Last Friday, we brought you a provision of the Defense Acquisition Streamlining and Transparency Act that will require the Department of Defense to outsource at least 25 percent of the incurred costs audits to QPA (Qualified Private Auditors). This is going to put DCAA in a head-to-head competition with commercial auditors and it will be interesting to see how it all shakes out.
There are a couple of other provisions in the proposed legislation that impacts DCAA that we want to summarize.
Transparency in Audit Savings. The methodologies used by DCAA to calculate cost savings resulting from their audits and ROI (Return on Investment) are often suspect; primarily because they are self-serving, DCAA does not share the information, and there is no transparency or accountability. Last year the Agency claimed to have saved $3.6 billion for the taxpayers or $5.70 for every dollar the Agency spent. Yet those savings are based on a fair amount of judgment on the Agency's part but often accepted as fact.
The proposed Defense Acquisition Streamlining and Transparency Act would attempt to provide more transparency behind DCAA's numbers. The proposed legislation would revise reporting requirements of the Defense Contract Audit Agency (DCAA) to provide more clarity on the cost effectiveness of different types of audits. It would require DCAA to report separately for incurred cost, forward pricing, and other audits with regard to the number and dollar value of audits completed and pending, sustained questioned costs, and the costs of performing audits.
It strikes us as odd that an audit organization needs to justify its existence based on cost savings achieved or how many dollars were returned to the Treasury for each dollar expended. We know of no commercial audit firm that emulates such a practice. Can you imagine KPMG or any other national CPA firm advertising "Hire Us Because We Give the Highest ROI".
Peer Reviews by Commercial Auditor. One provisions of this proposed acquisition and streamlining act is a requirement that DCAA be peer reviewed by a commercial audit firm. Specifically, the Act provides that DCAA may issue unqualified audit findings for an incurred cost audit only if it is peer reviewed by a commercial auditor and passes such peer review. This might actually be good news for DCAA whose peer reviews are now conducted by the DoD Office of Inspector General (OIG) a program, we suspect, that is beset by political considerations rather than by objective criteria and objective reviewers. There is absolutely no question that DCAA audits are extremely detailed but does the Government require that level of detail? If you were going from home to work for the very first time, you might want to enter the destination into your GPS. But would you need to do so on the second day, the 10th day, the 30th day? At some point, someone's going to think you're dumber than a brick if you need to consult your GPS every time you go to work. Yet auditors are expected to drag out the same old audit program when they've done it a hundred times before. And, if they don't, the Agency gets written up for failing to comply with Generally Accepted Government Auditing Standards (GAGAS).