Detailed Information on the
Defense Contract Audit Agency Assessment

Achieve Cost per Direct Audit Hour (CPDAH) goal.

Use financial liaison auditors (FLAs) to obtain customer feedback on audit services provided and identify areas needing improvement.

Increase audit effectiveness

Monitor progress on accomplishment of the DCAA/DCMA priority audits goal.

Measure: Opinion received from the Department of Defense Inspector General (DoDIG) on the President's Council on Integrity and Efficiency (PCIE) reviews.

Explanation:The Government Auditing Standards, as promulgated by the Government Accountability Office, requires each audit organization that conducts audits in accordance with these standards have an internal quality control system in place and undergo an external quality control review. The internal quality control system established by each audit organization should provide reasonable assurance that it has (1) adopted, and is following, applicable auditing standards and (2) established, and is following, adequate audit policies and procedures. Organizations conducting audits in accordance with these standards should have an external quality control review at least once every three years by an organization not affiliated with the organization being reviewed. These external quality control reviews are conducted based on guidelines established by the PCIE. Defense Contract Audit Agency's external reviewer is the DoDIG. An unqualified opinion is the best opinion given and represents full compliance with auditing standards with no reportable deficiencies.

Measure: Overall Customer Satisfaction rating received from the Biennial Review of Defense Agencies and DoD Field Activities.

Explanation:The Biennial Review evaluates the performance of Defense Agencies and DoD Field Activities by surveying organizational customers. The biennial reviews cover approximately 25 Defense Agencies and DoD Activities and these components are broken down into over 50 business lines for reporting purposes. Composite Rating Categories are Quality (Economy, Effectiveness & Efficiency); Responsiveness to Customers; Satisfaction with Specific Products & Service; and Coordination with Customers. The consulting firm, Westat, performs these biennial reviews for DoD. *The Westat survey did not include Defense Contract Audit Agency for the 2005-2006 timeframe.

Measure: Percent of major contractor-incurred cost audits issued within required timeframes.

Explanation:Timely annual audits of costs incurred on contracts are an important part of timely contract closeout by Defense Contract Audit Agency (DCAA) customers and an important initiative for the Department of Defense. In consultation with DCAA's customers, the following goal was established: for major contractors (contractors with over $90 million of auditable contract dollars per year), DCAA's objective is to issue reports within 12 months of receipt of an adequate incurred cost submission.

Measure: Percent of non-major contractor-incurred cost audits issued within required timeframes.

Explanation:Timely annual audits of costs incurred on contracts are an important part of timely contract closeout by Defense Contract Audit Agency (DCAA) customers and an important initiative for the Department of Defense. In consultation with DCAA's customers, the following goal was established: for non-major contractors (contractors with less than $90 million of auditable contract dollars per year), DCAA's objective is to issue reports within 24 months of receipt of an adequate incurred cost submission.

Measure: Average number of days from receipt of forward-pricing proposal request to issuance of report.

Explanation:Contracting officers in the process of negotiating prices for new contracts request audit advice from Defense Contract Audit Agency (DCAA) on the reasonableness of the contractor's proposed prices. DCAA's ability to provide these audit services in a timely manner is critical to the timely awarding of contracts. DCAA measures the number of days from receipt of a forward pricing proposal audit request to the date the audit report is issued.

Measure: Contract dollars audited per direct audit hour executed.

Explanation:The "contract dollars audited per hour" performance measure was developed to assist Defense Contract Audit Agency (DCAA) in evaluating its productivity associated with audits of dollars incurred and claimed by contractors under auditable contracts. The metric is based on the contract dollars audited each year and direct audit hours expended. The increase in contract dollars audited per hour is a reflection of the efficiency of the audits (i.e., fewer hours expended to accomplish the work). Each year, in accordance with DCAA's Strategic Plan Objective and goal setting processes, DCAA reviews the results of the prior years, identifies potential process improvements and enabling actions, establishes goals, and plans the audit workload for the following year. The goal is continuous improvement over the prior years' actual contract dollars audited per direct audit hour. Targets beyond FY 2007 are determined by applying a productivity improvement factor to the prior year's target. As an efficiency measure, contract dollars audited per direct audit hour executed assist DCAA managers with planning workload and ensuring that auditors are engaged with the most critical audits. In short, this measure enables DCAA to better meet the needs of our customers and the Department of Defense.

Measure: Percentage difference between Defense Contract Audit Agency's (DCAA's) cost per direct audit hour compared to the average national public accounting firm's cost per direct audit hour.

Explanation:This metric evaluates DCAA's cost efficiency compared to public accounting firms that provide audit services. DCAA's cost per direct audit hour is its operating costs divided by its direct audit hours - an efficiency measure. By comparing DCAA's cost per audit hour to a national public accounting firm, senior leaders are able to determine the relative efficiency of DCAA's operations. This metric enables managers to see how well DCAA is able to control its costs compared to public accounting firms. DCAA strives to provide contract audit services at a rate that is substantially below the average rate for national public accounting firms.

