Pentagon Auditors Advised to Better Monitor Contractor Business Systems

The Defense Department’s management and auditing sub-agencies need to clarify their roles and improve the timeliness of their examinations of contractor accounting, estimating and purchasing systems, a watchdog found.

“DoD currently lacks a mechanism based on relevant and reliable information, such as the number of [contractor business system] reviews that are outstanding, the risk level assigned to those systems, and the resources available to conduct such reviews,” the Government Accountability Office wrote in a report released on Friday.

Citing directives from Congress over the past decade, GAO reviewed data from the Defense Contract Management Agency and the Defense Contract Audit Agency and found that the DCAA, for example, conducted few business system audits in the past six years, due, in part, to the need for it to reduce its backlog on completing incurred cost audits.

That agency has developed plans for contractor business systems audits over the next three years, intending to catch up by 2022. Executing the plan “is dependent on several factors, including the ability to shift resources from conducting incurred cost audits to business systems audits, the use of public accounting firms to perform a portion of the incurred cost audits, and the ability of DCAA auditors to use new audit plans and complete the required audits in a timely manner,” said the report based on interviews with Pentagon staff auditors and data from fiscal 2015-2017.

The Defense Contract Management Agency relies on the offices that perform the reviews of the three systems to maintain the information on the reviews, “but DCMA headquarters does not centrally track its reviews or whether audits conducted by DCAA are being completed within the timeframes described in policy,” it said.

The congressional agency credited the two Pentagon agencies with progress in clarifying their roles and improving the review of contractor business systems. But “DCMA does not monitor progress of either its functional offices or of DCAA against the policies that the six systems each be reviewed generally every three years,” the report said. “DCMA is in the best position to lead the effort to develop” a mechanism for monitoring progress and improving timeliness—in collaboration with DCAA.

GAO recommended that the DCMA director, in collaboration with the DCAA director, “develop a mechanism to monitor and assess whether contractor business systems reviews are being completed in a timely manner.” The agencies agreed.