By Bill Walter and Mark Burroughs, Dixon Hughes Goodman, and Nicole Owren-Wiest, Wiley Rein
Statistical sampling can be a valuable tool to collect and evaluate information about a large population, or universe, when it would otherwise be impractical (or impossible) to collect that information from the entire population. When done properly, statistical samples enable reasonable inferences to be drawn about the population based on information about the sample. Additionally, one will have an objective measure of the possible variation between samples and of the sample’s relationship to the population. However, because “statistics by their very nature present an incomplete and potentially misleading description of the population,” to be reliable and useful, a sample must be designed, executed and analyzed using appropriate statistical analysis techniques.
Although focused on the Defense Contract Audit Agency’s methodology for evaluating the reasonableness of contractor compensation costs, the Armed Services Board of Contract Appeals’ recent decisions in the appeals of J.F. Taylor, Inc. raised numerous significant issues regarding DCAA’s use and interpretations of statistical samples to form audit conclusions. These decisions, coupled with more recent criticisms by the Department of Defense inspector general regarding the quality of DCAA’s statistical sampling plans, and updated DCAA guidance underscoring “the complexities involved and the number of decisions that must occur” in designing and executing an appropriate and statistically valid sampling plan, emphasize the importance of contractor involvement and attention to DCAA’s use of statistical sampling in its audits to minimize the risk of unreliable audit findings and the potential for financial non-recovery and penalties.
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Nicole J, Owren-Wiest is a partner in Wiley Rein, LLP’s Government Contracts Practice. Bill Walter, CPA, is a partner at Dixon Hughes Goodman and leads the Government Contractor Services group. Mark Burroughs, CPA, is a partner at Dixon Hughes Goodman and brings 20 years of experience to the firm’s Government Contractor Consulting Services group.