Government contractors, prepare for closer scrutiny from the Defense Contract Audit Agency in fiscal 2020 and beyond.
Having cleared its longstanding audit backlog, the DCAA has returned to performing a full range of audits, the agency’s director, Anita F. Bales, declared in a recent letter to the U.S. Congress. In fiscal 2019, the DCAA “focused more effort on other audits such as business systems, Truth in Negotiation Act, Cost Accounting Standards, and labor and material reviews,” she said in the letter, which accompanied a report summarizing the agency’s activities last fiscal year. “We also successfully met the Congressional requirement to complete incurred cost audits within one year of adequate submission as well as contracted with seven independent public accounting (IPA) firms to perform 101 incurred cost audits.”
The DCAA’s renewed commitment to timely audits is expected to continue in the current (2020) fiscal year, putting the onus on government contractors to prepare for a busy compliance season. In particular, DCAA said it “prioritizes the audits that pose greatest risk to the government,” namely contracts that “involve significant costs, significant audit findings in the past, or circumstances that reduce the incentive to control costs, such as those inherent in cost-type of contracts.” Here’s what the agency says about various types of audits:
- Incurred cost audits “continue to be a priority to meet both the adequacy review (60 days) and completion (12 months) timelines.”
- Forward pricing audits “net the highest rate of return and are time sensitive because to be of value they must be completed before contract negotiations.”
- Special audits are prioritized in coordination with contracting officer needs.
- Other audits become a high priority “when DCAA or the contracting officer identifies a high-risk area such as inadequate business systems. DCAA assigns priority to additional audits based on individual contract and audit risks to the government.”
To maintain timeliness with its audits and prevent another backlog, the DCAA indicated it plans to continue using IPA firms to conduct select incurred cost audits. To support a more aggressive audit caseload, the DCAA said it is focusing on recruiting, developing and retaining high-quality auditors and support staff, such as with hiring events and internship programs aimed at bringing college students into the fold and grooming them to become full-time employees.
As it ramps up its caseload, the DCAA also has increased its industry outreach. In July 2019, it adopted the materiality guidelines from DoD’s Professional Practice Guide to “help oversight professionals plan their work and provide the information contracting officers need to make reasonable business decisions.” The agency also has been regularly engaging with industry groups, resulting in a proposed FAR change and improvements to the incurred cost electronic (ICE) model. It also is working with the acquisition community to mitigate the risks associated with using Other Transaction Agreements, or OTAs. The goal: ensure cost reasonableness “without hindering the speed that makes OTAs so valuable.”
Moving forward, expect the emphasis on Truth in Negotiation Act audits to continue. The DCAA said it is stepping up efforts to train and educate its staff about TIN audits, and that beginning in fiscal 2020, its field audit offices will join its headquarters TIN team in conducting TIN audits. ”These collaborative, proactive efforts are vital as DCAA will double the number of hours dedicated to these audits in FY 2020.”
Also expect the DCAA to continue to leverage technology — data analytics, “intelligent documents,” etc. — as it moves away from outdated Excel and Word-based audit tools.
Looking ahead to fiscal 2020 and beyond, DCAA said it expects to “move away from complex, specialized audits performed by dedicated teams, like TIN and business systems, to performing these audits with our FAO staff.”
The agency also plans to finalize its strategic plan in FY 2020, meaning more changes to audit processes and procedures could be forthcoming. We closely monitor the DCAA here at Unanet, so stay tuned to this space for updates.