DoD IG Critical of DCMA Proposal Audits

By Darrell Oyer, Darrell J. Oyer & Co.:

In 2010 DOD issued guidance to contracting officers raising the contract value for requesting a proposal audit from $650,000 to $10 million for fixed-price contracts and from $10 million to $100 million for cost-type proposals.

DOD transferred low-dollar proposal audits from the Defense Contract Audit Agency (DCAA) to the Defense Contract Management Agency (DCMA).  The change came in the wake of congressional criticism over the quality of DCAA’s audits. DCAA said this decision would allow it to redirect 132,133 audit hours to higher-dollar proposals [Editorial Note:  Sure]. A DOD Inspector General (IG) report has now concluded that this action could cost taxpayers as much as $249.1 million per year.

According to the IG, DCMA’s Pricing and Negotiation eTool information system is unreliable for cost analysis performance.  The IG recommended returning the authority for low-dollar audits to DCAA. However, the Office of Defense Procurement and Acquisition Policy (DPAP) said that the IG’s analysis was flawed and that it will monitor future audits to see if a change is warranted.

According to the IG report, DOD did not perform a business case analysis to support the decision.  DCAA could have audited as much as $1,885 per audit hour in questioned costs from the lower-dollar audits and the total loss to taxpayers was as much as $249.1 million annually.  A business case study would have found that DCMA (1) was not prepared to conduct low-dollar cost analysis (2) could not report performance statistics related to their cost-analysis and (3) could not replace the potential return on investment identified by DCAA before the guidance was issued.

DOD and DCAA disagreed, responding that the IG report does not account for the savings from redirecting audit hours to higher-dollar contracts. They added that allocating just 10 percent of the redirected hours to the questioned costs of higher-dollar proposals could save $663.8 million per year.  The report also does not count the results of the DCMA audits.

The IG agreed that auditing higher-dollar contracts would generate more savings. But the report said DCAA did not make the best choice by limiting low-dollar contract audit hours. It also could have redirected work from other audit areas that generate less per hour in savings than low-dollar contracts, including doing less special audits, defective pricing reviews, cost accounting standards audits and incurred costs. [Editorial Note:  Just what is needed; less currency on incurred cost audits!!]

DCAA further objected to the IG’s use of questioned costs to measure savings to the taxpayer. The average net savings for audits of fixed-price contracts for fiscal years 2009 to 2011 is about 42 cents per dollar of questioned costs, DCAA said, reducing the savings from $249.1 million to $122.4 million. [Editorial Note:  This is the cost questioned sustained data that DCAA has been reluctant to reveal.]

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