Thursday, November 19, 2015

"Eliminating Requirements" Study - Reduce Incurred Cost Backlog

This is the fourth of our five part series covering the results of a joint study conducted by DoD and the Institute of Defense Analysis (IDA). Each part examines one of the five recommendations put forth by the panel impacting contract audit and contract management. Previously, we covered Reducing the Time for Record Retention, Eliminating Duplicative Effort in Reviewing Forward Pricing Rates, and Eliminating Contract Closeout Backlogs. Today we will be covering a recommendation to reduce DCAA's (Defense Contract Audit Agency's) incurred cost backlog.

There is not doubt that contractors are financially impacted by Government delays in meeting their contractual obligations. However, it is difficult to quantify the cost of delays, disruptions, and other encumbrances. The responses received from participating contractors did not include quantitative costs associated with specific inefficiencies associated with DCAA auditing or DCMA contract management. Therefore, the study group could not perform a cost-benefit analysis of recommended changes. Instead the study identified what it felt to be the most promising recommendations based on a subjective assessment of their merit.

Study participants asserted that given DCAA's limited resources that are being deployed to cover a wide breadth of areas, there have been many starts and stops in audits. The result has been for audits to be cancelled at various stages after the company and DCAA have invested resources to start the reviews. The consensus among participants was limit DCAA audits to incurred costs and audits ob business systems.

DCAA, of course, did not agree with this recommendation. The Agency noted that its resources are focused on risks to the Department and the taxpayer. DCAA uses its entire portfolio of audits (incurred cost, forward pricing, business, systems, truth in negotiation, cost accounting standards, etc.) to focus resources on what it believes to be the highest risk audits. DCAA also noted that it has significantly reduced its incurred cost audit backlog. From fiscal year 2012 to mid fiscal year 2015, DCAA has reduced its backlog by nearly one-half.

While acknowledging DCAA's recent progress in reducing incurred cost audit backlog, the study group recommended that DCAA continue to analyze and assess progress of on-going Agency efforts to decrease backlogs of incurred costs and report on its efforts to both the Government and industry. DCAA agreed to continue to look for ways to reduce the backlog more quickly.

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