DCAA Myths, Truths, and Your Rights

Myth 1– DCAA Automatically Audits Contractor Accounting Systems on Request

The following statement appeared in a recent RFP issued by NASA and DOD:

Direct Labor. For each task order Submit Exhibit 3 to show each proposed labor category on a separate row. In supporting rationale, identify the source and explain the derivation of the labor rate proposed for the first year in each labor category. Ensure all direct labor rates in the proposal have been submitted for review to the cognizant Defense Contract Audit Agency prior to cost proposal submission. If your firm has never been reviewed by the DCAA, or it has been more than 1 year since your labor rates have been reviewed, you MUST submit supporting data for your proposed rates to the cognizant DCAA office prior to cost proposal submission

The client bidding on this RFP had never been audited by DCAA and asked us what to do Steve gave them the address and contact information for their local DCAA office and told them to submit a copy their proposal to the DCAA office and watch while NOTHING happened (and nothing did).

In contrast, DCAA’s own website provides procedures for the contracting officer to request audits, not the contractor.

DCAA does not audit contractors new to them without a request from another department or agency.

Since the contractor ended up as a finalist for the contract and later won it, DCAA did show up eight months later to audit their systems in support of the proposal.

Notice they won the contract without DCAA coming out beforehand.

Myth 2 — DCAA Recruits the Best and the Brightest of the Accounting Field.

This is often the case, and many cases DCAA auditors represent an enormous resource and benefit to the government.

Unfortunately, DCAA’s leadership made a conscious decision several years ago that impacted the quality of the DCAA auditors. GAO discusses this decision in their scathing audit of DCAA’s audits:

DCAA Audits: Widespread Problems with audit Quality Require Significant Reform (Page 31)

A careful reading of this section leads to the conclusion that, as a matter of planning, DCAA management reduced its audit costs by:

  • not paying auditors well,
  • not providing adequate training, and
  • putting them to work on projects beyond their skill scope.

Most of the auditors hired under this management program left the agency, but some remain as supervisors leaving the agency with the additional issue of an institutional loss of knowledge.

DCAA auditors normally make in salary a fraction of their public counterparts compensation or even accounting professionals working in other areas of government. It is absolutely amazing how many of these men and women have risen above this to produce quality work in service of their country, but the odds were stacked against them.

Myth 3 — You Have No Choice But to Accept DCAA’s Findings

The vast majority of time a contractor should accept DCAA’s findings because they are correct.

Of course it is better for DCAA not to have any findings.

In those rare cases where DCAA’s findings are wrong, there are several levels of ‘appeal’, formal and otherwise, open to the contractor. These include:

  • A well written Management Response which DCAA is required to publish with their audit
  • An appeal to DCMA to draw their own conclusions
  • The involvement of formal appeals to the appeal board, OIG, or even CID.