Contract Management:

DOD Vulnerabilities to Contracting Fraud, Waste, and Abuse

GAO-06-838R: Published: Jul 7, 2006. Publicly Released: Jul 7, 2006.

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David E. Cooper
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In recent years, the Department of Defense (DOD) has increasingly relied on goods and services provided by the private sector under contract. Since fiscal year 2000, DOD's contracting for goods and services has nearly doubled, and this trend is expected to continue. In fiscal year 2005 alone, DOD obligated nearly $270 billion on contracts for goods and services. Given the magnitude of the dollar amounts involved, it is essential that DOD acquisitions be handled in an efficient, effective, and accountable manner. In other words, DOD needs to ensure that it buys the right things, the right way. Enacted January 6, 2006, the National Defense Authorization Act for Fiscal Year 2006 required us to review DOD's efforts to identify and assess the vulnerability of its contracts to fraud, waste, and abuse. We reviewed the areas of vulnerability that DOD faces with regard to contracting fraud, waste, and abuse, and the recent initiatives that DOD has taken to address these vulnerabilities, including actions DOD has taken in response to a March 2005 Defense Science Board report on management oversight in acquisition organizations.

DOD faces vulnerabilities to contracting fraud, waste, and abuse due to weaknesses in five key areas: sustained senior leadership, capable acquisition workforce, adequate pricing, appropriate contracting approaches and techniques, and sufficient contract surveillance. Because of numerous concerns about control weaknesses in these areas and others, GAO has had contract management on its list of high-risk areas since 1992. DOD's recent reports and studies, plus our discussions with senior DOD acquisition officials, point to specific weaknesses in these five areas. One of the senior leadership issues pertains to the tone at the top, which includes leadership's commitment or lack of commitment to sound acquisition practices. DOD has emphasized making contract awards quickly; sometimes, however, the focus on speed has come at the expense of sound contracting techniques. Increased demands on the acquisition workforce have led to vulnerabilities in contract pricing and competition and in the selection of the most appropriate contracting techniques. Some practices have led to insufficient contract surveillance, and such surveillance is essential for ensuring that contractors provide quality goods and services as required by their contracts. For each instance in which an area of vulnerability affects a contract award or execution, DOD risks paying contractors more than the value of the goods and services they provide. DOD has taken several steps to address the above contracting vulnerabilities. In particular, DOD initiated a Defense Science Board review in November 2004, after a high-level Air Force official pled guilty to a conflict-of-interest and admitted giving favorable treatment to a large DOD contractor in negotiations and contract awards involving billions of dollars. In March 2005, the Defense Science Board concluded that nothing in the department's existing general acquisition structure or policies would prevent contracting malfeasance such as that carried out by the senior Air Force official from happening again. The board also made 20 recommendations to address its concerns. In response, the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (AT&L) has begun several initiatives, including issuing numerous memorandums to acquisition personnel reemphasizing their roles and responsibilities related to ethical conduct and revitalizing ethics training. AT&L also asked each military service in November 2004 to assess its own acquisition functions. In March 2006, AT&L completed its analysis of the military services' self-assessments and proposed six recommendations to address weaknesses in the oversight, source selection, and contract award processes to improve the integrity of DOD acquisition decisions. The military services and DOD have taken other steps to address fraud, waste, and abuse. Two of the military services established the Procurement Fraud Working Group, a DOD-wide grassroots forum for acquisition personnel to discuss ways to better address vulnerabilities to contracting fraud. The working group recently developed a Web-based community of practice to allow the immediate dissemination of information. Since September 2004, DOD has issued several policy memorandums to improve the oversight of the department's use of interagency contracts and time and materials contracts. In addition, the military services have each undertaken specific initiatives, which range from creating new offices to focus audit and investigative efforts on areas of vulnerability to promoting general awareness about fraud through training and newsletters. Because the recent initiatives are still in their early stages, it is too soon to determine what impact they may have on reducing vulnerabilities to contracting fraud, waste, and abuse.

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