GAO Audit Report

By: Mary Karen Wills

GAO-13-131: DoD Initiative to Address Audit Backlog Shows Promise, but Additional Management Attention Needed to Close Aging Contracts

The Senate Armed Services Committee Report accompanying the National Defense Authorization Act for FY2012 directed the Government Accountability Office (GAO) to review the criteria and procedures for conducting incurred cost audits. This audit stems from the large volume of contracts that the Department of Defense (DoD) has not closed out on a timely basis. Closing contracts within a required time frame can limit the government’s exposure to certain financial risk. One reason why contracts are not being closed timely is the large backlog of incurred cost audits that must be completed by the Defense Contract Audit Agency (DCAA). GAO assessed DCAA’s efforts underway to reduce the backlog of incurred cost audits and the challenges DoD faces in addressing the contract closeout backlog.

DCAA implemented an initiative that revised its focus on performing high-dollar-value or high-risk-incurred cost audits. The thresholds were raised from $15 million to $250 million for an automatic audit of incurred costs. DCAA revised its high-risk criteria and reduced the number of low-risk audits that would be randomly sampled. GAO found this initiative promising, but found that the DCAA has not fully developed the measures by which it will assess whether this initiative is reducing the backlog in a way that protects taxpayers’ interests. GAO recommended that DCAA develop a plan with time frames and measures to assess its progress toward achieving these objectives.

GAO found other obstacles, including limited data on the extent and nature of the contract closeout backlog and lack of information in the hands of DCMA that would allow it to identify contracts it could act on for closeout. Further, GAO found that DoD lacks performance metrics to measure the progress in closing out contracts. GAO also found that DCMA made little to no use of quick closeout procedures.

GAO recommended that DCMA work to ensure the data in its contract information system is complete for acting on closeouts. Further, GAO recommended that military departments develop baseline data and performance measures for closing out contracts, including appropriate consideration for the use of quick closeout procedures.

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