Friday, May 20, 2016

DoD Database Contains Inaccurate Information on Audits of Contractors

The Department of Defense (DoD) Instruction 7640.02 establishes record-keeping and reporting requirements for"reportable" contract audits. In support of the record-keeping requirements, DCMA (Defense Contract Management Agency) maintains a database that DoD components use to track and record the action taken to resolve and disposition "reportable" contract audits. Contracting officers (including DCMA contracting officers) are required to promptly update the status of their actions of "reportable" audit reports assigned to them.

"Reportable" contract audits include business systems (e.g. accounting, billing, estimating, etc.), claims, equitable adjustments, defective pricing, Cost Accounting Standards, operations (efficiency, effectiveness, economy), incurred cost, preaward, terminations, and EVMS (earned-value management system) where some form of exception or recommendation has been rendered.

Each month, DCAA (Defense Contract Audit Agency) sends DCMA a list of new reportable audit reports to include in its database. The database includes 20 or so data elements including contractor name (of course), audit report number and date, amount of questioned costs and amount subject to penalty, and qualifications, to name a few.

DoD Instruction 7640.02 requires contracting officers to promptly update the status of their actions. Once they complete certain actions, contracting officers must enter the amount of questioned costs they sustain, the date they resolve the audit report, and the date they disposition the audit report. Eventually, the data gets rolled up into the DoD-IG's semi-annual report to Congress.

This accuracy of this CAFU (Contract Audit Followup) database should be of concern to contractors. We know that years ago, it was consulted for purposes of responsibility determinations. That practice may still go on. In any event, the database is "out there" and available to the DoD procurement community. Obviously, contractors included in the database have or have had significant audit findings leveled at them.

The Department of Defense Office of Inspector General (DoD-IG) recently published a report on its assessment of the accuracy of this CAFU database. The results were not encouraging. Of the 50 CAFU audit records tested, the DoD-IG found that 41 (or 82 percent) included inaccurate information in one or more data fields. In fact, the errors overstated the amount of questioned costs for those 50 records by $2.6 million.

We suggest that contractors contact their contracting officer for a listing of audits in the database and the status of each. Contractors should also validate the accuracy of the information contained therein. Contractors are not going to be able to change the results of an audit at this point but can at least ensure that it is current, complete, and accurate.

You can read the entire DoD-IG report here.

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