By Bernard Mustafa, PVBS Chief Executive Officer

bernard mustafa

The DCAA Report to Congress – Preparing for the Road Ahead

The DCAA submitted their annual Report to Congress for Fiscal Year 2014 (link) at the end of the first quarter and it provides some interesting thoughts for Government Contractors. For starters, the DCAA issued 5,688 audit reports and examined $182.6 billion in contractor costs. These audits brought in $4.5 billion in documented saving for the Government, leading it into a fifth consecutive year of increased savings with last year’s savings the highest of any year in the past 10 years. Furthermore, with an ROI of about $6.89 per each dollar invested into the agency, it’s hard to imagine the DCAA slowing down anytime soon.

The DCAA averages an annual audit amount of about $200 billion in contract costs from approximately 3,000 contractors, with a little more than 4,500 auditors, according to their report. They accomplish this while also maintaining their backlog for Incurred Cost Audits. In 2012, the DCAA established special audit teams to divide and conquer their backlog to reduce the number of accumulated audits that were in limbo. And given the amount of work they have done since then, it looks like it is paying dividends now. In fact, the DCAA went from closing 487 incurred cost years in 2011, to closing an amazing 11,101 in 2014.

The DCAA Report to Congress explains that “Each audit that DCAA completes, whether it is before or after contract award, supports government officials who negotiate prices and settle contracts for major weapons systems, services, and supplies. When conducting an audit, DCAA evaluates whether contractor business practices and procedures are in accordance with the FAR, DFARS, Cost Accounting Standards (CAS) and other applicable government laws and regulations. Contracting officers may also request certain specific information such as an independent financial opinion on specific elements of a contract or an assessment of compliance with specific acquisition regulations or contract terms.”

These audits fall into one of four categories;
• Forward Pricing,
• Special Audits,
• Incurred Cost,
• and Other Audits.

Forward Pricing refers to pre-award pricing audits and Incurred Costs audits are used to determine accuracy of annual incurred cost submissions. Special Audits and Other audits are typically high-priority audits performed on requests of contracting officers. Of the four, Forward Pricing appears to be the most lucrative with nearly $17 million in questioned or unsupported cost per audit conducted. Incurred Cost run a distant second with $1.5 million but required nearly twice as many audits.

It should also be recognized that the DCAA has lowered their average elapsed days to complete audits in all four categories, although there was an unexpected increase in the Other category for Fiscal Year 2014. While Special Audits decreased by 24% since 2013, Forward Pricing and Incurred Costs decreased by nearly 15% in that period.

So, in summary, the DCAA Audit team has gotten faster, more focused, and returning greater amounts of contract costs year over year. And before you think maybe it’s some sweatshop agency with employees working long and hard hours, the DCAA should be congratulated on making it into the Top 100 Best Places to Work rankings for Federal Government organizations for the second year in a row. And, as stated at the end of the report, the DCAA “is definitely ready for the work challenges that lie ahead.” The real question though is; are Government Contractors ready?