DCAA’s focus on audits of contractor business systems highlighted in its latest report to congress

10 USC 3847 requires the director of the Defense Contract Audit Agency (DCAA) to prepare an annual report on the activities of the agency and to provide that report to congress no later than March 30 of each year. The report includes information from the previous government fiscal year about the audits conducted during the year, challenges encountered during those audits, recommendations to improve the audit process and a description of outreach activities with industry.

The majority of the report is focused on the agency’s performance during the year and the content of the “audit performance” section has remained relatively consistent over the years with regular reporting on the types of audits the agency performs and performance metrics such as number of audit reports issued, timeliness of audits, audit exceptions and questioned cost, sustention of recommendations and cost savings. The report states that in fiscal year 2022, the agency completed 2,560 audit reports identifying over $5.7 billion in audit exceptions from $262.3 billion in contract costs examined. The agency claimed $3 billion in savings, a return on investment of $4.6 to $1 relative to the total annual cost of agency operations. Of particular interest in this latest report from the DCAA, the agency specifically highlights its recent emphasis on — and progress made — auditing contractor business systems. The report indicates that the agency’s focus on business system audits over the past few years resulted in the agency completing 288 system audits by the end of fiscal year 2022.

In February 2019, the Government Accountability Office (GAO) issued a report addressing the Department of Defense’s (DoD’s) lack of attention to reviews of contractor business systems. The GAO reported that the DoD had made several changes to its processes for reviewing contractor business systems but had no mechanism to monitor and ensure that these reviews were being conducted in a timely manner. The report also said that in 2012, the DoD recognized some duplication of effort and clarified roles for the DCAA and the Defense Contract Management Agency (DCMA) with respect to business system reviews. The clarifications included directing that the DCAA had responsibility for three systems and the DCMA had responsibility for three systems. In all cases, the DCMA Administrative Contracting Officer (ACO) makes the final determination on whether a system is approved or disapproved. With respect to DCAA business system audits, the GAO reported that the agency had conducted few business system audits since 2013 because it focused its efforts and resources on other types of audits. In response to the GAO report, the DoD agreed to have the DCMA and the DCAA collaborate to determine the best way to develop a mechanism to monitor and assess whether contractor business system reviews were being completed in a timely manner. During the GAO audit, the DCAA identified 285 systems that required an audit and the agency planned to complete audits of the 285 systems from fiscal years 2019 through 2022.