Backlog of Unaudited Pentagon Contract Costs Could Reach $1 Trillion

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May 23, 2012

It's been almost four years since the Government Accountability Office (GAO) issued a scathing report on the Defense Contract Audit Agency (DCAA)--a key contract oversight agency at the Pentagon--and it's time to ask ourselves whether taxpayers are better off as a result of the "improvements" implemented by DCAA.

If performing audits and saving taxpayer dollars is a measure of success, then the answer is a resounding no. As an article by government contract law professor Richard C. Loeb in the latest issue of Government Contract Costs, Pricing & Accounting Report outlines, DCAA has had a reduction of over 400 percent in audits completed in fiscal year 2011 since 2008—a reduction of nearly 23,000 reports per year. The reduction in audits represents almost $330 billion in contract costs going unaudited in FY 2011 alone—and that doesn't count the growing backlog from prior years.

Meanwhile, staffing levels at DCAA have actually increased since 2008.

According to Loeb, this output is unacceptable:

During the peak of the 1990s “acquisition reform” movement, some contractors and others sought to diminish, if not altogether eliminate, DCAA audits. Contractors no longer need to lobby for these reductions in audit oversight. DCAA has now done it to itself. It is unfathomable how anyone would think that potentially building a backlog of audits of over $1 trillion is acceptable. It is unfathomable how anyone would think that a reduction of over 20,000 audits performed per year during the last three years is acceptable. Spending valuable taxpayer dollars documenting audit results far in excess of [generally accepted government auditing standards] GAGAS requirements should be unacceptable to everyone.

We have to agree—drastic action is needed to cure DCAA’s ills. At the current rate of DCAA'S auditing efforts, the backlog of contract cost audits will soon exceed $1 trillion dollars—an amount that is incomprehensible and will take years to complete, if ever. Based on a reading of DCAA's recent report to Congress, there is no specific action plan to get DCAA back to performing audits. We urge the Secretary of Defense to immediately assess the state of DCAA and develop a comprehensive and timely action plan for corrective action.

As the article concludes:

With the billions of taxpayer dollars that are awarded annually in government contracts, there is a need for a DCAA that conducts both qualitatively and quantitatively outstanding audits. The current DCAA approach satisfies neither consideration. It is time for DCAA to more appropriately balance these factors, rather than merely making sure that all “the appropriate boxes are checked.” It’s time for DCAA to concentrate on its core mission, and conduct contract audits.

Topics: Contract Oversight

Related Content: Auditing (DCAA/FCAA)

Authors: Bryan Rahija

Project On Government Oversight (POGO)

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