La primacía del deseo en la teoría aristotélica de la acción

Beginning with the Grant Thornton Government Contractor Survey published in 2010, we have been following developments at DCAA in the wake of a scathing report issued by the General Accountability Office (GAO) which severely criticized DCAA’s priorities and the quality of its work. In several surveys, we expressed our serious concern with actions being taken in the wake of the GAO report and cautioned that the cures may be far more harmful than the disease. Since our last survey was published, there have been several new developments that have further minimalized DCAA’s role in the procurement process. In our opinion, it has reached the point where the Government’s contract audit function, as currently constituted, contributes less than ever to the procurement processes and it’s time that Government officials step back and re-evaluate the changes in DCAA’s role that have occurred since the GAO’s report was first issued in July 2008.

On July 22, 2008, the GAO issued a report to Congress after receiving some complaints from certain DCAA employees in three offices in California. GAO reviewed audit files in those offices and concluded that DCAA had failed to comply with Generally Accepted Government Audit Standards (GAGAS). Specifically, GAO concluded that (a) documentation in the work paper files did not support the audit opinion; (b) DCAA supervisors dropped findings and changed audit opinions without adequate evidence for the changes; and (c) sufficient work was not performed to support the audit opinions. GAO also stated that, in their opinion, DCAA was too lenient on contractors and questioned whether or not DCAA had adequate independence

from the contractors it was auditing. Unfortunately for the procurement process, GAO also criticized DCAA for having a management and agency culture that focused on a production- oriented mission, which led DCAA management to establish policies and procedures that emphasized performing a large quantity of audits to support contracting decisions. Predictably, this criticism of DCAA’s production-oriented mission had a very unfortunate effect.

In the wake of the GAO report, DCAA issued a flurry of new policies and procedures which eliminated the production metrics and replaced them with new metrics which emphasized documentation and independence.

On December 19, 2008, DCAA issued audit guidance on significant deficiencies/material weaknesses with respect to audit opinions on contractor internal control systems. The new guidance stated that, effective immediately, DCAA no longer would issue reports stating that business systems are inadequate in part. The new policy stated that if any significant deficiency or material weakness was noted, the report would include the opinion that the system is inadequate. Remarkably, the new policy stated that DCAA would no longer include recommendations in the audit report as to steps required to resolve DCAA’s concern. The unfortunate result of this new policy was that the resolution of issues took far longer than was previously the case when DCAA reports not only identified an issue but recommended a solution.

DCAA disagreed with the contracting officer’s position, DCAA could refer the matter to higher-level management within the procurement organization and to more senior levels of DoD management outside the procurement organization.

The above chronology of events unfortunately show that in a mere 17-month period from the date of GAO’s initial report on July 22, 2008 through December 2009, a GAO report that severely criticized the quality of DCAA’s work product had resulted in that same DCAA receiving more and more control over the procurement process at the expense of contracting officers. We commented on this in prior surveys and the irony of DCAA receiving more control in the face of failure and noted that DCAA overreach would not be sustainable. The pendulum of authority swung back to contracting officers from DCAA beginning in 2010. Indeed, the swing was so extreme that audits and responsibilities that were historically assigned to DCAA were eliminated and the DCAA role in the procurement process has become minimalized.

In the Grant Thornton Government Contractor Survey issued in 2012, we reported that DoD had decided that DCAA would no longer initiate audits of purchasing system controls, earned value management systems, and contractor financial capability. DoD also decided that DCAA would only perform evaluations of costs proposals for new work when the proposals exceeded $10 million for firm-fixed-price work and $100 million for cost reimbursable work. These major curtailments of DCAA’s role in the procurement process were just the beginning.

On June 26, 2014, DCAA issued a new policy which stated that DCAA reports on post-award accounting system audits at non-major contractors would no longer include an opinion on the adequacy of the accounting system. In its place, DCAA will close such assignments with a memorandum to the contracting officer describing the work performed by DCAA and identify any practices that DCAA believes are not in compliance with the DoD guidelines for an adequate accounting system in DoD FAR Supplement 252-242-7006.

On June 26, 2014, DCAA issued another policy statement that DCAA would no longer perform initial adequacy reviews of CAS Disclosure Statements but instead will perform them at a later date in conjunction with Disclosure Statement compliance audits. FAR 30.202-6(b) requires that the contracting officer make a written determination that a Disclosure Statement is adequate before awarding a CAS-covered contract. Removing DCAA On March 3, 2009, DCAA issued audit guidance on reporting

suspected contractor fraud and other contractor irregularities. Under the new policy, working-level auditors were authorized to make fraud referrals directly to the investigators without prior discussion with the DCAA Branch Manager or Resident Auditor. This new policy effectively encouraged fraud referrals and eliminated the responsibility and authority of DCAA management to examine and properly manage the opinions espoused by its subordinates.

On March 13, 2009, DCAA issued guidance on reporting unsatisfactory conditions related to actions of other government officials. The guidance provided examples of unsatisfactory conditions including situations where a contracting officer does not support an audit position and negotiates costs or profit that DCAA considers unreasonable or excessive. The new guidance provided that DCAA could report the situation directly to the Inspector General rather than to higher-level management in the contracting officer’s organization. This DCAA policy was effectively an attempt to usurp the contracting officer’s authority to negotiate contracting matters with contractors.

On July 23, 2009, DCAA issued guidance related to audits of the contractor code of business ethics and conduct. The guidance required auditors to perform procedures to address the requirements of the compliance regulations during audits of a contractor’s control environment and accounting system controls. The guidance also required that DCAA obtain and review copies of the contractor’s internal/external audit reports performed as part of the control system.

