Recently DCAA issued audit guidance designed to assist its auditors with the requirement that certain "major" DOD contractors must input IR&D information into the Defense Technical Information Center (DTIC).

Readers may remember we addressed the new requirement when it was promulgated. We wrote: "In sum, the new rule establishes two requirements: (1) reporting to DTIC, and (2) review of the information reporting by DCAA and the cognizant DOD ACO to determine which IR&D projects are 'of potential interest' to the Pentagon. Failure to meet the first requirement will lead to disallowed IR&D associated with specific, individual, IR&D projects."

The new DCAA audit guidance adds some detail to our summary. It states-

Contractors subject to the regulation must:

• input project information to the DTIC database no later than three months after the end of the contractor fiscal year (CFY) in which the contractor initially incurs the associated IR&D;
• annually update information in the database for ongoing projects (no later than three months after the end of the CFY in which the associated IR&D cost is incurred); and
• update the database when the contractor considers the project completed.

Importantly, the DCAA audit guidance does not focus on the absolute accuracy of the data being input into DTIC; instead, it emphasizes the impact associated with the simple failure to input any information. With respect to audits of Forward Pricing Rates, the audit team may reduce or eliminate forecasted IR&D expenditures "based on the contractor's ability to appropriately complete the requirements to input data into the DTIC system." With respect to adequacy reviews of a contractor's Accounting System, "Audit teams should consider whether the contractor's failure to have adequate internal controls to ensure compliance with the regulation results in an accounting system deficiency."

Based on the foregoing, an inability to timely input the required information could have far-reaching and unpleasant ramifications. Accordingly, defense contractors subject to the DTIC reporting requirement should assign responsibility for the input and also design a compliance check to ensure the information was submitted on time.

Of course, the DCAA audit guidance reminded auditors that a failure to comply with the DTIC reporting requirements could and should lead to questioned (and ultimately disallowed costs). The audit guidance stated-

If the contractor fails to input the IR&D information into the DTIC database, the costs are expressly unallowable; audit teams should question the costs and recommend application of penalties. If the team identifies significant expressly unallowable costs, consider reporting a noncompliance with CAS 405, Accounting for unallowable costs.

We have already seen both DCAA and DCMA probing the DTIC input. Frankly, it should not be a big deal to support an audit RFI for those contractors subject to the rule. This is only going to be a big deal if somebody doesn't input the information when required to do so. But contractors required to input IR&D information, who do not or cannot timely fulfill their responsibility, may be in for a very rough ride indeed.