Measure: Percent of audits completed from the universe of Defense Contract Audit Agency (DCAA) and Defense Contract Management Agency (DCMA) jointly-identified incurred cost audits.

Explanation:Contracting officers with DCMA are responsible for timely closeout of contracts for proper funds management. Timely audits by DCAA are critical to the timely closing of contracts. Each year, DCAA coordinates with DCMA to determine the audits that are considered a "priority" for the fiscal year (FY). DCAA targets and tracks the completion of these "priority" audits.

Measure: Cost per direct audit hour (CPDAH) executed

Explanation:CPDAH is the total cost of Agency operations divided by direct audit hours. The CPDAH metric measures how well Defense Contract Audit Agency controls operating costs at the Agency, Regional and Field Audit Office levels. It also serves as a baseline in measuring cost competitiveness. To assess overall success in managing operating costs from year to year, the rate is restated in constant dollars for comparison purposes. The goal is to maintain a constant rate in current year dollars. The actual and target rates below have been restated in FY 2007 constant dollars.

Is the program purpose clear?

Explanation: Defense Contract Audit Agency's (DCAA) purpose is to efficiently perform all necessary contract audits for the Department of Defense (DoD) and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration and settlement of contracts and subcontracts. DCAA's contract audit function is an integral part of the oversight and management controls instituted by the DoD to ensure integrity and regulatory compliance by contractors performing necessary services.

Evidence: The Defense Contract Audit Agency (DCAA) was created in 1965 to perform all necessary contract auditing within DoD. This purpose is detailed in the Department of Defense Directive (DoDD) 5105.36, Defense Contract Audit Agency Charter, signed by the Deputy Secretary of Defense. This document establishes the DCAA mission, outlines the organization and management responsibilities and functions, details the DCAA Director's authority, and states the relationships DCAA will have with other DoD Components.

Does the program address a specific and existing problem, interest, or need?

Explanation: The Defense Contract Audit Agency (DCAA) was created in 1965 to eliminate duplication in the military services' contract audit organizations within the Department of Defense (DoD). This consolidation resulted in uniform contract audit processes and consistent treatment of contractors. Prior to the creation of DCAA, there were three separate audit organizations (Army, Navy, and Air Force), producing a fragmented and piecemeal effort. DCAA continues to provide necessary and valued contract audits. DoD annually awards contracts for large sums of public money for procurement of weapon systems, supplies and services. In FY 2006, DCAA performed more than 35,000 reviews. DCAA audited $121.1 billion of costs incurred on existing contracts and reviewed 9,015 pre-award proposals ($182.3 billion) used by contracting official to negotiate contract prices. The contract officials who negotiate, administer and close out these contracts need accounting and financial advice, provided in accordance with Generally Accepted Government Auditing Standards, to ensure that the requirements of the military customers are met through the timely and effective acquisition of goods and services. DCAA provides this valued information, enabling informed decisions and improved use of taxpayer resources.

Evidence: Defense Contract Audit Agency (DCAA) was created in 1965, at the direction of the Deputy Secretary of Defense. The consolidation of contract audit functions within DoD had the objectives of uniformity, independence, objectivity, economy and efficiency. In FY 2006, DCAA reported $2.3 billion in net savings to the Government as a result of audit findings. These funds were ultimately returned to the Treasury or put to better use by DoD contracting officers. In FY 2006, DCAA performed more than 35,000 reviews. DCAA audited $121.1 billion of costs incurred on existing contracts and reviewed 9,015 pre-award proposals ($182.3 billion) used by contracting officials to negotiate contract prices.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The Defense Contract Audit Agency (DCAA) is the only Department of Defense (DoD) entity whose purpose is to provide contract audit services for DoD contracting officers. The program is not redundant or duplicative of other Federal or non-federal efforts. DCAA performs contract audits of companies doing business with DoD; whereas, other audit organizations, such as the service inspectors general and the service audit agencies, perform internal audits on Government entities.

