DCAA Bails on non Non-DoD Audits

Section 893 of the 2016 National Defense Authorization Act prohibits DCAA (Defense Contract Audit Agency) from providing audit support for non-Defense Agencies (e.g. NASA, Department of Energy) until the Agency becomes "current" on its audits annual incurred cost submissions. Current is defined as less than 18 months of inventory. See further details here.

DCAA's extraction process has now begun and evidently, this prohibition includes in-process audits as the following email extract from a DCAA auditor to a contracting officer demonstrates:

We received some recent guidance that informed that we cannot continue working on non-DoD assignments. We are going to issue a formal memo to you stating why we can't work on the assignment. But basically, the NDAA requires us to not work on reimbursable non-DoD audits until our incurred cost audit backlog is less than 18 months, which the agency's backlog is currently not. Therefore, it looks like we can't continue work on non-DoD work until the NDAA language is updated for 2017 or we meet the requirement.

We can send you our current audit work and contractor supporting documents if you would like. When I stopped work I did not have many working papers completed but has a lot of supporting documents from <deleted> and its subcontractor <deleted>. I had not yet made it out to the other major subcontractor <deleted>. A few areas where we can still provide support for non-DoD customers are negotiation support, litigation support, and requests for cost/rate information. This will all be in the memo. Please contact me if you have any questions.

The guidance referred to in the email exchange is probably DCAA Audit Guidance Memorandum 16-PPD-001(R) discussing the impact of the NDAA on DCAA's audit support to non-Defense agencies. This guidance has yet to be published on DCAA's public website and we haven't seen a copy. If you have a copy and care to send it along it would be appreciated.

This new policy and guidance is going to impact a lot of DCAA's "customers" who have no internal contract audit function and will need to go out into the private sector to fill their audit requirements. Agencies that have privatized their contract audit needs already are experiencing mixed results. One official informed us that compared to Government auditors, independent CPA firms performing audits under contract have fewer findings but produce more timely audit reports. Also, the cost of an audit tends to be higher for private firms.

This temporary prohibition could become irreversible. If the private firms do good work, non-DoD agencies may find that they prefer privatization to audits conducted by Government auditors.