Contract Auditing Supporting the Warfighter & Getting the Best Value for the Taxpayer Patrick Fitzgerald, Director June 3, 2010

2 DCAA Mission Statement The DCAA, while serving the public interest as its primary customer, shall perform all necessary contract audits for the Department of Defense and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. These services shall be provided in connection with negotiation, administration, and settlement of contracts and subcontracts to ensure taxpayer dollars are spent on fair and reasonable contract prices. DCAA shall provide contract audit services to other Federal agencies, as appropriate.

3 DCAA Mission  DCAA was established in 1965 by transferring the existing contract audit functions from each of the military services into a single contract audit agency (DoD Directive )  Single mission organization  Audit contractor accounting books and records and other submissions for contracting officials use  Audit at all stages of the contract life-cycle  Provides financial advice regarding contractors and regulations governing contract costs  Mission does not include audits of Government organizations

4 Audit Responsibilities of DoD Audit Organizations  DCAA –  performs contract audit functions for all DoD Components  DoDIG –  performs audits of the entire procurement and acquisition process, including the performance of contractors and contract administration officials.  Military Depts (Army/Air Force/Navy Audit Agencies) –  performs other than contract audits of the operations and programs of the Military Department components and the Combatant Commands.

5 DCAA Organization Director Patrick Fitzgerald Deputy Director Frank Summers Central Region Ed Nelson Tim Carr Eastern Region Paul Phillips Gary Spjut Northeastern Region Ron Meldonian William Adie Mid-Atlantic Region David Eck Steve Hernandez Western Region Chris Andrezze Susan Barajas General Counsel Defense Legal Service John Farenish Assistant Director, Resources Philip Anderson Assistant Director, Policy & Plans Ken Saccoccia Assistant Director, Operations Pat Letzler (Acting) Internal Review Karen Cash Field Detachment Tom Peters Terry Schneider Regions Headquarters Assistant Director, Integrity & Quality Assurance Don McKenzie Executive Officer Joe Garcia Executive Officer Joe Garcia

6 6 7 Pacific Br European Br Iraq BO R R R R Eastern Northeastern Central Western Mid-Atlantic 22 FD 11 R = Regional Office Regional Boundaries No. of Field Audit Offices R Afghanistan Br 2

7 Field Office Organizations  112 Offices – at contractor facilities or strategic geographic locations  Over 260 suboffices - extensions of branch offices when needed  Typical office composition:  One manager per office  Multiple supervisors  Several technical specialists – may assist more than one office  Auditors  GS-12 senior auditor  GS-11 semi-senior auditor  GS-09 junior auditor  GS-07 trainee  Administrative staff

8 Typical Audit Effort  Before contract award  Preaward accounting system survey  Evaluate contractor’s estimating system  Evaluate contractor’s initial price proposal  Attend negotiation conferences

9 Typical Audit Effort  After contract award  Audit postaward accounting system  Audit contractor’s incurred costs  Process contractor’s public vouchers and conduct payment reviews

10 Typical Audit Effort  Other  Review contractor’s compliance with Cost Accounting Standards (Public Law )  Audit of claims  Perform Post Award reviews for compliance with Truth-In-Negotiations Act

11 FY 2010 Agency Priorities Strengthening DCAA’s Talented Workforce Delivering High Quality Services and Products Requirements/Workload and Resources Supporting Overseas Contingency Operations Improve Communications and Working Relationships with Stakeholders

12 Staffing

13 High-Quality Services and Products Quality Services & Products are non-negotiable A DCAA Audit Must Be:  Performed in accordance with GAGAS  Meaningful, Relevant, and Timely  Independent and Objective  Executed on a Risk Driven Basis

14 $110.5B $190.3 B 3,457 5,150 Procurement/RDT&E Budget Authority in Constant Dollars vs. DCAA Staffing % Change from FY 1980 Values *Source: March 2010 National Defense Budget Estimates for FY 2011 (Green Book), Table 6-8 $223.1B $254.5B 6,893 3,906

15 DCAA Auditor Experience Level

16 Supporting Overseas Contingency Operations (OCO) High Risk Audit Environment Developing an Agency Strategy to Support OCO Workload Real Time Testing CONUS V. OCONUS Coordination

17 Overseas Contingency Operations Offices IRAQ BRANCH OFFICE AFGHANISTAN BRANCH OFFICE KUWAIT SUBOFFICE

18 Communications and Working Relationship Mutually Beneficial Relationships  No Surprises – More Frequent Communication  Sufficient Lead Time for DCAA Services and Products  Timely Access to Records  Responsive and Timely Services to Agency Stakeholders  Obtaining Adequate Contractor’s Assertions DPAP 12/4/2009 Memorandum – Resolving Contract Audit Recommendations

19 DCAA FY 2009 Audit Results By Audit Area 1.Incurred Cost. Includes audits of historical costs, internal control systems, and final contract closings. 2.Forward Pricing. Includes audits of price proposals, estimating systems, and forward pricing rate agreements. 3.Special Audits. Includes audits of terminations proposals, other claims, progress payments, financial capability, and earned value management systems. 4.Other. Includes Cost Accounting Standards, operations audits, and Truth-in-Negotiations (Defective Pricing Audits).

20 Summary of DCAA Audit Results Net Savings (in Billions) Effective Auditing Produces Results

21 Return to Stakeholders Contractor issued $9.8 million check  Audit found materials were included in estimates for both the prime and subcontractor DCAA suspended $6.2 million  Audit found billing exceeded actual costs Contract Price reduction of $130 million  Audit found proposed Engineering Services were overstated on Navy contract Disallowed $2.65 million  Audit found estimated lease costs were fully recovered through cost of ownership

22 Additional information on DCAA and Points of Contact available at Defense Contract Audit Agency