Totally a coincidence. Totally.

But just a few days after we posted a couple of articles about the lack of DCAA audit guidance being posted on the DCAA website … one appeared!

DCAA Memo for Regional Directors (MRD) 15-PPD-005(R), dated 8/27/2015 has been posted. It announces what we already told our readers: there is a new Incurred Cost Adequacy Checklist. In the words of the MRD –

The revised IC Proposal Adequacy Checklist ensures that adequacy considerations are based on the Allowable Cost and Payment Clause requirements for Final Indirect Cost Rates (FAR 52.216-7(d)(iii)). The checklist steps were clarified to ensure that the effort expended is based on determining whether the proposal is auditable and whether the audit team should accept the audit engagement rather than expending effort on performing work generally done during the IC audit. In addition, the revised IC Proposal Adequacy Checklist now contains an overall determination at the end of the checklist where auditors will document whether the IC proposal is adequate or inadequate and provide supporting rationale.

That’s actually pretty good news. We have complained both publicly and privately about the “blurred lines” between the adequacy assessment and the actual audit steps associated with determining whether or not claimed contractor costs are allowable, allocable, and reasonable. Anything that clarifies the distinction is welcome, as far as we are concerned.

Another piece of good news in the MRD is the reinforcement (to auditors) that an Incurred Cost Submission (which really should be called a proposal to establish final billing rates, but whatever) can be determined to be adequate for audit even if it has some inadequacies within it. The MRD states –

In some cases, the audit team may determine that there are multiple inadequacies, but still determine that the IC proposal is adequate (acceptable to audit), while in other cases a single significant inadequacy alone could render the proposal inadequate (unacceptable to audit). Audit teams should use their professional judgment in determining the significance of any specific missing/inadequate data when making a determination on the proposal’s adequacy …

This kind of stuff is why we all need to see DCAA audit guidance when it is issued to the auditors. This kind of stuff helps contractors understand expectations—expectations for both auditor and auditee. This kind of stuff helps avoid adversarial tension and, in the long run, tends to reduce the number of disputes. We just wish DCAA would publish more of the guidance it issues.

And speaking of unreleased audit guidance, after our last whining article, complaining about the dearth of released audit guidance, some kind soul sent us a copy of MRD 15-OTS-021(R), dated 7/23/2015. That MRD deals with the pesky problem of offsetting debits and credits in a transaction universe, and how to cleanse the offsets before selecting a transaction sample. Thank you kind soul!

As we suspected, the correct answer is not to add the debits and credits together to calculate an “absolute value” of questioned costs—even though doing so undoubtedly creates more questioned costs to report to HQ. (Sorry, FD.)

We have asked Tech Guru Mark to add that particular MRD to the Knowledge Resources page on this website, for those interested in the topic. (Apparently the topic is also covered in the DCAA Variable Sampling Guidance, available to auditors on the DCAA intranet. Unfortunately, we don’t have access to the DCAA intranet, which is why we need to see this piece of guidance.)

Do you want DCAA to publish all releasable audit guidance on its website in accordance with the direction from the Commander-in-Chief? If you do, you might consider sending a polite and respectful email to Ms. Anita Bales, DCAA Director, regarding the subject.

Readers may remember that we recently expressed confusion and concern over the fact that DCAA has not posted any Memos for Regional Directors (MRDs) on its website for nearly seven months. In our experienced, that’s an unprecedented length of time to go without updating existing audit guidance.

We wrote –

Has DCAA simply stopped issuing MRDs? Our sources say no. DCAA is still issuing audit guidance to its auditors. However, that audit guidance may be for internal use only (i.e., not releasable to the general public). Or perhaps the guidance is releasable … and DCAA is choosing not to release it, for whatever reasons. We don’t know what the situation is.

Well, some people know what’s going on (or not going on, as the case may be). Some people know and they took the time to enlighten us.

“J. Doe” wrote us an email to list the releasable MRDs and Audit Alerts that should have been posted on the DCAA website, but have not been. The releasable MRDs/Alerts include—

• Proposal Adequacy Checklist Tool (2/19/2015)

• Introducing Benford’s Law Analytical Technique (6/01/2015)

• Audit Alert on Evaluating Sample Results for Variable Statistical Samples (7/23/2015)

• Audit Alert on Determining Questioned Cost for Related Debit/Credit Transactions in Sample Universe (7/23/2015)

• Revised Checklist for Determining Adequacy of Contractor Incurred Cost Proposal (8/27/15)

We would be fascinated to read those documents, especially the audit guidance related to offsetting debit and credits. Rather than “wash” the transactions to net to zero, we’ve seen auditors add the debits to the credits to calculate an “absolute value” of questioned costs, and then we’ve seen that value used to project from a sample to a universe. We would love to know whether that approach was condoned or prohibited by official audit guidance. Unfortunately, “J. Doe” only listed the releasable audit guidance and did not provide copies.

“J. Doe” also noted that the electronic floorcheck questionnaire had been “greatly expanded” to 35 questions, and that there was now a 42-page guidebook to help auditors perform their MAAR 6 floorcheck audits. Alas, “J. Doe” did not provide them either.

That latter issue was quickly remedied by “George Kaplan” (George Kaplan was the name of the secret agent for whom Cary Grant was mistaken in Hitchcock’s North by Northwest.) “George” provided us with the new enhanced list of floorcheck questions, which we have asked our technology wizard and webmaster Mark to place into the site’s Knowledge Resources page.

So we have the new questionnaire, but we don’t have the 42-page guidebook. We note that the current audit program (July 15) states—

Formulate the questions to be asked during each interview. The questions should be factual in nature, tailored to each employee interviewed, and designed to confirm or dismiss the suspected mischarge. Avoid questions which solicit the employee's opinion. Each employee to be interviewed requires the formulation of specific tailored questions. However, general information should be solicited from each employee, such as;

We’d like to thank our anonymous contributors for helping us understand the fact that there is audit guidance to be published; and that DCAA is choosing not to publish it.

This is a troubling development.

In January, 2009, President Obama published a Memorandum “Transparency and Open Government” that committed his administration to “creating an unprecedented level of openness in government.” This was official Whitehouse direction. It came from the top. The President issued the Memorandum. You know the guy. He’s also the Commander-in-Chief.

It has become apparent that the Defense Contract Audit Agency believes itself to be exempt from orders issued by the Commander-in-Chief.

Kind of a puzzling position to take by an instrument of the Defense Department, right?