DCAA Under the Microscope Again

The Senate has finished its version of the Fiscal Year 2016 National Defense Authorization Act (NDAA) and, as usual and as expected, there are some differences from the House version. One of those differences impacts the Defense Contract Audit Agency (DCAA) and, if passed, will result in more of DCAA's work being performed by other groups.  The Senate Committee on Armed Services made the following statement:

The committee recommends a provision that would authorize the Defense Contract Audit Agency (DCAA) to provide outside audit support to non-Defense Agencies upon certification that the backlog for incurred cost audits is less than 12 months of incurred cost inventory. The committee understands that DCAA has made progress in reducing its incurred cost audit backlog but this has come at the expense of a reduction in the number of audits and increased backlogs in other areas of its responsibilities. The committee believes that DCAA management should not be distracted by directing and managing the audit responsibilities of other agencies until its own house is completely in order. The provision would require the Secretary of Defense to use up to 5 percent of the auditing staff of the Office of the Inspector General of the Department of Defense and the service audit agencies and, if necessary, augmented by private audit firms to help address DCAA's audit backlog. The provision would also require the Secretary to review the oversight and audit structure of the Department of Defense with the goal of improving productivity, avoiding duplicative program and contract audits, and streamlining oversight reviews.

The actual bill contains the following provisions:

Beginning October 1, 2016, DCAA may provide audit support for non-Defense Agencies once the Secretary of Defense certifies that the backlog for incurred cost audits is less than 12 months of incurred cost inventory.

 Adjustment in funding for reimbursements from non-Defense agencies. The amount appropriated and otherwise available to DCAA for a fiscal year beginning after September 30, 2016 shall be reduced by an amount equivalent to any reimbursements received by the Agency from non-Defense agencies for support provided in violation of the limitation under paragraph (1)

Use of Third Party Audits. The secretary of Defense shall use up to 5 percent of the auditing staff of the service audit agencies augmented by private sector auditors to help eliminate the audit backlog in incurred cost, pre-award accounting systems audits and to reduce the time to complete pre-award audits.

Use of Inspector General Auditing Staff - The Office of the Inspector General of the DoD shall make available 5 percent of its auditing staff to DCAA to help eliminate the audit backlog in incurred cost,  pre-award accounting systems audits and to reduce the time to complete pre-award audits.

DCAA's annual report to Congress will be expanded to include two new topics;

1. A description of actions taken to ensure alignment of policies and practices across the DCAA regional organizations, offices, and individual auditors
2. A description of outreach actions toward industry to promote more effective use of audit resources

Acquisition Oversight and Audits - The Secretary of Defense shall review the oversight and audit structure of the Department of Defense with the goal of enhancing the productivity of oversight and program and contract auditing to avoid duplicative audits and the streamlining of oversight reviews. The Secretary shall take all necessary measures to streamline oversight reviews and avoid duplicative audits and make recommendation for any necessary changes in law

Report - Not later than one year after the date of the enactment of this Act, the Secretary of Defense shall submit to the congressional defense committees a report on actions taken to avoid duplicative audits and streamline oversight reviews. The report will include:

1. A description of actions taken to avoid duplicative audits and streamline oversight reviews based on the review conducted.
2. A comparison of commercial industry accounting practices, including requirements under the Sarbanes-Oxley Act, with the Cost Accounting Standards (CAS) to determine if some portions of CAS compliance can be met through such practices or requirements.
3. A description of standards of materiality used by DCAA and the DoD-IG for defense contract audits (this will be very interesting)
4. An estimate of average delay and range of delays in contract awards due to time necessary for DCAA to complete pre-award audits.