Monthly Archives: July 2017

DCAA Reports to Congress on FY2016 Activities

DCAA FY2016 activity report

The Defense Contract Audit Agency’s (DCAA) effort to realign resources and reduce overall audit backlog is certainly paying off. The results of the DCAA’s FY2016 activity report are out, and the numbers tell an uplifting story for government contractors. Below are a series of key findings the agency has released to Congress.

  • The DCAA’s workforce of 4,513 employees issued over 4,200 audit reports. The agency examined $287B in defense contractor expenses, resulting in $9.9B in exceptions.
  • Officials saved $3.6B in defense spending during FY2016 related to DCAA audits. The agency was able to gain efficiencies by completing multi-year incurred cost audits as opposed to single-year audits, saving approximately 40% of their time.
  • Staffing shortages in FY2016 reduced the numbers of total years closed for incurred cost submissions when compared to FY2015. However, the dollars examined increased 20% from FY2015. Through a risk-based audit approach, the DCAA was able to target their audits.
  • The time to complete an incurred cost audit, based on the start date, has decreased from 406 days in FY2012 to 138 days in FY2016.
  • The average incurred cost backlog is now 17.6 months or 4,677 submissions. The current government hiring freeze has made the projected backlog elimination in FY2018 unknown.
  • In FY2016, pre-award audits were completed in half the time (60 days) compared to FY2012 (120 days). In FY2012, the pass/fail rate was approximately 78%/22%, and in FY2016 the pass/fail rate was 90%+/<10%. The shift of more contractors passing the pre-award audit can be attributed to educating small businesses on the necessary components of a passing system.
  • The organizational structure of the agency has been realigned to be more effective, including four Corporate Audit Directorates for major defense contractors, three Regional Directorates for mid-sized and small defense contractors, and one Field Detachment for classified work.
  • The DCAA continues to prioritize audits based on risk. Higher risk audits have the highest payback to warfighters and taxpayers. These types of audits include forward pricing, special audits and incurred costs audits.
  • High-risk audits include significant dollars and poor past performance by the contractor.

Overall, the DCAA has reduced audit spending, audit backlog, and time completing an audit from start to finish. The agency has achieved this by incorporating a risk-based audit approach, improving agency and cross-agency communications, and implementing community outreach programs. Their 2016 activity report confirms that the transformation of the agency is alive and well.

For any questions, please contact La-Tasha Patel at 301.231.6260 or lpatel@aronsonllc.com.

Potential for No More DCAA Incurred Cost Audits!

DCAA Incurred Cost Audits

Defense government contractors could potentially see no more DCAA incurred cost audits beginning October 1, 2018. Section 820 of the National Defense Authorization Act (NDAA) for Fiscal Year 2017 has established a new and independent Defense Cost Accounting Standards Board (DCASB) to oversee cost accounting standards across all of Department of Defense (DoD). The three primary objectives for this new board are:

  1. Review cost accounting standards created by the CAS Board and provide recommendations
  2. Implement cost accounting standards across the DoD
  3. Develop standards to ensure DoD’s adherence to standards established by the CAS Board or GAAP

The board’s first order of business will be to amend the existing CAS Board’s implementing statute 41 U.S.C. § 1501 to specify additional duties for the CAS Board. For instance, one new standard will request the CAS Board meets at least once per quarter. A notice of each meeting and the meeting’s agenda will be published in the Federal Register. Additionally, they will report annually to multiple congressional committees regarding how it has conformed its accounting standards to GAAP and minimized the burden on contractors.

A noteworthy change more pertinent to government contractors is the potential to avoid further DCAA incurred cost audits. This could be achieved by the DCAA accepting a reputable CPA firm’s indirect rate audit reports with no additional testing required. The only condition is that the audit must be performed in accordance with Generally Accepted Accounting Principles (GAAP).

This is a significant change as DoD contractors will be able to finalize their indirect rates and close out their contracts at a much faster and efficient pace. Currently, incurred cost audits may last about one to two years, although they usually do not begin until years after the filing of the incurred cost submission.

Those in a prime or subcontractor relationship will now have the benefit of settling and closing out on-going subcontracts in a timely manner. Subcontractor costs often linger because of the wait for a subcontractor’s rates to be audited and settled. If a subcontractor does not have any prime DoD contracts the wait can be lengthy.

The Federal Government will now have the advantage of faster closeouts with contractors and the ability to de-obligate any remaining funding at a much more rapid pace. Furthermore, they also will be able to close-out contracts more quickly than in the past.

One downside and confusion regarding NDAA Section 820 will occur for contractors who have both civilian and defense contracts. Who will have the final say? Will the new DCASB create new standards?  What effects will this newly formed board have on the existing and long standing CASB? We’re not sure how this will all be resolved; however, Aronson will continue to provide updates as October 1, 2018 approaches. Stay tuned!

For any questions, please contact Donna Dominguez at 301.222.8232 or ddominguez@aronsonllc.com.

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