The message is clear – there will be more audits by the Defense Contract Audit Agency (DCAA), and one area will be particularly impacted – Time and Material (T&M) contracts. Recent audits of the DCAA by the Government Accountability Office (GAO) concluded that there were audit quality problems at DCAA offices nationwide. DCAA has already implemented significant structural, cultural, and process changes in response to the GAO findings with additional long term actions planned. These changes will have a significant impact on the small business community.
In her October 2009 testimony before the House Committee on Armed Services Defense Acquisition Reform Panel, the then Director of DCAA highlighted some of the more significant actions taken to address the GAO findings. DCAA has completely revamped its quality assurance program and greatly expanded the number of reviews conducted at each office each year. Also highlighted by the Director in her testimony was the recent identification of Time T&M contracts as an audit area of increased risk of overpayments because of the decreased incentive for contractor cost control. DCAA recently issued comprehensive guidance for the audit of T&M contracts to address this increased risk and discontinued its T&M Contract Closeout Initiative, an initiative established to allow for the quick closeout of low risk T&M contracts prior to completion of the incurred cost audit.
If you have been performing T&M contracts and have never been contacted for an audit, you have more than likely benefitted from previous DCAA initiatives that have limited the audits of what it determined to be low risk contracts and/or contractors. Be aware that the focus has changed and you would be well advised to be prepared for increased scrutiny.
Sue Quinlan is a former DCAA official with 20 years of experience in the area of DCAA Compliance. As a Subject Matter Expert for PDS Business Systems (a Trusted B2B Member of The ASBC), she will expand PDS’ business practice in the area of DCAA pre-award and post-award audits, etc.