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Evaluation of Contracting Officer Actions on Cost Accounting Standard Noncompliances Reported byDefense Contract Audit Agency

DODIG-2017-032

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Dec. 8, 2016 — Objective

We evaluated contracting officer actions on cost accounting standard (CAS) noncompliances reported by Defense Contract Audit Agency (DCAA).  As part of our review, we selected 27 DCAA reports addressing noncompliances with CAS 403, “Allocation of Home Office Expenses to Segments,” CAS 410, “Allocation of Business Unit General and Administrative Expenses to Final Cost Objectives,” and CAS 418, “Allocation of Direct and Indirect Cost.”   We determined whether the contracting officer actions taken in response to the 27 reports complied with Federal Acquisition Regulation (FAR) 30.6, “Cost Accounting Standards Administration,” DoD Instruction 7640.02, “Policy for Follow‑up on Contract Audit Reports,” and applicable agency instructions.

Findings

For the 27 DCAA CAS reports we selected, we identified several instances in which contracting officers did not comply with FAR, DoD Instruction 7640.02, or agency instructions. We found:

    • 12 instances in which contracting officers did not issue a Notice of Potential Noncompliance within 15 days, as FAR 30.605(b)(1) requires;     • 16 instances when contracting officers failed to complete all actions on the reported noncompliances within 12 months, as DoD Instruction 7640.02    requires;     • 3 instances in which contracting officers did not have adequate documentation or rationale for determining that the DCAA-reported noncompliance    was immaterial, contrary to FAR 30.602; and     • 8 instances in which contracting officers did not obtain a legal review of their CAS determination, as Defense Contract Management Agency (DCMA),   Instruction 108 requires.

As a result, correction of the reported CAS noncompliances was delayed. In addition, contractors may have been inappropriately reimbursed contractors additional costs resulting from the noncompliance.

Also, in 15 of 27 instances, contracting officers did not accurately record the status of their actions in the DoD contract audit follow-up system, as DoD Instruction 7640.02 requires. The errors diminished the reliability of the contract audit follow‑up system as a tool for monitoring contracting officer actions on CAS noncompliances.

Recommendations

We recommend that the Director, DCMA, and the Commander, Naval Sea Systems Command (NAVSEA), provide training on the requirements for processing CAS noncompliances in a timely manner.

We also recommend that the Director, DCMA:

    • develop effective controls for helping to ensure that contracting officers adequately document their rationale when concluding that a noncompliance is    immaterial, and    

     • remind contracting officers of the requirements for obtaining legal and management reviews of CAS determinations.

Management Comments and Our Response

The Director, DCMA and the Commander, NAVSEA, agreed with the reported recommendations. The comments and the planned corrective actions are responsive and no additional comments are required. DCMA and NAVSEA will provide training emphasizing the FAR 30.605 and DoD Instruction 7640.02 requirements. In addition, the Agencies will assess the instances of contracting officer noncompliance and take the appropriate corrective actions.