Is DCAA Saying No More Audits under $10 Million? That's What I Am Hearing. Beware!

If you haven't already heard, let me bring you up to date on this "Revised Audit Threshold" issue and provide my humble input as to what I see the results may be. I also provided some summary comments for your thought.

OVERVIEW: As part of the Department’s efforts to appropriately align DCAA audit resources to those areas with the greatest risk, the DFARS Procedures, Guidance and Information (PGI), has been revised to limit contracting officers’ requests for DCAA audit assistance to Fixed-Price proposals exceeding $10 million and Cost-Type proposals exceeding $100 million, unless there are exceptional circumstances explained in the request for audit. When future requests for audit are associated with prime contractor proposals below the revised thresholds, FAO management personnel should generally refer the requestor to the Defense Contract Management Agency (DCMA) for appropriate field pricing assistance. The revised thresholds do not apply to assist audit requests requested by another DCAA office. Assist audit requests below the PGI thresholds shall be completed using appropriate audit procedures for incorporation into the higher level audit report. Auditors will complete all in-process price proposal audits that are below the revised thresholds. The revisions to the PGI do not impact the requirement for cost or pricing data as that threshold remains at $700,000 as of October 1, 2010.

BACKGROUND: Recently, oversight organizations have recommended that the Department of Defense and DCAA assess the use of DCAA resources to ensure the DCAA audit effort is focused on the areas with the greatest risk to the taxpayer. One of the priorities undertaken by DCAA this year was to better align workload requirements with available resources. Coordination within DoD resulted in agreement that DCAA should target its resources on high risk proposals to best serve our stakeholders.

GUIDANCE: Effective September 17, 2010, DFARS now limits contracting officer requests for audit services to Fixed-price proposals over $10 million and Cost-Type proposals over $100 million, unless there are exceptional circumstances explained in the request for audit

When a request for audit services related to a prime contractor price proposal under the revised threshold is received, the DCAA should refer the requesting official to DCMA for field pricing assistance.

The revised policy thresholds do not apply to assist audit requests received from another DCAA office. Assist audit requests below the thresholds shall be completed for incorporation into the higher level audit report. In these instances, the higher level auditor or contracting officer has determined that the risk is such that audit procedures should be performed on the subcontract proposal.

The thresholds noted above apply to the total proposal value. Therefore, auditors should satisfy requests for audits of part(s) of a proposal as long as the total proposal value exceeds the related threshold even though the parts subject to audit may not.

In addition, auditors will continue to assist DCMA in their pricing analysis, if deemed necessary, by responding to requests for forward pricing rate proposal audits or available cost or rate data even if the FAO expects few or no price proposals over the audit thresholds.

DFARS Procedures, Guidance, and Information PGI 215.404-2 Information to support proposal analysis.

(a) Field pricing assistance

(i) The contracting officer should consider requesting field pricing assistance for when audit assistance should be requested) for—

(A) Fixed-price proposals exceeding the cost or pricing data threshold ($700,000);

(B) Cost-type proposals exceeding the cost or pricing data threshold from offerors with significant estimating system deficiencies; or

(ii) The contracting officer should not request field pricing support for proposed contracts or modifications in an amount less than that specified in paragraph (a)(i) of this subsection. An exception may be made when a reasonable pricing result cannot be established because of—

(A) A lack of knowledge of the particular offeror; or

(B) Sensitive conditions (e.g., a change in, or unusual problems with, an offeror’s internal systems).

(i) The contracting officer should consider requesting audit assistance from DCAA for—

(A) Fixed-price proposals exceeding $10 million;

(B) Cost-type proposals exceeding $100 million.

(ii) The contracting officer should not request DCAA audit assistance for proposed contracts or modifications in an amount less than that specified in paragraph (c)(i) of this subsection unless there are exceptional circumstances explained in the request for audit.

(iii) If, in the opinion of the contracting officer or auditor, the review of a prime contractor's proposal requires further review of subcontractors' cost estimates at the subcontractors' plants (after due consideration of reviews performed by the prime contractor), the contracting officer should inform the administrative contracting officer (ACO) having cognizance of the prime contractor before the review is initiated.

Concluding comments: There is confusion to be had here and a potential false sense of security. There still remains options and the application of judgement by the Auditor or CO. The requirements to maintain records, accounting system, policies, compliance with FAR/DFARS, etc., etc., Do Not Disappear! It is your chance of DCAA Audit that may change. Since many small businesses are subcontractors, the audit chance depends more on the Primes Contract size and not the subcontractors.

There appears to be a shift from DCCA audits of proposals to DCMA under what is considered field pricing analysis typically performed by their price/cost analyst. Bear in mind that they all generally follow the guidance under FAR on cost and pricing. And if someone wants to have you audited, you will be! Just a note of caution for those who may think they don't have to move forward to meet requirements due to new thresholds. There is an article available on DCCA versus DCMA if you want to find out more on their relationship.

It gets back to the basics. The Concepts! The major key areas I have taught for years as discussed throughout the articles, the workshops, and DVD's. You Should Have a Copy of the DVD in Your Tool Chest! Someone in your organization should have attended the

I hope that many of you will have fewer audits but that your operations will be such to satisfy any type of audit or review that may come your way. Remember, ultimately the purpose of establishing your systems and controls is to improve your chance of success and to utilize your resources more effectively.