who, at the minimum, are suffering cash flow disruptions because of DCAA's inability to complete audits in a timely manner. The proposal contains a provision designed to improve the efficiency of the Defense Contract Audit Agency (DCAA). Here is the provision, in full, without comment:

The committee continues to believe that more must be done to improve the efficiency of the Defense Contract Audit Agency (DCAA). In 2012, the committee learned that DCAA had not been subject to a peer review since 2006, despite the fact that according to generally accepted government auditing standards (GAGAS), a peer review of government audit agencies should be conducted at least every 3 years. As a result, the committee included section 1614 in the National Defense Authorization Act for Fiscal Year 2013 (Public Law 112-239), which assigned responsibility to the Inspector General of the Department of Defense for conducting peer reviews of Department of Defense audit agencies, including DCAA, in 2014.
As a result of that peer review, the Inspector General released a report on August 21, 2014, which found that 11 of 92 DCAA engagements reviewed during a 6 month period did not contain sufficient evidence for Inspector General reviewers to understand DCAA's auditing decisions. The Inspector General attributed these findings to an "absence of effective control measures in DCAA’s policies and procedures” for compliance with GAGAS. Additionally, the Inspector General found that DCAA had yet to correct its performance despite being aware of issues identified in a September 2009 Government Accountability Office report (GAO-09- 468) and, previously, by DCAA’s own quality assurance procedures. 
Furthermore, the committee is aware that the Inspector General released a report on September 8, 2014, on its review of audits issued by DCAA in fiscal years 2012-13. In conducting this review, the Inspector General examined a cross section of 16 DCAA audits completed between October 2011 and February 2013, including 5 audits of forward-pricing proposals and 11 audits of incurred costs and other audit types. The Inspector General identified 1 or more significant inadequacies on 13 of the 16 selected DCAA audits and found deficiencies in compliance with GAGAS in the areas of audit planning, evidence, working paper documentation, and supervision. Furthermore, the Inspector General review uncovered instances of auditors not obtaining adequate cost or pricing data. In addition to these findings, the committee continues to be concerned by the slow audit processes and extensive backlog at DCAA, which, according to the DCAA’s annual Report to Congress dated March 24, 2014, included roughly 23,000 incurred cost submissions at the end of fiscal year 2013. 
The committee recognizes that the DCAA has taken steps to improve its performance. However, the committee believes that its substandard performance impairs the defense acquisition process by incurring avoidable delays and by raising costs for the Government. The committee believes that much work remains to be done to ensure that DCAA is capable of fully meeting applicable standards and of promoting the smooth and transparent functioning of the defense acquisition system. 
Therefore, the committee directs the Secretary of Defense to take immediate steps to address substandard performance by DCAA, to reduce its audit backlog, and to minimize costs and other harmful consequences for the Federal Government and defense industry contractors that are the result of DCAA delays. The committee further directs the Secretary to provide a briefing to the House Committee on Armed Services not later than March 1, 2016, on the steps taken to address DCAA deficiencies, along with recommendations for any changes to statutory or regulatory guidance that may enable the DCAA to satisfy all applicable Federal and professional audit standards, to complete audits within a reasonable period of time, and to avoid placing unnecessary burdens on the Government or industry.

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