GAO Report on DoD Initiative to Reduce Audit Backlog

The GAO (Government Accountability Office) issued a report yesterday to the Senate Committee on Armed Services that looked at DoD's initiative to address the backlog of incurred cost audits and closing out old contracts. The entire report can be found here.

To reduce the backlog of incurred cost audits, DCAA implemented an initiative to focus its resources on auditing incurred cost proposals that involve high dollar values or are otherwise determined to be high risk. Under this initiative,

• DCAA raised the dollar threshold that triggers an automatic audit on a contractor's incurred cost proposal from $15 million to $250 million, 
• revised the criteria used to determine a proposal's risk level and 
• significantly reduced the number of low risk audits that will be randomly sampled.

Go here to read more about the new DCAA policy for incurred cost audits

The GAO reported that DCAA's new initiative "appears promising" but DCAA has not developed measures by which it will assess whether the initiative reduces the backlog in a manner that protects the taxpayers' interests. Specifically, the GAO found that DCAA does not have a plan for how it will determine whether key features of the initiative, such as the revised risk criteria and the revised sampling percentages, should be adjusted in the future.

Already, the number of proposals determined to be high risk is 250% higher than anticipated. That means more audits and more audits is going to jeopardized DCAA's ability to eliminate the incurred cost backlog by 2016.

Reducing the backlog of incurred cost audits will ease one obstacle to closing old contracts. The Army recently announced a goal of closing over 475 thousand contracts by September 2014. Unless it can quick-close some of those, it will need DCAA's audits to achieve that goal. The GAO report was somewhat critical of the Navy and Air Force for not establishing similar goals.