DCAA to Include Non-profits in Low-Risk ICS Sampling

In November 2014, the Defense Contract Audit Agency (DCAA) issued a Memorandum for Regional Directors (MRD) stating that, effective immediately, incurred cost proposals from non-profit organizations would be included in the low-risk sampling process.

DCAA’s low-risk sampling process was revised in 2013 (click here for complete policy). In essence, the guidance stated that incurred cost proposals would be considered “low risk” based on the auditable dollar volume (ADV) and history of questioned costs in prior audits. Once a proposal is deemed low risk, it has a small chance of being selected for audit, as summarized in the table below:

ADV

Questioned Costs from Last Completed Audit in Order to Be Considered Low Risk

Chance of
Selection

<$1M

<10% 0%

$1M–$5M

<5%

5%

$50M–$100M

$250,000

10%

$100M–$250M

$250,000

20%

>$250M N/A

100%

DCAA will now perform low-risk assessments based on these guidelines for non-profit organizations, per the new MRD.

Since 2012, contracting officers from the Department of Defense have had an agreement with DCAA to rely on this low-risk sampling procedure to satisfy FAR audit requirements. Other Federal Agencies have since entered into similar agreements, most recently including the Office of Naval Research, Defense Contract Management Agency, and National Aeronautics and Space Administration, which have many non-profit organizations under their cognizance.

DCAA is also coordinating the low-risk sampling process with other customers in both the for-profit and non-profit spaces. As of today, organizations under the cognizance of these other customers will only be subject to the low-risk sampling at their contracting officer’s request.

Many non-profit organizations have endured audits year after year despite having low ADV and clean audit history. The inclusion of non-profit organizations in the streamlined low-risk sampling process establishes transparent guidelines to set expectations for non-profit organizations and should yield a more consistent approach to the audit selection.