Evidence: The Defense Contract Audit Agency (DCAA) performs the inherently governmental functions that can not be performed by public accounting firms, such as establishing final indirect rates and forward pricing rates. Department of Defense Directive (DoDD) 5105.36 is the DCAA charter. This charter states that no separate contract audit organization independent of the DCAA shall be established in the Department of Defense. In addition, the Federal Acquisition Regulations (FAR), which regulates all Federal acquisition and not just DoD, states in part 42.101, that for contractors other than educational institutions and nonprofit organizations, DCAA is normally the responsible Government audit agency.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The Defense Contract Audit Agency (DCAA) was created in 1965 to correct the inefficiencies of having multiple audit organizations within the Department of Defense (DoD). This consolidation resulted in a uniformity of contract audit processes and consistent treatment of contractors, which were lacking as a result of the fragmentation under three separate audit organizations (Army, Navy, and Air Force). The DCAA audit processes are fully compliant with Generally Accepted Government Auditing Standards as determined by the DoD Inspector General (DoDIG) reviews. The DoDIG recently completed the review for FY 2006. Its report provides an unqualified opinion and states that DCAA's quality control system is adequate. DCAA's ability to render objective audit opinions without regard to military service or program, both in appearance and actual practice, has been maintained by DCAA's organizational placement directly under the Under Secretary of Defense, Comptroller. There is no strong evidence to indicate that another approach to contract audits would be more effective or efficient.

Evidence: DCAA represents a single government audit organization to DoD contractors, regardless of the source of its contracts, and renders consistent audit opinions under similar circumstances throughout the world. DCAA, through its Contract Audit Manual, has created a single source of DoD contract audit policy and guidance. In addition, DCAA maintains an integrated training program through its Defense Contract Audit Institute, established in 1966, to instill consistent application of contract audit practices. DCAA's external reviewer is the DoDIG, who has the responsibility for providing policy direction and evaluating DoD auditors. This authority was provided in Sections 8(c)(3) and 8(c)(6) of the Inspector General Act of 1978, as amended. As part of that responsibility, the Assistant IG for Audit Policy and Oversight performs external quality control reviews DCAA. The DoDIG recently completed the review for FY 2006, and the report provides an unqualified opinion and states that DCAA's quality control system is adequate. In December 2001, a report was issued by the Institute for Defense Analysis as part of the "Studies of Potential Defense Agency Reform Issues for the Quadrennial Defense Review", sponsored by the Office of the Director, Program Analysis and Evaluation. The analysis concluded that DCAA is under strong management and strives for efficiency. It also stated that if a public accounting firm were called upon to do what DCAA auditors do, it would be unlikely that savings would accrue. The report specifically stated that "there is no strong evidence and certainly no passion for changing governance of DCAA".

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The Defense Contract Audit Agency's (DCAA) annual program planning process considers all contract-required and customer-requested workload requirements. This analysis determines the staffing needs for the coming year. Each year DCAA issues planning guidance which establishes audit priorities for the coming year, including productivity and timeliness metrics. Staffing resources are allocated to the regions in accordance with the amount and priority of work within the regions. This guidance and actions allow DCAA to focus manpower funding and efforts on critical areas, which provides contracting officers with the information they need in a timely manner. Adjustments are made as necessary to address updated priorities and workload. As a result, there are no unintended subsidies.

Evidence: Projected staffing requirements correspond to planned changes in Department of Defense (DoD) procurement levels and departmental acquisition streamlining initiatives. DCAA allocates its resources to audit activities through program plans based on risk analyses and contracting officer requirements. The FY 2007 Planning and Staff Allocation Document includes the staffing levels allocated to the regions, productivity goals of dollars audited per hour, expected levels of hours to be spent with direct audit activities, and guidance on specific audit areas.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: Defense Contract Audit Agency's (DCAA) purpose is to efficiently perform all necessary contract audits for the Department of Defense (DoD) and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. DCAA has long-term performance goals that are well defined and reflect the program's purpose. One of DCAA's long-term goals is to increase customer's (contracting officers) satisfaction. This long-term goal directly reflects the purpose of DCAA's mission, which is to perform all necessary contract audits for DoD and provide accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. Examining customer satisfaction enables DCAA to monitor the product and services provided as well as make necessary adjustments to better meet customer's expectations. A second long-term measure is the opinion received from the Department of Defense Inspector General (DoDIG) on the President's Council on Integrity and Efficiency (PCIE) reviews. Currently, DCAA has an unqualified opinion, indicating that DCAA has full compliance with auditing standards and ensures that DCAA auditors are following established policies, procedures and applicable auditing standards resulting in high quality auditing services.

Evidence: The long-term performance measures are included in the measures section of this review. They include the opinion received from the Department of Defense's Inspector General (DoDIG) on President's Council on Integrity and Efficiency reviews and overall customer satisfaction. DCAA has taken the results of previous customer satisfaction surveys and developed action plans to address areas needing improvement. The opinion received from the DoDIG on the President's Council on Integrity and Efficiency reviews illustrates that DCAA's audits are conducted to the Government Auditing Standards. DCAA uses a Customer Satisfaction Rating to ensure that products meet our customers' needs in terms of quality, responsiveness, satisfaction and coordination.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: Defense Contract Audit Agency (DCAA) has ambitious targets and timeframes for all of its long-term measures. DCAA is committed to significantly raising levels of customer satisfaction by the next biennial survey. This survey will be available in 2009. DCAA's goal is to raise the level of service while continuing to adhere to Generally Accepted Government Auditing Standards and maintaining independence. Additionally, DCAA maintains ambitious 99% targets for completing incurred cost audits within required timeframes. Targets and baselines have been established based on historical data and on actual and predicted economic conditions. Performance is monitored at least monthly to ensure the agency is on track to meet its targets.

