Pentagon Cuts Back Contract Audits, Opens Door for Contractor Overpayments

Under the guise of eliminating overlap, the Pentagon last month sharply reduced oversight of defense contracts, according to memos obtained by the Project On Government Oversight (POGO).

The changes, which give some of the duties of the Defense Contract Audit Agency (DCAA) to the less aggressive Defense Contract Management Agency (DCMA), were outlined in a January memo signed by Shay Assad, the director of Defense Procurement and Acquisition Policy. DCAA staff were informed of the changes in a Jan. 31 memo from DCAA Director Patrick Fitzgerald.

“Reducing the role of contract auditing in the procurement process is a huge mistake and will only make it easier for contractors to get away with overcharging the taxpayer,” said Nick Schwellenbach, POGO’s director of investigations. “With these changes, the Pentagon has sided with contractors.”

Among the cutbacks in DCAA’s role, according to Assad’s memo:

• DCAA will no longer perform Financial Capability Reviews and Audits
• DCAA will no longer perform regularly scheduled Purchasing System Audits

The Commission on Wartime Contracting examined the different conclusions DCAA and DCMA have reached when looking at the same contractor purchasing systems. According to the Commission’s September 2009 report:

DCAA and DCMA reviewed the same KBR purchase orders and subcontracts issued against the Army logistics civil augmentation program (LOGCAP III) contract from the period January 1 through December 31, 2007, and identified the same deficiencies, but came to different conclusions on the adequacy of KBR’s purchasing system. Despite the DCAA inadequacy recommendation, DCMA approved the system. Consistent assessment and reliability of contractors’ purchasing systems are especially important because subcontractors provide more than 70 percent of the LOGCAP III services in theater.

“Contractors have noticed—and openly discussed—the disagreements and inconsistent approaches between DCAA and DCMA,” the Commission report added. “This creates an environment in which contractors can exploit the agencies’ mixed messages and game the system to their advantage.”

For further reasons the changes are a step backwards for fiscal accountability, please see POGO’s blog: The Diminishing Role of DCAA in the Pentagon Means Increased Risk to Taxpayers, February 10, 2011.

To read the memos, click here.