Report | May 29, 2013

Hotline Allegation Regarding the Failure to Take Action on Material Management and Accounting System (MMAS) Audit Findings

DODIG-2013-082

Results in Brief:

Hotline Allegation Regarding the Failure to Take Action on Material Management and Accounting System Audit Findings 

Objective

We conducted this review to determine the validity of a DoD Hotline complaint alleging that the contracting officer at a Supervisor of Shipbuilding, Conversion and Repair (SUPSHIP) facility failed to take action on audit findings reported by the Defense Contract Audit Agency (DCAA) involving a DoD contractor’s Material Management and Accounting System (MMAS). The complaint also alleged that DCAA management at a field audit office did not take appropriate action to protect the Government’s interests.

Findings

We substantiated the allegation that the SUPSHIP contracting officer did not take action on significant MMAS deficiencies reported in multiple DCAA audit reports since 1996. As a result, the Government likely paid millions of dollars in excess material inventory carrying costs and other charges, which are not recoverable. In 2008, DCAA estimated that the Government incurred $27.7 million annually in excess inventory carrying costs on one of the deficiencies involving the failure to appropriately time-phase material costs, as Standard 2 requires. We did not substantiate the second allegation that DCAA field office management failed to take appropriate actions to protect the Government’s interests.

Recommendations

We recommend that the Commander, Naval Sea Systems Command, take appropriate administrative action, including personal accountability, for the failure of SUPSHIP to take action on the reported MMAS deficiencies. In consultation with DCAA, we also recommend that SUPSHIP promptly evaluate the adequacy of the contractor’s plan for correcting the deficiencies.

Comments and Response

Management agreed with the recommendations and took several actions in response to a draft of this report. SUPSHIP implemented a $5.9 million withholding of payments to protect the Government’s interests until the contractor fully corrects the reported deficiencies. The withholding is still in place. However, regarding the Standard 2 deficiency, SUPSHIP did not require corrective action because SUPHIP maintains that the costs of correcting the deficiency would exceed the related benefits. SUPSHIP failed to provide adequate rationale in support of its actions on the Standard 2 deficiency. Accordingly, we request additional comments for Recommendations 2.a, 2.b, 2.c, 2.d, and 2.e by July 1, 2013.