Evidence: The targets and timeframes for these measures are included in the performance measures section of this review. Key long-term measures include overall customer satisfaction and the audit opinion received from DoDIG related to President's Council on Integrity and Efficiency reviews.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The Defense Contract Audit Agency's (DCAA's) annual performance measures are discrete, quantifiable, and measurable. The annual measures demonstrate progress towards the agency's long-term goals. These measures are linked to the long-term measures and, by achieving the annual targets, ensure DCAA will achieve its long-term measures. The annual output measures focus on key areas that have been specifically identified by DCAA's customers, the contracting officers, as being important. They help DCAA improve customer satisfaction and ensure it provides the information needed in a timely manner. Three of the annual measures are used to reflect the timeliness of DCAA's audits and ensure that DCAA provides the necessary information to our customers to assist them with the negotiation, administration and settlement of their contracts. Other annual measures contribute to control of operating costs, which supports the goal of maintaining a competitive cost advantage over the average rates of national public accounting firms.

Evidence: The annual performance measures are included in the performance measures section of this review. Two annual measures are timeliness of audits and prioritizing specific audits. These timeliness and priority measures contribute to the long-term goal of improving customer satisfaction and ensuring DCAA provides the information needed in a timely manner. DCAA also has three efficiency measures related to dollars audited per hour and the cost of each direct audit hour. These efficiency measures contribute to control of operating costs. These costs are also benchmarked against services provided by national public accounting firms to ensure DCAA provides cost-effective products and services.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: All of Defense Contract Audit Agency's (DCAA) annual measures are discrete and measurable. The annual measures include baselines and ambitious targets based on quantifiable data. Targets and baselines have been established based on historical data and on actual and predicted economic conditions. The measures are reviewed on an annual basis to verify relevance based on current performance and business environment.

Evidence: The targets and timeframes for these measures are included in the performance measures section of this review. Annual measures include timeliness of incurred cost audits, timeliness of forward pricing audits, consistency of cost-per-direct-hour, percent of the Defense Contract Management Agency identified incurred cost audits completed, contract-dollars-audited-per-hour, and percent cost-per-direct-audit-hour is below the average for national public accounting firms. These targets and timeframes are also included in DCAA's FY 2008 President's Budget justification material that is sent to the Officer of the Secretary of Defense, Comptroller (OSD(C)) and forwarded to Congress. This material is also posted on the OSD(C) web site.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: DCAA does not have partners as defined by the question. Organizationally, DCAA is separate and independent from the acquisition components of the Department of Defense (DoD). While they are all part of the overall acquisition process, procurement and contract administration activities are DCAA's customers and, as such, use DCAA's services to achieve their goals. This customer relationship is reflected in DCAA's Customer Satisfaction measure. As the audit and financial advisor to procurement and contract administration activities, auditors must understand and support the service needs of these organizations. Defense Contract Audit Agency (DCAA) is committed to providing timely and responsive services and maintains communications and liaison services sufficient to assess if customer needs are being met.

Evidence: DCAA does not have partners as defined by the question. Regulations of the military departments and Defense Contract Management Agency (DCMA) require the contracting officers' representative to use advisory audit services to the fullest extent practicable.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: By law, the Defense Contract Audit Agency (DCAA) policies and operations are reviewed by the Department of Defense's Inspector General (DoDIG). The DoDIG performs independent, external, high-quality, large-scope reviews of DCAA based on guidelines established by the President's Council on Integrity and Efficiency (PCIE). The external audits are conducted in accordance with Government Auditing Standards at least once every 3 years. In FY 2006, DCAA received an unqualified opinion. DCAA uses the findings and recommendations from these independent evaluations to improve the program. For example, a DoDIG report recommended updating the guidance for the reporting process of suspected contractor fraud. As a result, DCAA updated its instruction pamphlet to clarify the process when auditors prepare a fraud referral to ensure consistency and that appropriate criteria are met. In addition, the FY 2006 DoDIG report recommended that DCAA suspend performance of incurred cost desk reviews until they issued revised guidance for reporting results via a memorandum instead of a formal report. DCAA addressed the issue immediately and had issued the guidance before the final DoDIG report was published.

