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Feb 03, 2011


Nino R. Pereira

Could I add another perspective? To me it makes little sense to do comprehensive audits on small research contracts such as the ones I work under. Those are almost all labor. When the contracts are fixed price it's easy: almost no auditing is needed. However, the same type of work can also be done under a T&M or CPFF contract. Then, accounting becomes substantially more complicated, and is subjected to the same type of detailed audits that apply to much larger contracts.

In my view, these detailed audits waste lots of time.
In preparation I have to fill out forms that consist of multiple spreadsheets that may be appropriate for larger companies, but not to a small one: in my case a single spreadsheet should suffice. In addition, it is easy to check that the hourly rate(s) charged are appropriate since they are basically identical to the rates charged by Government employees for the same type of work. Likewise, smaller Companies that have a single indirect charge can be told which percentages would be accepted as being reasonable, without the Contractor having to guess what each little cost that is allowable may have as an individual limit.

With such explicit guidance from the DCAA, I would expect Companies
to do their utmost to stay within the guidelines because this minimizes the amount of unproductive administration they have to do to stay in business.

Such a system works well for Government travel. Here, the Government establishes allowable rates for hotel, and for per diem and incidentals. Travelers tend to stay at or below these limits: and, when they go over they will have to show proof that their higher costs are justified and reasonable before they can be reimbursed. Few people are so audited.

If the DCAA start its audits this way, from the bottom up with the smaller contracts first, I'd be surprised if the backlog would last long.

500 Auditors

I'm re-reading the discussion between Senator Brown and Director Fitzgerald and seeing the disconnect that doesn't seem to be addressed. Yes, 500 new auditors may have been hired, but our type of auditing is unique, and these new auditors will not be beneficial or proficient for another 2 years. That is why hiring auditors, supervisors and managers from outside the agency is not the solution. You may have an advanced degree or a CPA, but it will take sometime to learn Government contract auditing. Ask the old dog auditors; what we do is unique. And when large amounts of new auditors are hired, it is a dual decline in productivity, because not only are there new auditors that are learning their craft and are not productive, but the skilled GS-12s are training them, and this takes time from their audits.

Hands Tied

The Auditors are just as frustrated as the contractors and ACOs with the backlog of unaudited incurred cost submissions. We want to be able to perform them because they provide us insight into the contractor's systems, identify risk areas, and assist in testing accounts; however, our agency is currently not funded with the resources to perform these audits. Before the beginning of each GFY, each DCAA office submits a requirements plan to the regions and HQs with details of all the work we need to perform (including the incurred cost backlog and current incurred cost), and based on the funding DCAA receives, HQs assigns resources to high-risk audits. In our current environment, high-risk audits are high-dollar proposals, most specifically, proposals supporting the war effort. We are not allowed to touch the incurred cost submissions. Unfortunately, contractors are unable to collect their full profit on contracts; the Government is at risk because unallowable, unallocable, or unreasonable costs have not been identified and recovered, and the auditors need to spend additional time testing in proposal audits, because we cannot rely on the unaudited incurred cost submissions.

If someone is really concerned about this, they should look at our funding and staffing level. We've been through this before in the '90s. All of a sudden the incurred cost backlog took center stage and special teams were created to tackle the backlog. Afterwards, the agency had strict goals to audit incurred cost submissions within a certain time. I'm sure the pendulum will sway again and incurred costs will be a priority again. Let's hope the auditors who have experience auditing them and the contractor personnel who are familiar with the submissions are still around.


There are some very good points being made by other contributors; however, there isn't a simple fix to the problems that the Agency has and will continue to have under the current leadership. Management has been given orders to program incurred cost audits, that is set the assignments up in our information system, but we are not to do them. All proposals over $100 million are now considered so high risk that everything from the risk assessment until the report is issued must go through the supervisory auditor to headquarters and make stops at every layer of management in between. Many managers are so afraid of getting into trouble if there is one single typo in an audit report that they keep making edits until the report is useless...we call this sitting on reports. What we need is for the people who sit at headquarters making policy to get off their butts and get out here in the field and see how impossible it is to audit in our current environment. The people making the rules and regs for this Agency haven't been in the field for 15 years or more; they don't know what is really going on and they don't want to hear it. Perhaps the congressional committee should talk to some of the auditors and supervisors to get the facts.


