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2 Defense Contract Audit Agency

3  Established in  Separate Agency of the Department of Defense.  Reports to DoD Controller.  Provides Service to all DoD Components.  Provide all necessary contract audit for DoD.  Provide accounting and financial advisory services for DoD.  Approximately 600,000 hours of reimbursable work for customers outside DOD. Defense Contract Audit Agency

4  Headquarters - Fort Belvoir, VA  Five Regional Offices & Field Detachment  Approximately 350 FAOs/Suboffices  Defense Contract Audit Institute –Memphis, TN Defense Contract Audit Agency Organization:

5 EASTERN REGION: Regional Director – Richard Buhre Defense Contract Audit Agency AGENCY: Director – William Reed Deputy Director - Mike Steen Regional Audit Manager - Paul Phillips Tampa Bay Branch Office: Branch Manager - Gary Ricketts

6 DCAA Mission Statement DCAA’s mission is to perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services for the negotiation, administration, and settlement of contracts and subcontracts. The charter also authorizes providing these services to other federal agencies on a reimbursable basis. Defense Contract Audit Agency

7 Services and Staff On a reimbursable basis, provides contract audit, accounting, and financial advisory services to non-DoD customers. Agency staffing of approximately 4,000. Professional auditors comprise 83% of staff. CPAs comprise 37% of the total auditors. CPAs comprise 79% of management positions. Defense Contract Audit Agency

8 Types of Audit Services Preaward Financial Capability Incurred Cost Accounting Systems Internal Controls Contractor Operations Cost Accounting Standards Disclosure Statements Equitable Adjustments Contract Terminations Delay/Disruption Defective Pricing Proposals Progress Payments Public Vouchers Negotiation Support Defense Contract Audit Agency

9 DCAA Services Defense Contract Audit Agency  Price Proposals  Preaward Surveys  Forward Pricing Labor and Overhead Rates Preaward Contract Audit Services:

10  Financial Capability  Incurred Costs/Annual Overhead Rates  Claims  Truth in Negotiation Act Compliance  CAS (Cost Accounting Standards) Compliance and Adequacy Defense Contract Audit Agency DCAA Services Postaward Contract Audit Services:

11  Accounting  EDP (Electronic Data Processing)  Estimating  Compensation  Billing  Budgeting  Material Management  Labor  Purchasing  Indirect and Other Direct Cost Defense Contract Audit Agency DCAA Services Contractor Internal Control System Audits:

12 Agency for International Development Army Corps of Engineers Department of Agriculture Department of Commerce Department of Education Department of Energy Department of Health and Human Services Department of Housing and Urban Development Department of Interior Department of Justice Department of Labor Department of State Department of the Treasury Department of Transportation Department of Veterans Affairs Environmental Protection Agency Federal Emergency Management Agency General Services Administration Government Printing Office NASA National Science Foundation Defense Contract Audit Agency Non-DOD Customers

13 Nuclear Regulatory Commission United States Postal Service Arms Control and Disarmament Agency Community Services Administration Defense Nuclear Facilities Safety Board Executive Office of the President Export-Import Bank of the US Federal Energy Regulatory Commission General Accounting Office Interstate Commerce Commission Library of Congress National Archives National Transportation Safety Board Peace Corps Small Business Administration Smithsonian Institute Social Security Administration US Information Agency US Railroad Retirement Board Defense Contract Audit Agency Non-DOD Customers

14 DCAA has the expertise to provide timely audit services in different areas. DCAA’s professional staff has the flexibility to adapt to a variety of audit requirements. Defense Contract Audit Agency Other Areas

15 Defense Contract Audit Agency International Audits European Branch Office Wiesbaden, Germany Suboffices:  Israel  Saudi Arabia

16 Defense Contract Audit Agency International Audits European Branch Office Pacific Branch Office Japan Suboffices:  Korea  Hawaii

17 Defense Contract Audit Agency International Audits European Branch Office Pacific Branch Office Tampa Bay Branch Office Clearwater, Florida Suboffices:  Fort Lauderdale, FL

