DODIG Report on DCMA Actions Regarding DCAA Incurred Cost Audit Reports

September 27, 2017

In a recent report from the Department of Defense Office of Inspector General (“DODIG”) (DODIG-2017-055, dated February 9, 2017) the DODIG found several instances when the Defense Contract Management Agency (“DCMA”) contracting officer’s (“CO”) actions did not comply with Federal Acquisition Regulation (“FAR”), DoD Instruction 7640.02, or DCMA instructions. The findings resulted from a review of 22 incurred cost reports judgmentally selected from a pool of 1,072 Defense Contract Audit Agency (“DCAA”) incurred cost reports issued between September 2013 and July 2015.

In its review, the DODIG evaluated the appropriateness of DCMA actions on DCAA findings reported in the 22 incurred cost audit reports. Specifically, the DODIG determined whether the DCMA contracting officer’s actions on the reports complied with applicable sections of FAR, DoD Instruction 7640.02, “Policy for Follow‑up of Contract Audit Reports,” and DCMA policy.

The DODIG found:

  • Eight instances when COs did not address direct costs questioned by DCAA totaling $305 million;
  • Seven instances when DCMA did not assess or waive penalties on $1.4 million in expressly unallowable costs, as FAR 42.709-3, “Assessing the Penalty,” and FAR 42.709-5, “Waiver of the Penalty,” requires;
  • Two instances when COs failed to document adequate reasons for not upholding $5.6 million in audit recommendations, as FAR 42.705-1(b)(5)(iii) requires;
  • Three instances when questioned costs upheld by the CO totaling $4.3 million were not incorporated in the incurred cost agreement with the DoD contractor; and
  • Five instances when COs did not complete their actions within the resolution and disposition timeframes established in DoD Instruction 7640.02.

As a result, the report concluded that COs may have inappropriately reimbursed DoD contractors for millions of dollars in unallowable costs, the government did not collect penalties when they should have been assessed, or reported incurred cost findings were not addressed in a timely manner.

It is important to note that these findings resulted from a review of only 22 audit reports from a universe of 1,072 reports. Had the DODIG performed a statistical sample of the universe enabling projection of findings rather than a judgmental selection, the results could have indicated a much greater volume of DCMA shortcomings in the overall treatment of incurred costs questioned by DCAA.

In addition to the non-compliances described above, in 15 of the 22 reports COs did not enter accurate status information in the DoD Contract Audit Follow‑up (“CAFU”) system. DoD Components use the CAFU system to track the status of actions COs take on DCAA audit reports. The report concluded that the errors diminished the reliability of the system as a tool for monitoring CO actions on incurred cost audit reports.

The incidence of entry of inaccurate data into the CAFU system is consistent with previous DODOIG reporting on the issue. In Report No. DODIG-2016-091 dated May 13, 2016, the DODOIG found 41 of 50 CAFU records had errors in one or more data fields.

For any questions on the DoDIG Report, feel free to contact one of our experienced GovCon professionals