1. 2 Defense Contract Audit Agency 3 Established in 1965. Separate Agency of the Department of...

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Defense Contract Audit Agency

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Established in 1965. Separate Agency of the Department of Defense. Reports to DoD Controller. Provides Service to all DoD Components. Provide all necessary contract audit for DoD. Provide accounting and financial advisory

services for DoD. Approximately 600,000 hours of reimbursable

work for customers outside DOD.


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Headquarters - Fort Belvoir, VA Five Regional Offices & Field Detachment Approximately 350 FAOs/Suboffices Defense Contract Audit Institute –Memphis, TN


Organization:

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EASTERN REGION:Regional Director – Richard Buhre


AGENCY:Director – William Reed

Deputy Director - Mike Steen Regional Audit Manager - Paul Phillips

Tampa Bay Branch Office:Branch Manager - Gary Ricketts

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DCAA Mission Statement

DCAA’s mission is to perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services for the negotiation, administration, and settlement of contracts and subcontracts. The charter also authorizes providing these services to other federal agencies on a reimbursable basis.


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Services and Staff

• On a reimbursable basis, provides contract audit, accounting, and financial advisory services to non-DoD customers.

• Agency staffing of approximately 4,000.• Professional auditors comprise 83% of staff.• CPAs comprise 37% of the total auditors.• CPAs comprise 79% of management positions.


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Types of Audit Services

• Preaward

• Financial Capability

• Incurred Cost

• Accounting Systems Internal Controls

• Contractor Operations

• Cost Accounting Standards

• Disclosure Statements

• Equitable Adjustments Contract Terminations Delay/Disruption

• Defective Pricing

• Proposals

• Progress Payments

• Public Vouchers

• Negotiation Support


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DCAA Services


Price Proposals Preaward Surveys Forward Pricing Labor and

Overhead Rates

Preaward Contract Audit Services:

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Financial Capability Incurred Costs/Annual Overhead Rates Claims Truth in Negotiation Act Compliance CAS (Cost Accounting Standards)

Compliance and Adequacy


DCAA ServicesPostaward Contract Audit Services:

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Accounting EDP (Electronic Data Processing) Estimating Compensation Billing Budgeting Material Management Labor Purchasing Indirect and Other Direct Cost


DCAA ServicesContractor Internal Control System Audits:

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• Agency for International Development

• Army Corps of Engineers

• Department of Agriculture

• Department of Commerce

• Department of Education

• Department of Energy

• Department of Health and Human Services

• Department of Housing and Urban Development

• Department of Interior

• Department of Justice

• Department of Labor

• Department of State

• Department of the Treasury

• Department of Transportation

• Department of Veterans Affairs

• Environmental Protection Agency

• Federal Emergency Management Agency

• General Services Administration

• Government Printing Office

• NASA

• National Science Foundation


Non-DOD Customers

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• Nuclear Regulatory Commission

• United States Postal Service• Arms Control and

Disarmament Agency• Community Services

Administration• Defense Nuclear Facilities

Safety Board• Executive Office of the

President• Export-Import Bank of the US• Federal Energy Regulatory

Commission• General Accounting Office

• Interstate Commerce Commission

• Library of Congress

• National Archives

• National Transportation Safety Board

• Peace Corps

• Small Business Administration

• Smithsonian Institute

• Social Security Administration

• US Information Agency

• US Railroad Retirement Board


Non-DOD Customers

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• DCAA has the expertise to provide timely audit services in different areas.

• DCAA’s professional staff has the flexibility to adapt to a variety of audit requirements.


Other Areas

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International Audits

• European Branch OfficeWiesbaden, Germany

• Suboffices: Israel Saudi Arabia

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• European Branch Office

• Pacific Branch OfficeJapan• Suboffices:

Korea Hawaii

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• Pacific Branch Office

• Tampa Bay Branch OfficeClearwater, Florida

• Suboffices: Fort Lauderdale, FL

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• Pacific Branch Office

• Tampa Bay Branch Office

• Rapid Deployment Team– Based in United States– 72 Hours notice



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• Providers of Unique Items

• Base Maintenance Contracts

• Training and Logistic Support

• Foreign Military Sales

• European Participating Governments

• Corps of Engineers

• Federal Emergency Management Assistance (FEMA)


International CustomersDepartment of Defense Contractors:

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• USAID

• NASA

• Department of Energy

• Department of Transportation

• Health and Human Services

• U. S. Postal Services

• Fish and Wildlife


International CustomersNon-Department of Defense Customers:

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Hurricane MitchHurricane Mitch

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Restoration of InfrastructureRestoration of Infrastructure

• Incurred cost audit to:– Ensure contractor costs are:

• Allowable, allocable, reasonable.

– Evaluate internal controls preventing:• Potential illegal activity.• Loss or misuse of purchased items under

grant/contract.

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• Reconstruction and emergency work:

– Limited time for evaluation/qualification for the program prior to award.

– Adequacy of systems unknown.

– Diversity of contractors involved.

– Quick turnaround on programs.

– Materiality of individual contracts.


Obstacles to Scope of Work

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• Overcame infrastructure challenge to:– Work closely with technical personnel.– Ensure desired results achieved as planned.– Provide real-time concurrent results.

• Enabled customer to timely:– Report program status to Congress.– Make necessary program adjustments.


Results

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Hurricane GeorgesHurricane Georges

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Program audits to:Ensure adequate control over emergency funds

• Evaluate internal controls.

• Field visits.

