Unclear if DoD contracts deemed high-risk really are

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To close out more contracts, the Defense Contract Audit Agency has lately focused on high-risk contracts, but it has yet to assess whether the way it determines risk actually works, the Government Accountability Office says.

The DCAA had a backlog of 25,000 contract audits as of the end of fiscal 2011, representing hundreds of billions of dollars in unsettled costs. Some of the audits date back as far as 1996, the GAO says in a report (.pdf) released Dec. 18.

The audits determine whether all the costs incurred as part of the contract were allowable and reasonable. But it's important to finish the audits and close out the contracts in a timely manner so the DoD can recover improper payments, avoid owing interest to contractors it doesn't pay on time, and use unspent money before it must be returned to the Treasury.

If a contract takes years to close, contractor employees with firsthand knowledge of a contract may have moved on to other work or employers.

To get its backlog under control, the DCAA began in 2012 to narrow its focus to high-risk contracts. It realized that for some inexpensive contracts, it spent more to audit them than it could gain from scrutinizing their costs, the GAO says.

As part of its 2012 initiative, the DCAA raised the threshold above which it requires an audit from $15 million to $250 million. That alone reduced the number of backlogged contracts that would automatically trigger an audit from 5,194 to 659, the GAO says.

That change and other criteria may unburden the DCAA of having to audit low-risk contracts, but the agency has yet to figure out how to determine if those criteria do in fact isolate higher-risk contracts.

The agency told GAO auditors that it plans to assess the initiative in about a year, but it didn't say how it would do so, the report says.

The DCAA's goal is to have eliminated its backlog by 2016, in part by increasing its staff from 4,900 to 5,600 employees by that year. It's too early to tell whether it will meet that goal, the GAO says, largely because it's unclear how many contracts will qualify as high risk. Out of a set of 20,000 contracts that the DCAA already assessed for risk, more than twice as many qualified as high risk than the agency anticipated, the report notes.

For more:
- download the report, GAO-13-131 (.pdf)

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