The Defense Contract Audit Agency (“DCAA”) recently made public its Fiscal Year 2017 Report to Congress, which, among other things, provides an update on incurred cost audits. Specifically, the report explains that DCAA:

  • Closed “6,786 incurred cost years” using a variety of methods, namely reports and memos, but also for other reasons (e.g., per the FY 2016 NDAA, DCAA was prohibited “from providing audit support to non-DoD agencies”);
  • Sustained audit exceptions for incurred costs audits 28.6% of the time;
  • Reduced the backlog related to incurred cost audits “to an average age of 14.3 months;” and
  • Is “on track to eliminate the backlog by the close of FY 2018” as it now has “under 3,000 incurred cost years in [such] backlog….”
  • “[W]ill be current on incurred cost based on a two-year inventory of audits” by FY 2018 and “will move to one year of inventory as required” in the FY 2018 NDAA.

With respect to these metrics, it is important to note that:

  • Sustention rates “are calculated based on contracting officer negotiation decisions” and do not account for successful contract appeals or settlements after a Contracting Officer’s Final Decision;
  • DCAA only considers an audit to be backlogged if it is “older than two fiscal years”; and
  • The backlog reduction has occurred, at least in part, because of what DCAA calls “innovative techniques for more efficient incurred cost audits,” i.e., “multi-year vs. single-year audits and sampling low risk audits based on materiality thresholds.”

In addition to explaining the status of the backlog, the report also provides information about the length of time to complete audits. With respect to incurred cost audits, DCAA notes that the average elapsed days for 2017 was 808 (a number that “is reflective of the age of [DCAA’s] inventory and includes all incurred cost years up through FY 2015”), but states that a “more precise indicator of active engagement is elapsed days between the entrance conference and report issuance.” According to DCAA, this methodology “reflects the actual time to complete an incurred cost audit” and, for FY 2017, resulted in DCAA’s calculation that the average elapsed days for incurred cost audits was only 143 days.

As a final note with respect to incurred cost audits, the report reveals that DCAA has issued “interim guidance” “[b]ased on the NDAA requirements to complete incurred cost adequacy reviews within 60 days and audits within one year” until it revises its Contract Audit Manual.