On September 10, 2024, the Defense Contract Audit Agency (DCAA) released a Memorandum for Regional Directors (MRD) to provide updated guidance on reporting questioned direct costs on incurred cost audits. In alignment with a March 22, 2023 final rule, the MRD indicates that “the Procuring Contracting Officer (PCO) is responsible for negotiating or settling questioned direct costs in an incurred cost audit.” However, the PCO may delegate such authority to the Defense Contract Management Agency Administrative Contracting Officer in certain circumstances.

The MRD indicates that corresponding updates have been made to DCAA’s Contract Audit Manual (CAM), including CAM 6-708.5, Writing the Audit Report, and CAM 10-210.1, Audit Report Distribution and Restrictions. The MRD also addresses how auditors should coordinate and communicate with the PCO and includes guidance on how questioned direct costs should be summarized. Lastly, the MRD emphasizes that DCAA should ensure the “PCO is correct before reporting on questioned direct costs.” It will be interesting to see if/how this guidance continues to blur the lines of the scope and intent of an incurred cost audit (i.e., audit of indirect rates vs. direct costs).

The September 10 MRD can be found here.