§3842 Performance of Incurred Cost Audits

Summary

The Secretary of Defense must use commercially accepted risk and materiality rules for every incurred cost audit by October 1, 2020. The Department must hire enough qualified private auditors so the Defense Contract Audit Agency (DCAA) has no backlog by October 1, 2020, and so audits finish within one year after a qualified incurred cost submission. The Secretary must keep a mix of government and private audit capacity, use private auditors regularly to improve results, and limit multi‑year audits except for old outstanding cases or when a contractor asks and justifies it to the Under Secretary of Defense (Comptroller). A plan was due to Congress by October 1, 2018 with audit numbers and costs for fiscal years 2019–2025. Contracts to at least two private auditors had to be awarded by April 1, 2019. Private auditors must follow government auditing standards, have no conflicts, be independent, sign nondisclosure agreements, protect and only use proprietary data for the audit, and not use that data to compete. Audit papers belong to the Department of Defense, though auditors may keep a full copy. Breaches can lead to criminal, civil, administrative, or contractual penalties and contractor lawsuits. DCAA can give unqualified audit findings only after passing a commercial peer review by October 1, 2022. The Department must adopt numeric materiality thresholds by October 1, 2020 and report proposed thresholds by October 1, 2019. The Department must tell contractors within 60 days whether a submission is qualified. For qualified submissions, audit findings must be issued within one year. If not done within one year by October 1, 2020, the audit is treated as complete unless the Under Secretary (Comptroller) grants a waiver after a DCAA request. The Comptroller General must report to Congress by April 1, 2025 on audit timeliness, cost, quality, contractor costs, effects on other DCAA work, and private auditor capacity for audits done from October 1, 2019 through August 31, 2023. Definitions (one line each): Commercial auditor — a private firm that does audits. Incurred cost audit — an audit of charges a contractor billed the Government under a flexibly priced contract. Flexibly priced contract — a contract type defined in the Federal Acquisition Regulation. Generally accepted government auditing standards — the Government Accountability Office’s auditing standards. Numeric materiality standard — a dollar amount that defines when misstatements in an audit matter. Qualified incurred cost submission — a contractor’s cost report the Department finds sufficient to audit. Qualified private auditor — a commercial auditor that follows government auditing standards and has a passing peer review.