Thursday, April 6, 2017

DCAA - "We Help Folks Be Honest"

The Director, Defense Contract Audit Agency (DCAA), Anita Bales, testified this morning at a hearing of the House Subcommittee on Oversight and Investigations along with three other non-Governmental witnesses concerning the contract audit process at defense contractors.

This was a very short hearing, lasting only an hour and fifteen minutes but did have some interesting moments.

The concerns expressed by the Subcommittee centered around the significant backlog of incurred cost audits that still exist in DCAA's inventory and ways that the backlog could be reduced. The backlog creates problems for Government contract administrators and imposes economic burdens on contractors.

One topic of conservation involved multi-year auditing versus concurrent auditing. A couple of the industry panelists put forth strong arguments for concurrent auditing noting that financial statement auditors perform concurrent audits and within two months after the end of the fiscal year, are ready to issue reports. Multi-year auditing, while perhaps more efficient from a Government resource point of view, does not serve the customer (i.e. contract administration) well. Its also causes more peaks and valleys for contractor support personnel.

One of the Representatives tried to draw a distinction between "Risk Management" and "Risk Mitigation" noting that perhaps, DCAA is not managing risk but mitigating risk. They are probably right but getting beat up by the IG for so many years has created the climate where the Agency is afraid to risk anything away.

One topic of considerable discussion was that of privatizing the contract audit function or parts of it. Bales was steadfast in her position that privatizing was not appropriate, that there wasn't a good business case to be made for it, that contract auditing required specialized skills and knowledge that was not readily available in a CPA firm. Bales also mentioned that the Agency had put forth a legislative proposal to rescind a provision in last year's NDAA about privatizing some of the contract audit functions.

Bales complained about the Government-wide hiring freeze that is preventing DCAA from hiring 500 new auditors and the impact that this has on the Agency's ability to perform its mission. She testified however that the Government was still 30% cheaper than private industry and even though private industry might be cheaper initially, she knew of situations where private firms doubled their prices in the second year of performance.

In discussing materiality and whether it was necessary for all contractors to submit annual incurred cost proposals, Bales noted that even thought the Agency, in effect, writes off 14,000 incurred cost submissions annually, there is still a deterrent effect because a few proposals are randomly selected for a full audit. "We help folks be hones", she said with a smile.

You can watch the full hearing here.

1 comment:

  1. DCAA is an inept organization. First nothing but excuses, they need more auditors. The question should be what are the auditors DCAA has doing, very little is the answer. DCAA uses more sick leave than any other DOD agency, so there is one aspect. DCAA has a large HQ staff of do nothing yes persons that produce no audits and virtually nothing but fawning on the DCAA leaders. Then the have auditors who are named FLA's again they produce no audits and do low level Clerical tasks 90% of the time, yes clerical work and get paid about 90 grand to do it. Also if DCAA was allowed to hire 500 auditors it would be a couple years before they produced a meaningful audit, most new DCAA auditors are in training for 10-12 weeks of the 6 months there, poor training at that. Bales is right about CPA firms being a bit more expensive, but with the CPA firm you received a professional audit. Lastly with DCAA you get what you pay for, low quality audits that take a long time to complete and are usaully meaningless. Research recent court cases and one will see that DCAA loses most cases as they bark up the wrong tree, but upper management receeives a lot or award monies.