Consequences of a World without DCAA

December 3, 2012

It appears many of DCAA’s traditional customers outside the Department of Defense made the bold decision to move away from DCAA as opposed to waiting years for DCAA to finish outstanding projects, not mention new ones. This is even happening within the Department of Defense as I completed an accounting system audit this summer with the Army who grew impatient with DCAA’s ability to complete the initial audit after over a year.

The emerging pattern seems to be letting the cost analysts within the departments or agencies assume most of the burden for cost audit and then bringing in an outside audit firm such as one of the Final Four accounting firms (Deloitte, E&Y, PW&C, KPMG) to provide the illusion of an independent audit.

There are some major problems with this approach.

Independence

While no one working with DCAA will hold them up as a model of independence, the alternatives may be worse. DCAA at least has to pretend to follow auditing standards and government contracting compliance. Cost Analysts have no such standards or experience. I argued with an Army auditor who demanded the contractor move away from Total Cost Input (TCI) to Value Added because TCI benefited the Air Force more than the Army. I told him that since he was trying to stand in DCAA’s shoes he was obligated to represent the government and not just his branch.

Do we really think that outside audit firms are not anxious to make their client the government happy at the expense of independence? It has the makings of Enron all over again.

Accountability

DCAA ultimately got into this mess because they were accountable up the chain of command. Every action reviewed all the way to the top (in theory.  This theory does not even exist with DCAA out of the picture as government officials are making decisions without any formalized method of review.  DOD’s Inspector General office started to raise the alarm on this area in a recent report.

Experience

No one in government enjoys the experience with accounting compliance held by DCAA, even former DCAA auditors working in other branches of the government (my experience here is a romantic belief on their part that they were the best auditors to ever work for DCAA – true or not, this attitude presents other problems since there in no peer review on their actions).

Another example of the lack of experience is a recent example of a cost analyst trying to change an argument about allocation to allowabilty without realizing that this raises the issue of fraud or at least penalties.

Relationships

There is a fine line contractors must watch between getting along with the government and not letting the government walk all over them.  The very institution of DCAA helped with this. Time after time I would argue with DCAA about various issues and on occasion they would issue audit opinions sticking to their guns. In almost every case, DCMA and the contract people were ignorant of the arguments and could have cared less. Unless there were substantial issues involved, DCAA’s opinion was usually compromised.

Now with DCAA out of the picture these ‘discussions’ are coming a little too close to home as contractors must make their arguments with contracting officers and cost analysts.

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I am sure there are some contractors benefitting from this which is not what taxpayers want to hear. I am also sure just as many are not benefiting  as they have to deal with:

• Lack of Independence (even more than usual)
• Accountability with the lack of second opinions and formalized systems
• Lack of experience and knowledge
• Possible damage to the customer relationship with the government.

Not sure this is the world we want.