Evidence: The Government Auditing Standards requires each audit organization that conducts audits in accordance with these standards to have an internal, quality-control system in place and to undergo an external quality control review. The internal, quality-control system established by each audit organization should provide reasonable assurances that it has (1) adopted, and is following, applicable auditing standards and (2) established, and is following, adequate audit policies and procedures. Organizations conducting audits in accordance with these standards should have an external quality control review at least once every 3 years by an organization not affiliated with the organization being reviewed. DCAA's external reviewer is the DoDIG, who has the responsibility for providing policy direction and evaluating DoD auditors. This authority was provided in Sections 8(c)(3) and 8(c)(6) of the Inspector General Act of 1978, as amended. As part of that responsibility, the Assistant IG for Audit Policy and Oversight performs external quality control reviews DCAA. The DoDIG recently completed the review for FY 2006, and the report provides an unqualified opinion and states that DCAA's quality control system is adequate. In the prior review, Report No. D-2004-6-003, issued on December 15, 2003, the DoDIG also issued an unqualified opinion. Other DoDIG reports: D-2004-6-001, DCAA Quality Assurance Review of All Other Audits, October 21, 2003; D-2003-6-003, DCAA Quality Assurance Review of Incurred Costs, December 20, 2002; D-2002-6-007, August 6, 2002, DCAA Quality Assurance Review of Internal Control System Audits; D-2002-6-005, DCAA Regional Quality Assurance Review of Incurred Cost Sampling Initiative, April 16, 2002.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The Defense Contract Audit Agency (DCAA) is a single-mission agency and is funded by the Department of Defense's (DoD's) Operations and Maintenance funds. Statutory and regulatory requirements, designed to ensure that the Government meets its fiduciary responsibilities to the public, drive the majority of DCAA's workload. The annual program planning process considers all contract-required and customer-requested workload to define staffing needs for the coming year. This includes the need to meet timeliness and productivity goals. Resource needs are presented in a clear and transparent manner in the justification material sent to the Officer of the Secretary of Defense, Comptroller (OSD(C)) and forwarded to Congress. This material is also posted on the OSD(C) web site. This justification material includes DCAA's progress towards achieving the long-term and annual measures. Additionally, this justification material explains the impact of funding decisions and the potential increase in the audit backlog if funding is reduced. Performance goals are established considering the full cost of performance and provide a framework that supports decisions on budget requests and are meaningful for assessing the agency's performance.

Evidence: DCAA's performance goals are specifically included in its FY 2008 President's Budget and the Budget and Performance Integration portion of the President's Management Agenda.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: Defense Contract Audit Agency (DCAA) undertakes regular reviews of its activities and performs a major update of its Strategic Plan every two years. Over the years, as the plan is updated and adapted, it has become the mainstay for managing overall operations and institutionalizing the use of metrics for measuring performance. No strategic planning deficiencies have been identified in the latest plan. In older plans, DCAA took steps to correct its strategic planning deficiencies. Specifically, in 1999, DCAA implemented a new quality assurance (QA) program and established a quality assurance function in its headquarters and in each of its regions. The QA staff conducts quality assurance reviews of all audit areas on a three-year cycle and reports the results of those reviews to the DCAA Director.

Evidence: DCAA implemented a formal Strategic Plan in 1992. The current 2006 DCAA Strategic Plan is available on the public website at http://www.dcaa.mil, under About DCAA. Proposals for new objectives are received from all levels of the agency and evaluated by the Executive Steering Committee. Agency-level performance measures are filtered down to the Regional and Field Audit Office level and incorporated in their respective scorecards.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Since its inception, the Defense Contract Audit Agency (DCAA) has maintained a management information system to collect credible data that is used to measure performance. The data is entered on a real-time basis. Performance reports are generated real-time, biweekly or monthly as needed to manage performance. Historical data from the system is used to establish the targets for performance measures and the underlying data is subject to periodic reviews for accuracy. These data are used at all levels of the organization for planning and monitoring audit performance. A record is established for every audit assignment and extensive data are captured, including types of audit assignments, dollars examined, hours incurred, exceptions reported and date information. Data can be analyzed at the agency, region, field audit office or individual auditor level. DCAA uses its performance data to adjust audit priorities, make resource allocations and to take other appropriate management action. For example, on a semi-annual basis, DCAA provides a summary status report on overdue incurred cost proposals to DCMA for their use in identifying contractors who are in noncompliance with their contractual obligations.

Evidence: The Defense Contract Audit Agency (DCAA) prepares reports on key measures on a monthly basis and DCAA's performance measures are used to make management decisions. DCAA regularly considers suggestions for revisions/upgrades to the data collection and reporting process. DCAA's Executive Steering Committee (ESC) meets on quarterly basis and discusses audit issues and performance measure information, as appropriate. For example, if the performance measures indicate that some field offices or regions are lagging behind in accomplishing incurred cost audits within the required timeframes, staffing will be reallocated to ensure those goals are met. During the annual program planning process, specific guidance is issued to highlight potential areas for consideration and emphasis.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Program managers (defined as each Defense Contract Audit Agency (DCAA) Field Audit Office manager, Regional Audit Manager and Senior Executive Service officer) are held accountable for performance and program management through performance standards and evaluations. These performance standards and evaluations incorporate agency goals pertaining to cost, schedule and performance. DCAA does not have partners as defined by the question.