On September 23, 2009, GAO issued a report summarizing its examination of several other DCAA offices beyond the three California offices that were the subject of the July 22, 2008 report. GAO reported that major problems existed throughout DCAA and issued a highly critical report. Shortly thereafter, the Director of DCAA was terminated and transferred to another position within DoD.

On December 4, 2009, the DoD Director of Procurement and Acquisition Policy issued a policy directive on December 4, 2009 that addressed DCAA reports on proposals of $10 million or higher. The new policy required that the contracting officer must confer with DCAA in any instance in which the contracting officer’s pre-negotiation plan was to sustain less than 75% of DCAA’s recommended questioned costs. Further, the policy required that all communications be in writing and, if

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FY14 report was issued on March 25, 2015. These reports do not paint a pretty picture with respect to the number of reports issued and the average time required to perform an audit and issue a report.

In terms of number of reports, DCAA issued 7,390 reports in FY11 with a staff of 4,876 employees or an average of 1.5 reports per employee. In FY12, DCAA issued 6,716 reports with a staff of 5,181 or an average of 1.3 reports per employee. In FY13, DCAA issued 6,259 reports with a staff of 4,933 employees or an average of 1.3 reports per employee. In FY14, DCAA issued 5,688 reports with a staff of 5,131 employees or an average of 1.1 reports per employee. While it’s understood that a certain small percentage of the workforce are non-auditor support staff, the production of far less than two audit reports per employee per year over a four-year period is a clear indicator that major problems still remain within DCAA. Further, the productivity in FY14 is the lowest productivity reported in the four annual reports to Congress which suggests that DCAA productivity is regressing rather than improving.

The low productivity indicated above is explained by the statistics in the DCAA reports to Congress on the length of time that DCAA takes to perform audits. For proposal evaluations, DCAA reports that on average, it took between 95 and 120 days from the date of the audit request to the date the report was issued. For incurred cost audits, the average time lapse ranged from 965 days to 1,184 days. For other audits such as CAS or Truth in Negotiations compliance, the average time to complete an audit ranged from 283 days to 384 days. The time required to issue reports seems particularly high when one considers that it’s likely many of the high dollar audits occurred at very large government contractors where DCAA has large staffs in residence at the contractor location. One would think that a large staff dedicated to a single contractor would have enough accumulated knowledge about the contractor’s systems and costs that individual audits could be performed in an expedient fashion.

In their reports to Congress, DCAA attempts to shift blame to contractors by suggesting that they are being denied access to information necessary to perform their audits. DCAA informs Congress that they are being denied access to records and contractor employees who possess the information pertinent to the area being audited. DCAA’s solution is to ask Congress for expanded subpoena authority and changes to other statutes governing these matters. From our experience assisting

government contractors with DCAA matters, there is no evidence from the initial adequacy determination is another example of

procurement offices limiting DCAA’s ability to impede and delay contract awards.

On July 15, 2014, DCAA issued another policy statement confirming that provisional billing rates must be established near the beginning of the fiscal year and that DCAA should not await a formal submission from contractors to do so. Under the new policy, DCAA will notify contractors that DCAA is beginning the process of establishing provisional billing rates and will ask the contractor whether or not it wishes to provide any information. In the event that the contractor does not choose to provide input, DCAA is required to submit a recommendation to the contracting officer based on information available in DCAA files. Prior to this change, DCAA would often take many months to evaluate contractor provisional submissions and thereby delay the establishment of provisional rates until late in the year. This policy change eliminates DCAA’s ability to delay the contracting officer’s establishment of provisional billing rates.

On July 15, 2014, DoD issued a proposed amendment to the DFARS clauses on review of contractor business systems. DoD stated that the purpose of the proposed rule is to “entrust contractors with the capability to demonstrate compliance with DFARS system criteria for contractors’ accounting systems, estimating systems, and material management and accounting systems (MMAS), based on contractors’ self-evaluations and audits by independent Certified Public Accountants (CPAs) of their choosing.” Ironically, the proposed rule was in response to a GAO report issued on November 3, 2011 which concluded that DCAA’s inability to complete audits of contractor business systems was a key external risk to the ability of the Defense Contract Management Agency (DCMA) to effectively carry out its responsibility to determine the adequacy of contractor business systems. The irony, of course, is that the same GAO that criticized DCAA on July 22, 2008 for having a management and agency culture that promoted a production-oriented mission in support of the contracting process later criticizes DCAA for inability to complete audits in a timely manner.

In the wake of the above-described major curtailment of DCAA’s role in the procurement process, it is instructive to consider how DCAA views its accomplishments and challenges. DCAA is required to issue annual reports to Congress outlining DCAA’s performance in the prior fiscal year. The report on FY11 was issued on March 30, 2012; the FY12 report was issued on March 29, 2013; and the FY13 report was issued on March 24, 2014. The

to support the conclusion that access to records and employees is a frequent issue. The unusually long period it takes DCAA to complete audits is likely the result of DCAA’s audit approach rather than delays caused by contractors denying DCAA access to records or employees.

To summarize, it seems obvious from the above chronology of events that the cures put in place to address the ills reported by GAO on July 22, 2008 have not helped to improve the situation. Unfortunately, the opposite is true. Given the significant amounts expended by the Government annually in procurement, most would likely agree that an effective and timely audit capability is needed to support contracting officers in their critical role of acquiring at a reasonable price the goods and services needed for the Government to carry out its missions. There are many options as to how best to overhaul the system but, in our opinion, the status quo should not be one of those options.

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