Report | Nov. 13, 2012

Actions to Align Defense Contract Management Agency and Defense Contract Audit Agency Functions


What We Did

We evaluated actions taken by Department of Defense (DoD) officials to align the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA) functions by increasing the dollar thresholds a contractor proposal must meet before a contracting officer can request a DCAA audit. We evaluated the factors DoD officials considered in making the decision as well as controls established to ensure the change in dollar thresholds adequately protects the interests of the Department and taxpayer.

What We Found

The Office of Defense Procurement and Acquisition Policy (DPAP) did not perform a
business case analysis to support the decision to revise Defense Federal Acquisition Regulation Supplement (DFARS) Procedures Guidance and Instructions (PGI) 215.404-2(c). The decision will cost the Department and taxpayers $249.1 million per year in lost potential return on investment from DCAA contract audits. Had DPAP evaluated rates of return across the DCAA audit portfolio, DPAP could have achieved the same results by redirecting DCAA resources from low-risk audits and services to higher risk areas of the portfolio. We found that DCAA had not implemented a risk-based audit planning process as recommended by the Defense Business Board. We found that DCMA is not prepared to perform contract cost analysis in place of a DCAA audit and that DCMA cannot reliably report performance. We found that DPAP did not demonstrate that DCMA has a probable chance to replicate the $249.1 million in potential return on investment identified by DCAA. We found that DPAP did not demonstrate why they chose to direct Department and taxpayer resources to DCMA to perform a job DCMA was not prepared to perform when DCAA had existing infrastructure in place to get the job the done.

What We Recommend

We recommend:

1) DCAA implement a riskbased audit planning process based upon
achieving higher rates of return to the taxpayer and other high risk factors (Finding A).

2) DPAP re-instate the pre- September 17, 2010 thresholds for requesting DCAA audit as soon as practical until such time as a business case analysis can support a policy change. (Finding A).

3) Defense Pricing reassess the decision to revise DoD procurement and acquisition policy and validate that the decision sufficiently considers the potential return to DoD and the taxpayers resulting for DCAA audits and other factors (Finding A).

4) Defense Contract Management Agency proceed with scheduled corrective actions regarding case file documentation (Finding B) and information system reliability
(Finding C).

Management Comments and Our Response

DCAA concurred in principle to one recommendation. DPAP and DP provided a
joint response and partially concurred to two recommendations. DCMA concurred to all four recommendations. We request that DCAA reconsider their response to Finding A and Recommendation A.1. We request that DPAP and DP reconsider their responses to Finding A and Recommendations A.2 and A.3. We request additional comments by
December 13, 2012.