Emergency Repair/Clean-up

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• Overcame infrastructure barriers:– Transportation– Infrastructure– Lack of customer audit scope

• Conducted on-site discussions with customer to agree on:

– Necessary audit scope– Acceptable reporting format


Situation

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Audit Planning• Initial Considerations

– Specific Guidelines– Type of Program/

Procurement

– Logistical Barriers

– Available Timeframe

– Market Conditions

– No Banking System

– Advance Payments

– Claims Flood Waters fromHurricane Georges

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• DCAA developed real-time auditing and reporting procedures to ensure:– Improvements in contractor operations

and safety.

– Quick resolution of issues.– No delay in emergency operations.


Results

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• Conditions– Inadequate reporting where costs are not accounted and

accumulated by cost elements. – Accounting records consist of check register or Excel

Spreadsheet.

• Basis– Lack of adequate accounting system.– Lack of Job Cost Ledger.

• Recommendations– Request accounting system surveys for prospective

contractors.– Follow up on adequate corrective action to auditors

recommendations.


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• Conditions– Inadequate procurement system, where lowest bidder

not always selected.– Inadequate documentation for vendor selection.– Internal controls over purchasing procedures weak or

non-existent.

• Basis– Lack of written policies and procedures.– Purchasing practices not similar to those in U.S.

• Recommendations– Request surveys that cover the purchasing system.– Follow up on auditors recommendations.


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• Condition– Inadequate support for transactions and payments.

• Basis– Lack of voucher system to maintain supporting

documentation for each transaction.– Numerous petty cash transactions.– Lack of adequate accounting system policies and

procedures.

• Recommendations– Request accounting system survey.– Ensure the contractor implement adequate corrective

action to auditors recommendations.


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• Condition– Unusual amount of transactions involving petty cash funds.

• Basis– Extensive use of local suppliers at remote location.– Lack of knowledge on checks usage.– Limited access to banking institutions at remote locations.

• Recommendations– Educate contractor’s to reduce the use of petty cash to a

minimum.– When checks are not an option, accounting systems should

provide for proper documentation on cash transactions.


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• Conditions– Noncompliance with specific regulations.– Ineligible costs claimed.– Inconsistent treatment of expenses.

• Basis– Lack of knowledge of applicable U.S. Regulations.

• Recommendations– Familiarize all parties, including auditors, contractor, and

requestor with the specific regulations under the program.– Monitor for compliance with regulations, program requirements,

and objectives.


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• Condition– Requested cash advances exceeded projected period costs.

• Basis– Limited cash flow.– Poor estimation of program costs and budget preparation.

• Recommendations– Request financial capability reviews of prospective

contractors.– Review the records as soon as possible to detect potential

overpayment and large amounts of money outstanding.– Design audit steps to ascertain that money is not being used

on other programs and it is reconciled to the books and records.


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• Conditions– Indirect rates agreed to were too high.– Contractor does not have a calculated indirect rate.– There is no proper segregation of direct and indirect costs.

• Basis– Lack of policies and procedures to calculate an indirect rate.– Lack of knowledge on proper determination of an indirect rate

pool and it’s allocation base.

• Recommendations– Request an Indirect Rate review.– Establish projected indirect rates based on adequate budgets

and estimates.


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• Conditions– Numerous revisions to costs reported under the

programs.– Significant amount of time dedicated to correct errors in

the reports.

• Basis– Lack of knowledge of U.S. contracting and reporting

requirements.

• Recommendation– Request concurrent audits to obtain real-time audit

results and recommendations during the program.


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• Conditions– Undefined Scope of Work.– Numerous changes and modifications.

• Basis– Emergency nature of the program.– Unforeseen adjustments to program objectives.– Availability of funds.

• Recommendations– Notify auditors as soon as possible of changes.– Adjust audit scope as necessary to address new

conditions.


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• Conditions– Inadequate selection of subcontractors.– Inadequate monitoring of subcontractors.

• Basis– Lack of knowledge on requirements regarding

subcontractors.– Limited resources to monitor subcontractor’s performance.

• Recommendations– Request the contractor to perform adequate review of

subcontractor’s accounting system and records.– If contractor not able to perform review of subcontractor,

have auditors perform simultaneous audit of the subcontractor under the program.


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• Condition– Accounting records for accumulation of counterpart or

outside contributions inadequate.

• Basis– Lack of knowledge of specific requirements and

regulations.– Remote office locations do not report to home office on a

timely basis.– Lack of knowledge of eligible contributions.

• Recommendation– Request audit of complete program including counterpart

contributions.


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RISK

MANAGEMENT


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• Request preaward surveys of prospective contractors.

• Involve the auditors as soon as possible when a program starts.

• Keep auditors involved throughout the entire process.

• Provide feedback on services to maintain open communication with all parties.


Steps you can take to minimize your exposure/risk through effective Contract Auditing

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– Program and Audit Planning:• Coordinate promptly with auditors.• Consider timeframe limitations.• Express specific or unique requirements.

– Survey Prospective Contractors:• Accounting system.• Financial capability.• Indirect rate agreements.


Risk management through effective Contract Auditing

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– Concurrent Audits:• Request audits as soon as possible.• Provide environment that allows for timely audit results.• Implement corrective actions.

– Incurred Costs:• Request audit of long programs prior to their completion.• Communicate program changes/modifications to

auditors.• Audits provide monitoring of compliance with objectives.



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– Claims:• Ensure claim submission is adequate.• Provide auditors with all facts, auditors

determine quantum, not entitlement.

– Closeouts:• Timely audit requests allow for faster closeouts. • Timely audit results provide for adjustment to

obligated funds.



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The success of any program depends on its proper planning and execution.

Most of the obstacles we have encountered relate to the selection of contractors with inadequate systems to perform the work.

Involving the auditors in the preaward, as well as the postaward phase, prevents a significant amount of situations that often result in additional program costs.


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