By: Eric Hayman, Director, Capital Edge Consulting

On June 7, 2024 DCAA released its Report to Congress for Fiscal Year (FY) 2023.  As with prior years, the report addresses the Agency’s audit performance, recommendations to improve audit performance and processes, highlighted industry outreach activities and key accomplishments.

As noted in the report, DCAA questioned $5.4 billion of the $254 billion of reviewed contract costs; resulting in net savings to DoD and Taxpayers of $3.5b.  Savings represent a $5.10 to $1.00 return on investment (ROI).  FY2023 results are comparable to FY2022 when adjusted for the recent Booz Allen false claims settlement of $377 million.

Related to their audit findings, DCAA notes an ICS sustention rate of 31.9% in 2023.  While still relatively low, the sustention rate is an increase from the FY2022 rate of 26.2%.

As with previous years, ROI varies significantly between contract types.  For example, ROI for forward pricing audits was $17.4:1, while ROI for systems, CAS, and TINA audits was $0.30:1.  The high ROI associated with forward pricing is not surprising (nor are the significant audit findings) given the nature of the materials audited.  Forward pricing audits are concerned with estimates and while often supported by historical experience, the related estimates are just that… estimates based on a combination of cost history and assumptions.  Similarly, the ROI regarding Systems, CAS, and TINA isn’t surprising as the audits are more concerned with compliance rather than cost allowability, and require significantly more time to complete.

Other items of note highlighted in the report include:

• Process revisions for mandatory annual audit requirements (MAAR ), including MAAR 6 (Labor Floor Checks) and MAAR 13 (Material Consumption) audits.

               - No longer a “mandatory”, annual requirement

               - Audit performance will be based on risk assessments

• Continued discussions and communications with industry regarding DCAA guidance related to Cost Impacts for Unilateral Cost Accounting Practice changes (MRD 23-PAC-009(R). Notably, the National Defense Industrial Association and Aerospace Industries Association both object to some of DCAA’s issued guidance
• Continued Small Business outreach, including additional staff allocations to help small businesses understand the contract requirements and complexities of government contracting and related regulations
• Overall staffing remains unchanged from FY2022 to 2023. However, the bulk of hiring has focused on new college graduates (550 heads). Left unsaid is the loss of experienced auditors and the overall impact to DCAA’s mission

The entire report released by DCAA is available to the public here: Report to Congress on FY 2023 Activities, Defense Contract Audit Agency

Capital Edge Consulting is a professional services company comprised of adept problem solvers who deliver tangible results to address today’s most complex U.S. government contracting challenges. Capital Edge helps clients address the challenging regulatory, contractual, and compliance requirements of U.S. federal contracts and we have experience working with a wide variety of industries that provide goods or services to the federal government including industries such as biotech and healthcare, nuclear energy, education, information technology, non-profit, professional services, defense, and software.