The Defense Contract Audit Agency recently issued several memos to its auditors.

When DCAA finds questioned or unsupported costs during an incurred cost audit and the contractor does not concur with its conclusions, DCAA often issues a “Form 1” intended to notify ACOs administering its contracts that billing rates need to be adjusted for the disallowed or unsupported costs until the issue is resolved.  Following an in-house review of its practices, DCAA has issued guidance intended to clarify and improve use of Form 1’s. Auditors are told not to wait until a final report is issued to send out a Form 1. Rather, auditors are told to issue a DCAA Form 1 to disapprove indirect and direct costs when audit action is complete, the costs are considered unallowable and the contractor does not concur. At locations with ACO-negotiated indirect cost rates, auditors are told to first recommend the ACO promptly adjust applicable billing rates to make sure there is a withhold of questioned or unsupported costs to protect the government’s interests. Then a Form 1 should be issued when it is decided after discussions with the ACO that issuance is the best course of action (in lieu of adjusting billing rates) (07-PPD-031(R).

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