Evidence: Senior Officer Performance Plan/rating document and Performance Standards for Field Audit Office Managers and Regional Audit Managers incorporate these goals into their performance evaluations.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Defense Contract Audit Agency (DCAA) has a comprehensive resource management control strategy to provide reasonable assurance that obligations and costs comply with applicable laws, and assets are safeguarded against waste and unauthorized use. DCAA's resources come primarily from the Defense-wide Operations and Maintenance appropriation, a one year appropriation. DCAA does have a small ($1.5 million) amount of Defense-wide Procurement funds, which is a two-year appropriation. DCAA performs monthly and tri-annual reviews of its unliquidated obligations and reviews reports on budget execution and status of budget resources from data provided by the Defense Finance and Accounting Service Center. Data is usually available within ten days of the month's end. DCAA has had no material weaknesses in self-assessments of internal controls, has achieved an unqualified statement of assurance under OMB Circular A-123, and has received an unqualified opinion on its financial statements by its independent auditor for each of the last six years. DCAA does not provide Federal assistance or award contracts that would require entry into the Federal Assistance Award Data System, Federal Procurement Data System-Next Generation, or any other collection system for information on Government spending.

Evidence: DCAA has a rigorous Management Internal Control Program that includes compliance reviews under OMB Circular A-123. OMB Circular A-123 provides guidance to Federal managers on improving the accountability and effectiveness of Federal programs and operations by establishing, assessing, correcting and reporting on internal controls. Under this program, independent assessments of financial management systems and processes related to budget formulation and execution, accounting procedures and interrelated areas are made. Individual assurance statements from each Headquarters Principal Staff Element and Regional Director serve as the primary basis for the Agency's assurance that management controls are adequate. DCAA has had no material weaknesses in self assessments of internal controls, has achieved an unqualified statement of assurance under OMB Circular A-123, and has received an unqualified opinion on its financial statements by its independent auditor for each of the last six years.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Defense Contract Audit Agency (DCAA) has efficiency measures that provide management with a tool to track the cost-effectiveness of the program. One of these measures is the cost per direct audit hour executed. Using this metric ensures that DCAA controls operating costs at the agency level as well as its regional and field offices. DCAA maintains a real-time management information system to collect data. A record is established for every audit assignment and extensive data are captured, including types of audit assignments, dollars examined, hours incurred, exceptions reported and date information. The data is entered on a real-time basis. Performance reports are generated real-time, biweekly or monthly as needed to manage performance. These data are used to evaluate DCAA's efficiency measures, including targets and actual performance data; contract dollars audited per hour, cost per direct audit hour and comparison to national public accounting firm rates. Each year, during the program planning cycle, efficiency initiatives are identified to achieve productivity improvements in performing those audits. Efficiencies are achieved through the use of innovative processes, computer-assisted audit techniques and a risk-based analysis to accurately establish the audit scope. Efficiency measures are used to evaluate current audit guidance and programs and as a basis to explore innovative and streamlined audit procedures. In addition, DCAA compares its cost per direct audit hour rate against the average rate charged by national public accounting firms. Since FY 2003, DCAA has achieved a rate that is nearly 30% lower than the calculated average rate of national public accounting firms.

Evidence: Efficiency measures are identified in the measures section of this submission, and are documented in the President's Budget and the Budget Performance Integration portion of the President's Management Agenda. They are cost per direct audit hour, contract dollars audited per hour, and comparison to average national public accounting firm rate. Each year, DCAA calculates an average rate for national public accounting firms as benchmark to compare the cost per direct audit hour experienced by DCAA.

Does the program collaborate and coordinate effectively with related programs?

Explanation: Defense Contract Audit Agency (DCAA) consults and coordinates with procurement and contract administration officials on all audit requests. Defense Contract Management Agency (DCMA) is the single largest user of DCAA's audit services. As a result, DCAA collaborates with DCMA on a variety of issues and coordinates key elements of related audit guidance prior to issuance. Each year, DCAA specifically coordinates with DCMA on the priority audits and timeliness of incurred cost audits, which are identified in the performance measures section of this submission. In addition, DCAA has deployed financial liaison auditors at major Department of Defense service procurement and contract administration offices throughout the country. Their primary purpose is to facilitate effective communication and coordination between procurement office and auditors and provide on-the-spot consultation and advice in connection with contractors' cost representations and related matters.

