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DCAA Will Soon Eliminate Years-Old Audit Backlog

The Defense Contract Audit Agency is on track to eliminate its long-running audit backlog by September, the agency said in its latest annual report to Congress while touting a claimed $3.5 billion in cost savings the DCAA had achieved in fiscal 2017.

Incurred cost audits were the DCAA’s top priority in fiscal 2017, with the average backlog for those audits sitting at 14.3 months at the end of the year, down from 17.6 months at the end of fiscal 2016, the DCAA said in its March 31, 2018, report, which was made public late in the week of May 21.

That continued progress came despite the agency's turning to more-complex audits after having addressed the low-hanging fruit, meaning that the DCAA is on track to entirely eliminate the backlog by the end of fiscal 2018, in September, the agency claimed.

“Our workforce did an outstanding job reducing the backlog,” the DCAA said.

Incurred cost audits — one of several types of audit the DCAA conducts — examine contractors' reimbursement claims for costs already incurred during contract performance, looking for issues such as overpayments and fraud.

The DCAA has long had a backlog for those audits, a wait that had stretched to more than three years on average by fiscal 2012, to the frustration of many defense contractors. That was the year the agency both established dedicated incurred cost audit teams and developed new audit techniques like multiyear auditing and statistical sampling for low-risk audits, in an effort to bring down the backlog.

Since that focus on clearing out incurred cost audits was put in place, the DCAA has gone from a 21,000-audit backlog during fiscal 2011 to a 2,860-audit backlog as of the end of fiscal 2017, according to the report.

And the agency cleared 6,786 “incurred cost years” in fiscal 2017 — notable given that a single such audit year for a major contractor can include hundreds of contracts, high dollar amounts, and significant complexity, the agency said. Now there are fewer than 3,000 incurred cost years in the backlog, according to the DCAA.

Continued progress in fiscal 2017 was due in part to the finalization of an “organizational realignment” that had placed its staff into either one of seven directorates or into a “field detachment” responsible for auditing classified work during fiscal 2016, the DCAA claimed.

Four of the directorates are focused on the seven “major” defense contractors — Raytheon Co., General Dynamics, BAE Inc., Northrop Grumman Corp., the Boeing Co., Honeywell International Inc. and Lockheed Martin Corp. — with the other three focused on any other contractors in various regions.

“This structure is allowing us to develop contractor-based expertise and innovative audit processes that increase our efficiency across all audit programs,” the agency said.

In the process of bringing down the backlog, DCAA staff examined nearly $281 billion in defense contractor costs in fiscal 2017, issuing 3,581 audit reports in which the agency identified more than $7.1 billion in exceptions, ultimately saving $3.5 billion for the U.S. Department of Defense, the report said.

Of those total savings, a little under $760 million were attributable to incurred cost audits, with the bulk of the savings — close to $2.4 billion — resulting from forward pricing audits, which look at proposed cost structures ahead of time to determine whether a cost proposal is reasonable, according to the DCAA. The remainder came from “special” and “other” audits, which focus on particular elements of a contract and are often time-sensitive, the agency said.

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