Friday, January 29, 2016

DCAA Delays Cost the Government Significant Dollars

A recent decision by the Armed Services Board of Contract Appeals (ASBCA) lays bare some of the internal problems within DCAA (Defense Contract Audit Agency) and the resulting impact on Government operations and expenditures.

In late January 2009, the Army Corps of Engineers requested DCAA to audit a claim submitted by Vistas.

The audit appeared to progress without problems at first. On March 3, 2009, DCAA indicated that its field work would be completed by March 23, 2009 and an audit report would be issued by March 31, 2009. That plan soon fell apart because in April of that year, DCAA appointed a new auditor for the job.

Soon after the new auditor began work, Vistas began to complain to the Corps of Engineers and to DCAA management about the volume of information the new auditor was requesting as well as his inquiries into technical aspects of the contract. Vistas testified that the auditor came to Vistas' offices 18 times and described interactions with the auditor as "grinding dialogue. Further, Vistas stated:
We had to sit here and walk him through every aspect of the proposal. He went after layer after layer he would ask for one thing. We would have to support the thing with another thing below, below below. It got down to having to provide him cancelled checks... 
In July, DCAA informed Vistas that the audit would be completed by September. According to the ASBCA decision, the auditor finished up his field work on August 14, 2009 and held an exit conference on August 18, 2009.

By June 2010, the Corps of Engineers had reached the limit of its patience. It sent the DCAA regional manager a "scathing email" that concluded with the Corps requesting that DCAA cancel the audit and return the $127 thousand that the Corps had paid to DCAA so far. DCAA blinked and issued an audit report the following day.

What happened between the exit conference (August 2009) and the report issuance date (June 2010)? According to the decision, the reason(s) for taking so much time to issue a report were not clear. The Board noted that three levels of supervisors reviewed the auditors work and they were dissatisfied with some of his work product and conclusions. The supervisors identified problems in his report and pointed to departures from specific provisions in the FAR and the Audit Agency's own guidance. But the auditor "clung" to his positions based on his notion of "equity". The auditor wrote: "My disagreement is based on equity ... I don't think it is right to pay $3,000,000 that they have not incurred". The internal debates at DCAA with on for months. You can read DCAA management's frustration: "I've attached some emails sent to <the auditor> to have him explain some inconsistencies/errors in the audit report. I'm trying to get to the bottom on it but it is difficult. A lot of <the auditor's> numbers are not correct."

During this time frame, DCAA was being criticized by the IG and Congress (and others) for overriding auditor findings. Perhaps this contributed to the supervisor's paralysis in dealing with a stubborn auditor.

There is much more interesting material in this ASBCA decision and you can read it by clicking here. One example,, while the audit was ongoing, the FBI was running a concurrent investigation of the company that ultimately landed a couple of employees in prison. During the field work phase of the audit, the auditor met with the investigations several times and fed them information - information that was ostensibly requested and gathered to support an audit but was instead, used to support an FBI search warrant. Contractors should file that information away for times when auditors become furtive and/or expand their audit scope beyond what is normally expected.

The contractor was able to recover hundreds of thousands of dollars incurred to support the DCAA audit. Unfortunately for the Government, as the Board pointed out, by the time the report was issued, it was determined to be moot.

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