As we come to the end of 2019, I first wanted to thank readers for their patience. This has not been the most productive year as far as blog posts are concerned. In fact, it’s been the least productive in the 10 years the blog has been active. That’s not to say that we haven’t been productive in other areas, but focus on those other areas has meant that blog output has suffered. So thank you for hanging in there.

Now: to the blog post.

Over the past 10 years, the most popular articles have always been about the Defense Contract Audit Agency. Many people seem to be interested in what we have to say about DCAA. Contractors, contracting officers, and even DCAA auditors themselves seem to want to learn more about our thoughts on what DCAA is up to and how the audit agency is doing.

From time to time, we publish DCAA statistics. You can see the statistics manifested in the previous two blog posts. Where do those statistics come from? They come from official government publications—primarily the Department of Defense Office of Inspector General’s Semi-Annual Report to Congress, and from DCAA’s own Annual Report to Congress. We have been tracking audit-related statistics for many years and now have 13 years’ worth, which makes for interesting trend analysis.

Let’s look at those trends.

First, audit reports. Audit reports mean that contractors have to respond. Audit reports mean that contracting officers have to disposition and decide whether or not to sustain. Audit reports can lead to disputes and litigation. The following chart shows audit reports by type by year.

An interesting thing happened circa 2010. DCAA started tracking a metric called “assignment completed”—which meant that a certain number of assignments were completed without issuing an audit report. Typically, those assignments were closed via a Memorandum (either to the contracting officer or to the DCAA’s files). A completed assignment is what you get when DCAA chooses not to audit your proposal to establish final billing rates (aka incurred cost submission). A completed assignment is what you get when there are no findings and the exit conference is via telephone. As a rule, contractors like completed assignments with no audit report. So do DCAA auditors, as it means it’s harder to find GAGAS violations. We’re sure it was a coincidence that DCAA starting moving to the “completed assignment” metric at about the same time the audit agency was coming under heavy criticism for GAGAS violations.

The following chart shows the percentage of assignments completed without an audit report since DCAA started tracking that metric.

As you can see from the chart above, in GFY 2019 nearly three-quarters (74%) of all DCAA assignments were completed without issuance of a formal audit report.

Another interesting metric is the value of dollars examined by DCAA auditors each year. The following chart compares dollars examined against staff years. We don’t have GFY 2019 staffing yet (it’s typically published in March of the following year) so the chart tracks only through 2018.

The chart above shows that DCAA was at its most productive in 2008, when about $113 million was examined per auditor (or per audit staff year, depending on what data was being reported). On the other hand, that focus on productivity was blamed for audit quality failures. (There was no evidence showing that was the case, mind you. But that’s what people said and that’s what Congress glommed on to.) Consequently, audit productivity fell as the agency focused on quality. (Which tended to manifest as a lot of management reviews.) According to DoD OIG reports, audit quality did not significantly increase as the result of the focus on process instead of productivity. Nonetheless, the data indicate a dramatic loss of productivity.

At about the same time, audit staff headcount (or staff years) started to vary. GFY 2018 audit headcount is about 10 percent below the highs reflect in 2010 and then again in 2014. (Again, the data is a bit fuzzy because sometimes it’s reported as headcount and other times as staff audit years, which we assume includes audit hours performed on overtime. But you get the picture.)

It is only recently – GFY 2018 – that auditor productivity has returned to 2008 levels. In GFY 2018, auditors were examining about $99 million per head. Since we don’t have GFY 2019 staffing levels, we can’t conclude anything, but we can state that total dollars examined in GFY 2019 was lower than in 2018 ($365M vs. $410M). Consequently, unless headcount dropped significantly, it seems likely that GFY 2019 productivity will be below GFY 2018 levels.

What does this all mean?

Well, it may mean nothing. Or it may mean that DCAA’s strategy of completing assignments without issuing an audit report (but counting those assignments as dollars examined) may lead to a perception of increased auditor productivity.

Thus, as Apogee Consulting, Inc., blog productivity has declined in recent years, it appears that DCAA’s audit productivity is on the increase. Maybe our strategy should change to align with DCAA’s strategy? If so, then we will start posting blogs with no content and then claiming a completed blog post.

Yeah, that’s the ticket.