18 European Branch Office Pacific Branch Office Tampa Bay Branch Office Rapid Deployment Team –Based in United States –72 Hours notice Defense Contract Audit Agency International Audits

19 Providers of Unique Items Base Maintenance Contracts Training and Logistic Support Foreign Military Sales European Participating Governments Corps of Engineers Federal Emergency Management Assistance (FEMA) Defense Contract Audit Agency International Customers Department of Defense Contractors:

20 USAID NASA Department of Energy Department of Transportation Health and Human Services U. S. Postal Services Fish and Wildlife Defense Contract Audit Agency International Customers Non-Department of Defense Customers :

21 Hurricane Mitch

22 Restoration of Infrastructure Incurred cost audit to: –Ensure contractor costs are: Allowable, allocable, reasonable. –Evaluate internal controls preventing: Potential illegal activity. Loss or misuse of purchased items under grant/contract.

23 Reconstruction and emergency work: –Limited time for evaluation/qualification for the program prior to award. –Adequacy of systems unknown. –Diversity of contractors involved. –Quick turnaround on programs. –Materiality of individual contracts. Defense Contract Audit Agency Obstacles to Scope of Work

24 Overcame infrastructure challenge to: –Work closely with technical personnel. –Ensure desired results achieved as planned. –Provide real-time concurrent results. Enabled customer to timely: –Report program status to Congress. –Make necessary program adjustments. Defense Contract Audit Agency Results

25 Hurricane Georges

26 Program audits to: Ensure adequate control over emergency funds Evaluate internal controls. Field visits. Emergency Repair/Clean-up

27 Overcame infrastructure barriers: –Transportation –Infrastructure –Lack of customer audit scope Conducted on-site discussions with customer to agree on: –Necessary audit scope –Acceptable reporting format Defense Contract Audit Agency Situation

28 Audit Planning Initial Considerations –Specific Guidelines –Type of Program/ Procurement –Logistical Barriers –Available Timeframe –Market Conditions –No Banking System –Advance Payments –Claims Flood Waters from Hurricane Georges

29 DCAA developed real-time auditing and reporting procedures to ensure: –Improvements in contractor operations and safety. –Quick resolution of issues. –No delay in emergency operations. Defense Contract Audit Agency Results

30 Conditions –Inadequate reporting where costs are not accounted and accumulated by cost elements. –Accounting records consist of check register or Excel Spreadsheet. Basis –Lack of adequate accounting system. –Lack of Job Cost Ledger. Recommendations –Request accounting system surveys for prospective contractors. –Follow up on adequate corrective action to auditors recommendations. Defense Contract Audit Agency

31 Conditions –Inadequate procurement system, where lowest bidder not always selected. –Inadequate documentation for vendor selection. –Internal controls over purchasing procedures weak or non-existent. Basis –Lack of written policies and procedures. –Purchasing practices not similar to those in U.S. Recommendations –Request surveys that cover the purchasing system. –Follow up on auditors recommendations. Defense Contract Audit Agency

32 Condition –Inadequate support for transactions and payments. Basis –Lack of voucher system to maintain supporting documentation for each transaction. –Numerous petty cash transactions. –Lack of adequate accounting system policies and procedures. Recommendations –Request accounting system survey. –Ensure the contractor implement adequate corrective action to auditors recommendations. Defense Contract Audit Agency

33 Condition –Unusual amount of transactions involving petty cash funds. Basis –Extensive use of local suppliers at remote location. –Lack of knowledge on checks usage. –Limited access to banking institutions at remote locations. Recommendations –Educate contractor’s to reduce the use of petty cash to a minimum. –When checks are not an option, accounting systems should provide for proper documentation on cash transactions. Defense Contract Audit Agency

