Contract Audit Reports

The DoD Inspector General just issued its semi-annual report to Congress covering the period October 2010 to March 2011. It summarizes not only its own activities but incorporates audits and investigations performed by the military organizations and by DCAA (Defense Contract Audit Agency).

Many people in the contracting community, including Government contractors sense that DCAA is not getting its work done. The reasons probably stem from GAO reporting that cast doubt on the adequacy of their audits and all of the negative fallout that ensued. Many contractors we talk to are frustrated however because they cannot close out old contracts due to DCAA's languishing incurred cost audits. Conversely, some contractors seem pleased because fewer audits mean less disruption. Bottom line however, its difficult to see how the interests of either the Government or its contractors are served by the current state of affairs.

The semi-annual IG reports readily show the precipitous drop off in the number of contract audit reports. During the six month period ended March 2008, DCAA issued 13,807 audit reports. During the six month period ended March 2011, DCAA issued only 3,821 reports, a 72 percent drop from three years earlier. The number of incurred cost audits (audits required before contractors can close out contracts) dropped by 77 percent from 8,689 to 1,974. The amount of dollars audited dropped by 82 percent from 73.1 billion to $12.9 billion.

DCAA audit coverage is falling seriously behind the pace of Government spending. We wonder how long this will be allowed to fester before someone in the administration or Congress takes notice and takes action.