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The Defense Contract Audit Agency (“DCAA”) recently made public its Fiscal Year (FY) 2018 Report to Congress (“Report”), which, among other things, provides an update on its incurred cost audits and highlights DCAA’s industry outreach activities.  Although the Report touts DCAA’s elimination of the incurred cost audit backlog, DCAA acknowledges that there still is a backlog of 152 years, the majority of which is due to reasons purportedly beyond DCAA’s control, and that is not yet in compliance with the NDAA 2018 requirements to complete incurred cost audits within 12 months of receiving a contractor’s adequate proposal.  To “eliminate” the backlog, DCAA “closed 8,482 incurred cost years with a total dollar value of $392.2 billion” using a variety of methods, including reports and memos – the latter of which account for more than half of the years closed.  Other reported methods for closing out audits included that the contractor went out of business or did not have any flexibly- priced contracts.

Additionally, according to DCAA, it:

  • Sustained audit exceptions for incurred costs 24.1% of the time, which is down from 28.6% in FY 2017 (and is calculated only “based on contracting officer negotiation decisions,” i.e., it does not include successful contractor appeals or settlements following a Contracting Officer’s Final Decision);
  • Calculated the time to complete an incurred cost audit at 125 days, which is down from 143 days in FY 2017 (although this calculation is “measured from the date of the entrance conference to report issuance” and, thus, does not account for when the contractor actually submitted its incurred cost proposal to DCAA);
  • Will continue to “dedicate the audit resources necessary to meeting the NDAA requirements in FY 2019”; and
  • “With the backlog behind [it], will be returning to a more balanced mix of audits across [its] whole portfolio, including business systems, Truth in Negotiations, Cost Accounting standards, pre-award surveys, claims, and terminations.”

The Report also summarizes its outreach actions toward industry, including its engagement with the Section 809 Panel.  In this respect, the Report references the Professional Practice Guide (PPG), which was included in Part III of the Panel’s Report, as previously discussed here.  According to DCAA, the PPG “will provide consistency in the way DCAA and Independent Professional Accounting Firms [(“IPA”)] consider risk and materiality.”  Indeed, the Report indicates that DCAA plans “to use the PPG to meet Congressional requirements to establish, codify, and implement these new materiality thresholds” and that the PPG also “will be important to IPAs when they perform select incurred cost audits for contractors previously audited by DCAA.”