Contract Pricing:

DCAA's Audit Coverage Lowered by Lack of Subcontract Information

NSIAD-92-173: Published: May 29, 1992. Publicly Released: Jun 4, 1992.

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Louis J. Rodrigues
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Pursuant to a congressional request, GAO reviewed the extent to which the Defense Contract Audit Agency (DCAA) is aware of subcontracts subject to defective pricing audits.

GAO found that: (1) DCAA was unaware of 186, or 88 percent, of the 211 subcontracts in the GAO sample; (2) in a few cases, the responsible field office did not know of any of the subcontractor's contracts or even that the subcontractor was located in the office's jurisdiction; (3) the 186 unknown subcontracts, which totalled about $189 million, represented over half of the value of the subcontracts in the GAO sample; (4) the smaller the subcontract, the less likely that DCAA was aware of it; (5) DCAA had no knowledge of about 90 percent of the subcontracts that were less than $10 million, and no knowledge of one-third of the subcontracts that were $10 million or more; (6) the data that DCAA currently use to develop its subcontract inventory are incomplete; (7) when field offices become aware of subcontracts during their audits of prime contracts, they do not routinely pass this information to the field offices with responsibility for the subcontracts; (8) being unaware of so many subcontracts increases the government's vulnerability to subcontract defective pricing, because DCAA cannot ensure that its audit resources are applied to subcontracts having the greatest risk of defective pricing; and (9) lack of awareness of so many contracts also understates the number of audits and amount of staff resources necessary to reduce the risk of defective pricing.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DCAA introduced a proposal to modify the acquisition regulations to require DOD contractors to notify the government of all subcontracts subject to audit for defective pricing. The Defense Acquisition Regulation Council agreed and submitted its proposal for amending the regulations to the Deputy Under Secretary of Defense (Acquisition Reform). In July 1994, the Deputy Under Secretary concluded that the imposition of new reporting requirements was contrary to the basic tenet of the acquisition reform effort to streamline the acquisition process and did not concur in the implementation of the reporting requirement. This nonconcurrence precluded the DAR Council from further processing the rule for approval and, in August 1994, the case was closed without further action.

    Recommendation: The Secretary of Defense should examine the cost and benefits of changing the Defense Federal Acquisition Regulation Supplement to require prime contractors to notify the government of all subcontracts subject to the Truth in Negotiations Act.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DCAA directed field offices to identify subcontracts at the prime contractors audited, and share that information with responsible field offices.

    Recommendation: The Secretary of Defense should direct DCAA to require that when offices auditing prime contracts identify subcontract information, they share that information with the DCAA office responsible for auditing the subcontract.

    Agency Affected: Department of Defense


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