Evidence: Regulations of the military departments and DCMA require the contracting officers' representative to use advisory audit services to the fullest extent practicable. Coordination with other participants is crucial to the efficiency of the acquisition process. For example, in FY 2002, DCAA adopted a Strategic Plan Objective, specifically tied to DCMA's Performance Plan so that audits related to canceling funds and overage contracts would be performed on a priority basis. This common goal is identified as the DCAA/DCMA priority audits measurement in the performance measurement section. Another example is when DCAA and DCMA collaborated over a period of several months to finalize guidance on procedures, recommendations, and contracting officers' subsequent use of those recommendations, when contractors did not comply with contractual requirements to provide incurred cost submissions. Obtaining the overdue submissions contributes to achieving the goals of timeliness of the incurred cost audits, and DCAA has consistently met that metric. In addition, financial liaison auditors have been established at over 70 separate locations across the country. Since its inception in 1989, the liaison division has grown from 19 to over 100 auditors, as a result of requests for those services from major buying activities.

Does the program use strong financial management practices?

Explanation: Defense Contract Audit Agency (DCAA) has in place a rigorous system of internal accounting and administrative controls to ensure effective management of DCAA's resources. DCAA has procedures in place to ensure that payments are made properly for the intended purpose to minimize erroneous payments. DCAA's financial management systems, which are owned by Defense Finance and Accounting Service, meet statutory requirements. Under the guidance of OMB Circular A-123, Appendix B, DCAA performs risk analyses of key business process internal controls which significantly affect financial reports and obtains an annual review of its financial statements by an independent auditor. DCAA has had no material weaknesses in self assessments of internal controls, has achieved an unqualified statement of assurance under OMB Circular A-123. DCAA has received an unqualified opinion on its financial statements by its independent auditor for each of the last six years.

Evidence: In accordance with OMB Circular A-123, Appendix B, Defense Contract Audit Agency (DCAA) prepares financial statements as part of DCAA's and DoD's overall goal to improve financial management in the Department and to provide accurate, reliable information that is useful in assessing Agency performance and allocating resources. Appendix B requires agencies to maintain internal controls that reduce the risk of fraud, waste, and error in government charge card programs. DCAA is audited annually by an independent audit firm and has received an unqualified audit opinion with no reportable deficiencies since FY 2001.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: Defense Contract Audit Agency (DCAA) implements management changes in response to specific issues that have been internally identified as well as those based on recommendations for improvement included in Department of Defense Inspector General (DoDIG) and Government Accountability Office reports. Performance data is compiled and distributed on a monthly basis and undesirable trends are analyzed to determine whether management intervention is needed. DCAA uses the findings and recommendations from these independent evaluations to improve the program. For example, a DoDIG report recommended updating the guidance for auditor reporting of suspected contractor fraud and as a result, DCAA updated its instruction pamphlet to clarify the process when preparing a fraud referral.

Evidence: Defense Contract Audit Agency (DCAA) maintains a database of DoDIG/GAO recommendations and monitors the progress of completing those actions. DCAA provides a status report to the DoDIG twice a year along with projected due dates. In addition, DCAA's quality assurance division performs reviews throughout the year and promptly elevates findings that require management attention. Corrective action plans are established and discussed at the quarterly Executive Steering Committee meetings. For example, as a result of the findings on audits of contractors' internal control systems, DCAA revised the risk assessment audit steps to be tailored for each type of internal control system being audited (there are ten different system audits).

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: Defense Contract Audit Agency (DCAA) provides audit services for contracting officers. DCAA regularly measures progress to ensure results are within an acceptable range. DCAA is on track to meet its long-term performance goals. As detailed in the measures section, DCAA has met or exceeded the targets for 6 of 9 long-term measures. DCAA is committed to raising levels of customer satisfaction while continuing to adhere to Generally Accepted Government Auditing Standards and maintaining independence. For example, DCAA has received the best opinion, unqualified, from an external reviewer, the Department of Defense Inspector General. This means DCAA is in full compliance with auditing standards. Additionally, DCAA has been meeting or exceeding its long-term measures for timeliness of issuing incurred-cost audits within the allotted time.

Evidence: FY 2006 DCAA Second Semi-Annual Performance Plan results, monthly Performance Charts, Biennial Defense Review and Department of Defense Inspector General (DoDIG) report on DCAA's quality control system for 2006. Timely annual audits of costs incurred on contracts are an important part of timely contract closeout by DCAA's customers and an important initiative for the Department of Defense. In consultation with DCAA's customers, the following goal was established: for major contractors (contractors with over $90 million of auditable contract dollars per year), DCAA's objective is to issue reports within 12 months of receipt of an adequate contract submission. DCAA has met or exceeded this goal. For contracts less than $90 million, DCAA's objective is to issue reports within 24 months. DCAA has met or exceeded this goal.

Does the program (including program partners) achieve its annual performance goals?