The backlog of incurred cost audits at DCAA is not going away for years. In my office, more submissions are being added to the backlog than are being completed. It was a shame that Fitzgerald did not have the data on the backlog at the hearing. It could have been a powerful statement for why DCAA needs to be properly funded by DoD. It is also a shame because as the Director of DCAA, he should always have at least a general idea of the backlog even if to say that at the current pace and funding, it will take XX years to work a backlog of XX years. It shows that Fitzgerald is not concerned about DCAA completing audits. Neither is McCaskill or she would have torn into Fitzgerald. The further behind DCAA becomes, the greater the risk for overpayments. With the current regulations (FAR) permitting contractors to bill 100% of cost type contracts when completed, contractors hold the money until the audits are complete and the contracts are closed. Only then do contractors repay the money. In the end, the risk has shifted to the government for the overpayments and the contractors may hold money for overpayments for years until DCAA completes the audits. The further behind, the more difficult the audits become and in the end, the risk of overpayments increases each year. Fitzgerald does not get this and it shows when he could not give even general numbers on the backlog.


During the hearing, Senator McCaskill made a point to state that Fitzgerald came from outside DCAA and made it seem like a great accomplishment for DCAA. I can attest that there is a reason that prior Directors came-up through the ranks. To be DCAA Director, you need to have a firm understanding of contracting and the role of contract auditing. Fitzgerald only knows performance audits of Army Audit and it shows in his direction of the agency. Fitzgerald is the issue and the reason that DCAA cancelled more assignments than it completed in 2010. Cancelled assignments are a waste of money, money that DCAA needs to get back to the days of auditing proposals in 30 days and having significant net savings. Yes it was production auditing at times Senator McCaskill, but contracting is in a production environment. This country cannot afford to have each DCAA auditor perform one or two audits a year such as the GAO or IG. DCAA needs to be able to get in quickly and get out quickly to save real bucks. But it will not happen under Fitzgerald, who only wants perfect working papers and whoes only goal is a clean peer review. Fitzgerald needs to be replaced and we need a real auditor with real leadership abilities to run the agency. Yet again McCaskill you are wrong. You were wrong about our prior Director and you are wrong about our current Director. When will you get it?

DCAA Auditor

People need to realize that it's not easy being an auditor in the field these days. I'm tired of being harrassed by our contractors every single day because we aren't doing their audits. While I understand their frustration, it's beyond our control at our level, yet we are the ones facing the day to day outbursts and frustrations being expressed by the contractors. Our upper management doesn't understand what we are going through every single day and frankly, nobody deserves to be treated unprofessionally by the contractors. Contractor harassment of DCAA auditors needs to stop.

SoCal Contractor

I guarantee that this is a huge concern for the contractors. The current "risk-based" approach is leading DCAA to perform fewer audits, on the wrong things, while deferring problem areas.

The snowball of unaudited incurred cost submissions is going to bring the defense acquisition system to a grinding halt in a couple of years....

What I See

DCAA will never get to their incurred cost claim backlog as long as we are performing audits to the unrealistic level we are now. DCAA has their little people (auditors) perform risk assessments on each assignmet as though it were a matter of like or death, yet our own senior leadership can't perform a risk assessment of the agency they run and where resources and time should be spent. As a minimum Mr. Fitzgerald needs new leadership in the Policy and Quality divisions of this agency.

Based on the new level of detail we audit to, Incurred Cost audits will take massive levels of manpower to do. When we finally get to doing these audits, they will be ten or more years old.

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