Tuesday, February 14, 2017

DCAA Involvement in Contract Close-out Process

DCAA (Defense Contract Audit Agency) has made outstanding progress in reducing its incurred cost backlog - so much so that the prohibition against the Agency performing audits for non-DoD agencies until it caught up on its incurred cost backlog, was lifted last October. Most of this backlog reduction was a result of DCAA's new-found risk-based approach to auditing. Under a risk-based approach, DCAA uses certain criteria to categorize contractors into high risk or low risk. Those classified as low risk are dumpted into a nation-wide pool and only one percet get selected for audit. The remaining 99 percent are closed without audit. Clearing out the incurred cost backlog therefore was fairly easy because there were far fewer audits to perform.

Finalizing the incurred cost proposals however is only the first step to closing out contracts and that step can be problematic for many contractors. DCAA believes that Schedule 'I's (Cumulative Direct and Indirect Costs Claimed and Billed) included in the contractors' annual incurred cost submissions, once updated to reflect final agreed-to or negotiated rates can be used to facilitate the closeout process.
Generally, the CFAO (Cognizant Federal Agency Official) should have sufficient data to approve final vouchers to close contracts without requiring further assistance from DCAA, especially for contracts awarded after June 2011 requiring an updated Schedule I by the contractor. 
Contractors should be very wary about closing out contracts based on Schedule Is. Experience has shown that these schedules are often inaccurate - especially where they haven't been audit tested. Many times the schedules have not been updated to reflect settlement of rates in previous years. The same goes for subcontractor costs.

Where the Schedule Is cannot be relied upon, DCAA offers three levels of services to CFAOs.

  1. Providing specific information to the CFAO - DCAA will provide the CFAO information that is in the audit files that cannot be located in the CFAO's files.
  2. Final Voucher Services. In situations where the contractors' Schedule I is suspect and/or cannot be relied upon due to complexities that exist, DCAA can compile existing information to assist the CFAO.
  3. Final Voucher Audit. In situations where there is identified risk or concerns on specific contracts, DCAA can perform a full-audit of costs. 

It is in the interest of all parties to close out old contracts as expeditiously as possible. To that end, it is highly unlikely that CFAOs will request Level 3 audit services.

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