Contract AuditingSupporting the Warfighter & Getting the Best Value for the Taxpayer

Patrick Fitzgerald, DirectorJune 3, 2010

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DCAA Mission Statement

The DCAA, while serving the public interest as its primary customer, shall perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. These services shall be provided in connection with negotiation, administration, and settlement of contracts and subcontracts to ensure taxpayer dollars are spent on fair and reasonable contract prices. DCAA shall provide contract audit services to other Federal agencies, as appropriate.

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DCAA Mission

DCAA was established in 1965 by transferring the existing contract audit functions from each of the military services into a single contract audit agency (DoD Directive 5105.36)

Single mission organization Audit contractor accounting books and records and other

submissions for contracting officials use Audit at all stages of the contract life-cycle

Provides financial advice regarding contractors and regulations governing contract costs

Mission does not include audits of Government organizations

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Audit Responsibilities of DoD Audit Organizations

DCAA – performs contract audit functions for all DoD

Components DoDIG –

performs audits of the entire procurement and acquisition process, including the performance of contractors and contract administration officials.

Military Depts (Army/Air Force/Navy Audit Agencies) – performs other than contract audits of the operations and

programs of the Military Department components and the Combatant Commands.

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DCAA Organization

DirectorPatrick FitzgeraldDeputy DirectorFrank Summers

CentralRegion

Ed NelsonTim Carr

EasternRegion

Paul PhillipsGary Spjut

NortheasternRegion

Ron MeldonianWilliam Adie

Mid-AtlanticRegion

David EckSteve Hernandez

WesternRegion

Chris AndrezzeSusan Barajas

General CounselDefense Legal

ServiceJohn Farenish

Assistant Director,Resources

Philip Anderson

Assistant Director,Policy & PlansKen Saccoccia

Assistant Director,Operations

Pat Letzler (Acting)

Internal ReviewKaren Cash

Field Detachment

Tom PetersTerry Schneider

RegionsHeadquarters

Assistant Director, Integrity &

Quality AssuranceDon McKenzie

Executive OfficerJoe Garcia

Executive OfficerJoe Garcia

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6

7Pacific Br

10

3 93

European Br

Iraq BO

R

RR

R

18

19

21

21

Eastern

Northeastern

Central

Western

Mid-Atlantic

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FD 11

R = Regional Office

Regional Boundaries

No. of Field Audit Offices

8

3

3

4

R

2

2

2

2

Afghanistan Br

2

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Field Office Organizations

112 Offices – at contractor facilities or strategic geographic locations Over 260 suboffices - extensions of branch offices when needed

Typical office composition: One manager per office Multiple supervisors Several technical specialists – may assist more than one office Auditors

GS-12 senior auditorGS-11 semi-senior auditorGS-09 junior auditorGS-07 trainee

Administrative staff

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Typical Audit Effort

Before contract awardPreaward accounting

system surveyEvaluate contractor’s

estimating systemEvaluate contractor’s

initial price proposalAttend negotiation

conferences

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Typical Audit Effort

After contract awardAudit postaward

accounting system Audit contractor’s

incurred costsProcess contractor’s

public vouchers and conduct payment reviews

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Typical Audit Effort

OtherReview contractor’s

compliance with Cost Accounting Standards (Public Law 91-379)

Audit of claimsPerform Post Award

reviews for compliance with Truth-In-Negotiations Act

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FY 2010 Agency Priorities

Strengthening DCAA’s Talented Workforce

Delivering High Quality Services and Products

Requirements/Workload and Resources

Supporting Overseas Contingency Operations

Improve Communications and Working Relationships with Stakeholders

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Staffing

FY 2006 FY 2007 FY 2008 FY 2009

Total (End Strength)

4,056

4,124

4,216

4,317

Auditors

86%

86%

86%

87%

College Graduate (Auditors)

99%

99%

99%

99%

Advanced Degrees

(Auditors)

25%

26%

26%

29%

CPAs

(Auditors)

37%

35%

33%

30%

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High-Quality Services and Products

Quality Services & Products are non-negotiable

A DCAA Audit Must Be:Performed in accordance with GAGASMeaningful, Relevant, and TimelyIndependent and ObjectiveExecuted on a Risk Driven Basis

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-20%

0%

20%

40%

60%

80%

100%

120%

140%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

DCAA Staffing Procurement/RDT&E

$110.5B

$190.3 B

3,457

5,150

Procurement/RDT&E Budget Authority in Constant Dollars vs. DCAA Staffing % Change from FY 1980 Values

*Source: March 2010 National Defense Budget Estimates for FY 2011 (Green Book), Table 6-8

$223.1B

$254.5B

6,893

3,9063,906

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DCAA Auditor Experience Level

1050

552624

289

1346

0

200

400

600

800

1000

1200

1400

0 -3 3 - 5 5 - 10 10 - 20 20 plus

Years

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Supporting Overseas Contingency Operations (OCO)

High Risk Audit EnvironmentDeveloping an Agency Strategy to Support OCO

WorkloadReal Time TestingCONUS V. OCONUS Coordination

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Overseas Contingency Operations Offices

IRAQ BRANCH OFFICE

AFGHANISTAN BRANCH OFFICE

KUWAIT SUBOFFICE

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Communications and Working Relationship

Mutually Beneficial Relationships No Surprises – More Frequent Communication

Sufficient Lead Time for DCAA Services and Products

Timely Access to Records

Responsive and Timely Services to Agency Stakeholders

Obtaining Adequate Contractor’s Assertions

DPAP 12/4/2009 Memorandum – Resolving Contract Audit Recommendations

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DCAA FY 2009 Audit ResultsBy Audit Area

Audit Area

Number of

Reviews

Dollars Audited

(in Billions)

Exception Dollars

(in Billions)

1. Incurred Cost 7,864 $71.8 $0.3

2. Forward Pricing 7,004 $219.2 $18.8

3. Special Audits 4,867 $10.6 $1.0

4. Other 1,541 $28.9 $0.3

Total 21,276 $330.5 $20.4

1. Incurred Cost. Includes audits of historical costs, internal control systems, and final contract closings.

2. Forward Pricing. Includes audits of price proposals, estimating systems, and forward pricing rate agreements.

3. Special Audits. Includes audits of terminations proposals, other claims, progress payments, financial capability, and earned value management systems.

4. Other. Includes Cost Accounting Standards, operations audits, and Truth-in-Negotiations (Defective Pricing Audits).

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Fiscal Year 2006 2007 2008 2009

Sustention Rate 63.5% 62.9% 63.6% 59.0%

Return on Investment

$5.2 to 1 $5.3 to 1 $7.0 to 1 $5.1 to 1

Summary of DCAA Audit Results

$2.3$2.4

$3.3

$2.6

Net SavingsNet Savings(in Billions)(in Billions)

EffectiveAuditing

ProducesResults

EffectiveAuditing

ProducesResults

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Return to Stakeholders

Contractor issued $9.8 million check Audit found materials were included in estimates for both

the prime and subcontractor

DCAA suspended $6.2 million Audit found billing exceeded actual costs

Contract Price reduction of $130 million Audit found proposed Engineering Services were overstated

on Navy contract

Disallowed $2.65 million Audit found estimated lease costs were fully recovered

through cost of ownership

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Additional information on DCAA and Points of Contact available at

www.dcaa.mil

Defense Contract Audit Agency