Explanation: For the past five years, Defense Contract Audit Agency (DCAA) has either consistently met or exceeded its annual performance goals or has made improvements from prior years. For the most recently completed year, DCAA met its three targets for timeliness for incurred cost and forward pricing audits, and its efficiency target for contract dollars audited per hour. However, it slightly missed its goals for two measures: completion of the DCAA and Defense Contract Management Agency (DCMA) identified audits and cost per direct audit hour (CPDAH) goals by only 1%. FY 2006 was the only year of the past five where DCAA did not meet the CPDAH goal. Performance on the DCAA/DCMA identified audits goal has improved from 89% in FY 2002 to 99% in FY 2006.

Evidence: The targets and actuals for the annual performance measures are contained in the performance measurement section of this submission. The PART measures, along with others used by DCAA, are documented in the FY 2006 DCAA Second Semi-Annual Performance Plan results and monthly Performance Charts.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: Defense Contract Audit Agency (DCAA) has efficiency measures with targets and actual performance data for its two major functional areas; incurred cost audits and forward pricing audits. DCAA has increased its timely completion of major incurred cost audits from 94% in FY 2001 to 99% in FY 2006. Contract dollars audited per hour has increased from $50,000/hour in 2001 to $67,500/hour in FY 2006. This means that auditors are able to review a higher dollar amount in 2006 compared to 2001. These efficiencies are achieved through use of innovative/computer-assisted audit techniques and streamlining the audit programs. In addition, accomplishment of the "priority" audits identified by DCMA has increased from 89% in FY 2002 to 99% in FY 2006. DCAA compares its cost per direct audit hour rate against the average rate charged by national public accounting firms and maintains a material cost advantage against the benchmark. Since FY 2003, DCAA has achieved a rate that is nearly 30% lower than the calculated average rate of national public accounting firms.

Evidence: FY 2006 DCAA Second Semi-Annual Performance Plan results and monthly Performance Charts.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: Defense Contract Audit Agency (DCAA) is uniquely charged with providing contract audit services to all of DoD. Private accounting or consulting firms may perform some similar tasks, but they do not have a similar purpose, goals or performance measures. Other Government agencies, such as Health and Human Services, perform contract audit functions on a limited basis, but DCAA is the only organization whose sole purpose is to perform contract audits. The results of the 2003-2004 Biennial Review of Defense Agencies revealed that 84% of the respondents stated that the services provided by DCAA were not available from other sources. For the 16% who responded that other sources were available, 69% of those stated that DCAA was the supplier of choice. No military customers felt their own organization would be better equipped to provide the products and services that DCAA provides.

Evidence: DCAA compares its cost per direct audit hour to the calculated average rate of national public accounting using pay rate information for the four main accounting firms (PWC, KPMG, Deloitte and Ernst & Young) as publicized through GSA schedules. Since FY 2003, DCAA has achieved a rate that is nearly 30% lower than the calculated average rate of national public accounting firms.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: The Department of Defense Inspector General (DoDIG) regularly evaluates the Defense Contract Audit Agency's (DCAA) quality control system (discussed in Question 2.6). These reviews are independent, unbiased and of high quality, The DoDIG has determined that DCAA is designed in accordance with quality standards and there is reasonable assurance of material compliance with professional auditing standards in conducting audits. The DoDIG opinion covers the DCAA quality control system, which, in turn, evaluates all types of DCAA audits on a rotating basis. DCAA has achieved an unqualified statement of assurance under OMB Circular A-123, and has received an unqualified opinion on its financial statements by its independent auditor for each of the last six years. DCAA uses the findings and recommendations from these independent evaluations to improve the program. For example, a DoDIG report recommended updating the guidance for reporting of suspected contractor fraud. As a result, DCAA updated its instruction pamphlet to clarify the process when auditors prepare a fraud referral to ensure consistency and that appropriate criteria are met. In addition, the FY 2006 DoDIG report recommended that DCAA suspend performance of incurred cost desk reviews until they issued revised guidance for reporting results via a memorandum instead of a formal report. DCAA addressed the issue immediately and had issued the guidance before the final DoDIG report was published.

Evidence: The DoDIG review for FY 2006 provides an unqualified opinion on DCAA's audit quality control system and states that DCAA's quality control system is adequate. In Report No. D-2004-6-003, issued on December 15, 2003, the DoDIG also issued an unqualified opinion. Other relevant DoDIG reports include: D-2004-6-001, DCAA Quality Assurance Review of All Other Audits, October 21, 2003; D-2003-6-003, DCAA Quality Assurance Review of Incurred Costs, December 20, 2002; D-2002-6-007, August 6, 2002, DCAA Quality Assurance Review of Internal Control System Audits; D-2002-6-005, DCAA Regional Quality Assurance Review of Incurred Cost Sampling Initiative, April 16, 2002. DCAA is audited annually by an independent audit firm and has received an unqualified audit opinion with no reportable deficiencies since FY 2001.