Why I Will Never Again Hire an Ex-DCAA Auditor

My previous post described how DCAA staff referred us, albeit indirectly, to an ex-DCAA auditor who had become a consultant after retiring. We did hire him. In this post I am going to tell you why that was a pivotal mistake on my part and, most likely, the defining moment in our prolonged and painful contract dispute with the government. But before getting down to business, I want to make sure to stress that my position on DCAA or DCMA staff is strictly a professional opinion. I do not know any of these folks on a personal level but, from what I have observed, I wouldn’t at all mind having any one them as a neighbor. At some future post we will get into how structural deficiencies within the DCAA and DCMA have created core organizational flaws with respect to how small businesses are handled. These flaws, coupled with what I feel is an intentional lack of supervisory sophistication, particularly at DCMA, creates incentives and unwritten policies for their staff to behave in a certain manner. I’ll cover that in a future post as well. For now, however, lets get back to our experience with the ex-DCAA auditor. Since then, I have worked with several DCAA auditors, including ex-auditors, and have found that the problems we experienced with our consultant appears “universal”. Here is a short list of the five topmost problems with ex-DCAA auditors, at least in our experience.

1. Poor Communication: DCAA auditors appear to have been trained to minimize communication with contractors; are frustratingly averse to almost any written communications; and generally pick their words carefully in order to leave themselves plenty of room to change their position – the old “wiggle room”. While all these may server government purposes well, it is not something you want in your consultant. Look at it this way… Auditors are human and after doing something (e.g., communications) in a certain way (e.g., defensively) for a long time, it becomes a habit. The longer they have been an auditor, the more likely you will have communications issues.

2. Telling vs. Explaining: DCAA auditors typically do not explain their demands or decisions. This is acceptable of course when they are representing the government, auditing your books. In that context, it is not reasonable to expect the auditor to become your cost accounting mentor. But your consultant should “explain”, rather than “tell” and not be instantly offended when you ask questions or disagree. Furthermore, the consultant should be able to take a longer view of the issues, such as what happens to your indirect rates next year based on decisions you make this year but DCAA auditors typically only focus on the matter they are working on. Another problem I have noticed with DCAA auditors is that they mostly have really fragile egos and it is not something your consultant can easily change. So as soon as you question your consultant, here comes the “I’ve done this for 30 years and I am telling you … ” – and it will then be up to you to take their word at face value or go spend hours digging to verify it. Don’t know about you but if I ask my consultant for an explanation, I expect an explanation not a lecture. An extension of the same can be classified as “doing vs. directing”. If you have worked with a DCAA auditor as part of a contract audit or review, you know that you will get a call with a list of (additional) information/documents the auditors needs and it is up to you to meet his/her demands and deadline. In our experience, ex-auditors bring the same attitude to consulting assignments. One of the most frustrating issues we had with the ex-auditor we hired was really a fundamental misalignment between what an auditor does and how and auditor works, vs. what a consultant does and how a consultant works. What we needed is to give our books, which were quite reasonable by commercial standards, to the consultant and get a DCAA-acceptable version back. To be clear, we weren’t looking for a magic wand or miracles and expected to have some interactions but we also weren’t looking to become accountants. Unfortunately, the consultant’s idea of help was to tell us what we needed to do, often in very general terms or accounting lingo, and then expect us to do it so he could review. Exactly the way he worked as an auditor for most of his career. Imagine if your plumber or IT consultant or cleaning crew worked this way and you’ll surely immediately understand the problem.

3. Lack of Current Software Knowledge: While it is impossible to expect to hire a consultant that immediately knows everything you need them to know, DCAA auditors use a proprietary system and, in our experience, the limit of their commercial software knowledge is Excel and Email. None of the ex- or current DCAA auditors I’ve worked with knew (or admitted to know) QuickBooks. So we ended up spending a lot of time training our ex-DCAA auditor-consultant on how QuickBooks works while he charged us $100 an hour for his time. Of course! Why not! The straw that broke the camel’s back, for us anyway, was that he was also learning at the same pace as a career bureaucrat who is sent to off-site training. A key problem, and you want to take note of this if you use QuickBooks, is that he was convinced the only way to implement cost allocation was through using class codes. If you have ever used class codes in QuickBooks, you know that they are randomly defined and assigned and are not subject to the normal checks-and-balances of the accounting system. So, basically, they are the equivalent of color stickies that someone might use to organize their tasks. The trouble with the approach is that it is error-prone and if you get one class code wrong, your reporting is off, your invoicing is off, your rates are off, your reconciliation is off, your ICP is off, and you probably end up losing a bunch of money on your final audit. After spending many hours on this issue we realized that his lack of QuickBooks knowledge was the problem in that he literally couldn’t imagine implementing it any other way. Of course that was not correct and our next consultant – whom we still work with – implemented the allocation in a way that was subject to the software’s accounting checks and balances.

4. Getting Dragged into Branch Politics: Just like any other organization, DCAA has its own internal politics. Your cognizant branch is, after all, made up people who do the same thing over and over. Add to that the fact that auditors are generally not welcomed or received with great deal of enthusiasm, if any, and it becomes natural for local branches to develop into a closed-knit tribes. As with any such environment, internal politics are a fact of life. So when you hire an ex-DCAA auditor, in our experience anyway, you unintentionally include yourself in that office’s internal politics. If the DCAA auditor assigned to your audit, and his or her supervisor, like(d) your guy, then chances are your audit will go smoothly. If not, they will “take it out” on you. We have in fact experienced this phenomenon ourselves but that story is for another post. You also might have an issue if you terminate your ex-auditor consultant. We suspect this very same act contributed significantly to our difficulties with the DCAA but something like this is very hard to prove and I want to make sure to emphasize that we only suspect this happened but have no proof. Yet.

5. Taking Responsibility: If I had to pick only one reason for not hiring ex-DCAA auditors, is that they NEVER, in my experience, take responsibility for their advice. Keep in mind that DCAA only “recommends” and, theoretically, does not have any enforcement power. Anyone who has been in this business more than a day will of course laugh at that position and immediately point you to the sickeningly feeble DCMA that, in our experience, acts very much as the enforcement arm of the DCAA. The fact is that DCAA auditors enjoy amazingly broad freedoms bestowed by Congressional mandate. There is also no defined or prescribed consequences for their actions. In short, because they never do anything except “recommend”, they are never held accountable for the outcome of their “recommendations” and they absolutely do not take any responsibility. In our experience, ex-auditors bring this mentality to their consulting assignments and because of that, again in our opinion, they don’t approach the consulting relationship as a partner, or even someone who might have remotest stake or, even more sadly, the slightest bit of interest in your success.

To conclude, keep in mind that DCAA auditors, like any other group of professionals, can not be uniformly generalized. While I have found the above issues be consistent across what I feel is a representative range of the group, you should of course make your own determination based on your own specific situation. Hopefully, however, based on the above you can ask a few specific questions to help you decide if an ex-DCAA auditor is a right consultant for you. After all, it is your company and your decision has to fit your needs, not anyone else’s.