Thursday, June 15, 2017

DoD Submits Legislative Proposal to Repeal Auditing Requirements for Commercial Auditors

It seems like only yesterday that we were discussing a provision within the 2017 NDAA (National Defense Authorization Act) that gives defense contractors the authority to retain commercial auditors to perform incurred cost audits and have DCAA (Defense Contract Audit Agency) accept the results without performing additional audits. Actually, it was less than six months ago (see Defense Cost Accounting Standards - Part 3). This was a controversial piece of legislation because it marked a significant departure from business as usual and would most certainly result in the erosion of DCAA's workload.

But will the provision last?

Earlier this month, the DoD Office of Legislative Council sent to Congress its second package of legislative proposals for inclusion in the Fiscal Year 2018 NDAA (National Defense Authorization Act) that, if passed, would repeal that particular provision - even before it becomes effective.

That provision currently reads:
(f) Auditing Requirements. -
        (1) Notwithstanding any other provision of law, contractors with the Department of Defense may present, and the Defense Contract Audit Agency shall accept without performing additional audits, a summary of audit findings prepared by a commercial auditor if -
                (A) the auditor previously performed an audit of the allowability, measurement, assignment to accounting periods, and allocation of indirect costs of the contractor; and
                (B) such audit was performed using relevant commercial accounting standards (such as Generally Accepted Accounting Principles) and relevant commercial auditing standards established by the commercial auditing industry for the relevant accounting period.
        (2) The Defense Contract Audit Agency may audit direct costs of Department of Defense cost contracts and shall rely on commercial audits of indirect costs without performing additional audits, except that in the case of companies or business units that have a predominance of cost-type contracts as a percentage of sales, the defense Contract Audit Agency may audit both direct and indirect costs.
There is, of course, a long way to go before the 2018 NDAA becomes a reality and there is no certainty that this provision will ever be included in any version of the NDAA. But, it does highlight DoD's true position on reliance on commercial audits.

1 comment:

  1. DCAA is at best an inept and buffoonish agency. DCAA HQ spends the bulk of its time trying to influence legislation in its favor. What does this entail, approximately 3 dozen GS-15 & GS-14’s are working influence DOD legislation in its favor, they might as well hire a Lobbying firm to do this effort. If you add up the salaries this lobbying activity we are talking way over a million dollars in taxpayer funds utilized to keep DCAA in business and hiring more auditors as most DCAA leave within 10 years of working at this wannabe agency. The DOD IG should look into this lobbying activity and put an end to it. Note since a good portion of DCAA HQ staff is working on lobbying, what they are not working on is completing audits. Like a previous comment noted DCAA stands for Don’t Count on Any Audits. Yes if the taxpayer knew the fraud waste and abuse at DCAA HQ they would demand that all DOD audits should be completed by CPA’s firms which are professional organizations with proper training. Ask DCAA how many CPA’s are in their organization, very few maybe 15%, enough said.