34 Conditions –Noncompliance with specific regulations. –Ineligible costs claimed. –Inconsistent treatment of expenses. Basis –Lack of knowledge of applicable U.S. Regulations. Recommendations –Familiarize all parties, including auditors, contractor, and requestor with the specific regulations under the program. –Monitor for compliance with regulations, program requirements, and objectives. Defense Contract Audit Agency

35 Condition –Requested cash advances exceeded projected period costs. Basis –Limited cash flow. –Poor estimation of program costs and budget preparation. Recommendations –Request financial capability reviews of prospective contractors. –Review the records as soon as possible to detect potential overpayment and large amounts of money outstanding. –Design audit steps to ascertain that money is not being used on other programs and it is reconciled to the books and records. Defense Contract Audit Agency

36 Conditions –Indirect rates agreed to were too high. –Contractor does not have a calculated indirect rate. –There is no proper segregation of direct and indirect costs. Basis –Lack of policies and procedures to calculate an indirect rate. –Lack of knowledge on proper determination of an indirect rate pool and it’s allocation base. Recommendations –Request an Indirect Rate review. –Establish projected indirect rates based on adequate budgets and estimates. Defense Contract Audit Agency

37 Conditions –Numerous revisions to costs reported under the programs. –Significant amount of time dedicated to correct errors in the reports. Basis –Lack of knowledge of U.S. contracting and reporting requirements. Recommendation –Request concurrent audits to obtain real-time audit results and recommendations during the program. Defense Contract Audit Agency

38 Conditions –Undefined Scope of Work. –Numerous changes and modifications. Basis –Emergency nature of the program. –Unforeseen adjustments to program objectives. –Availability of funds. Recommendations –Notify auditors as soon as possible of changes. –Adjust audit scope as necessary to address new conditions. Defense Contract Audit Agency

39 Conditions –Inadequate selection of subcontractors. –Inadequate monitoring of subcontractors. Basis –Lack of knowledge on requirements regarding subcontractors. –Limited resources to monitor subcontractor’s performance. Recommendations –Request the contractor to perform adequate review of subcontractor’s accounting system and records. –If contractor not able to perform review of subcontractor, have auditors perform simultaneous audit of the subcontractor under the program. Defense Contract Audit Agency

40 Condition –Accounting records for accumulation of counterpart or outside contributions inadequate. Basis –Lack of knowledge of specific requirements and regulations. –Remote office locations do not report to home office on a timely basis. –Lack of knowledge of eligible contributions. Recommendation –Request audit of complete program including counterpart contributions. Defense Contract Audit Agency

41 RISK MANAGEMENT Defense Contract Audit Agency

42 Request preaward surveys of prospective contractors. Involve the auditors as soon as possible when a program starts. Keep auditors involved throughout the entire process. Provide feedback on services to maintain open communication with all parties. Defense Contract Audit Agency Steps you can take to minimize your exposure/risk through effective Contract Auditing

43 –Program and Audit Planning: Coordinate promptly with auditors. Consider timeframe limitations. Express specific or unique requirements. –Survey Prospective Contractors: Accounting system. Financial capability. Indirect rate agreements. Defense Contract Audit Agency Risk management through effective Contract Auditing

44 –Concurrent Audits: Request audits as soon as possible. Provide environment that allows for timely audit results. Implement corrective actions. –Incurred Costs: Request audit of long programs prior to their completion. Communicate program changes/modifications to auditors. Audits provide monitoring of compliance with objectives. Defense Contract Audit Agency Risk management through effective Contract Auditing

45 –Claims: Ensure claim submission is adequate. Provide auditors with all facts, auditors determine quantum, not entitlement. –Closeouts: Timely audit requests allow for faster closeouts. Timely audit results provide for adjustment to obligated funds. Defense Contract Audit Agency Risk management through effective Contract Auditing

46 The success of any program depends on its proper planning and execution. Most of the obstacles we have encountered relate to the selection of contractors with inadequate systems to perform the work. Involving the auditors in the preaward, as well as the postaward phase, prevents a significant amount of situations that often result in additional program costs. Defense Contract Audit Agency

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