IG Faults DoD Decision to Raise Audit Thresholds

A little more than two years ago (September 2010), the Department of Defense raised the threshold for price proposals requiring audit to $10 million for fixed priced contracts and $100 million for cost-type contracts. Last month, the DoD Inspector General's Office (DoD-IG) issued a scathing report on that decision stating that the Department had not performed a business case analysis to support it.

That decision, according to the DoD-IG will cost taxpayers $249 million per year in lost return on investment from DCAA contract audits.

The audits under the DCAA threshold were given to DCMA (Defense Contract Management Agency) but according to the DoD-IG, DCMA is not prepared to perform contract cost analaysis in place of DCAA and that DCMA cannot reliably report performance. Furthermore, the Department of Defense has no idea whether DCMA has even a remote chance of replicating the $249 million that DCAA could have achieved had the audit thresholds remained at their pre-September 2010 levels. Finally, the DoD-IG found that the Department did not demonstrate why they chose to direct taxpayer resources to DCMA to perform a job that it was not prepared to perform when DCAA had existing infrastructure in place to get the job done.

Perhaps the Department of Defense did not perform a business case analysis for shifting work from DCAA to DCMA but the fact is, DCAA was not getting the job done and their failure was significantly delaying the awards of contracts. The decision was borne more out of frustration than anything else.

The DoD-IG made a number of recommendations including a return to the old audit thresholds. You can read the entire report here.