The agency that makes sure the U.S. Defense Department and other agencies are not overcharged by contractors is overwhelmed.
The volume of contractor work that has been paid for by federal departments but that still awaits auditing by the Defense Contract Audit Agency has nearly quadrupled - from $110 billion in 2006 to $405 billion in 2010. But in the same period, the Defense Contract Audit Agency's staffing grew by only 20 percent.
The $405 billion represents approximately 20,000 contracts, most of which were awarded by the Defense Department in support of military operations in Iraq and Afghanistan, said Kenneth Saccoccia, DCAA's assistant director of policy and plans. Of that, about a third - 6,500 contracts valued at an estimated $220 billion - have been awaiting auditing for more than a year.
"And intentionally, we have deferred it because of the resources," Saccoccia said in an interview. "We've dedicated those resources to higher-priority work, like forward-pricing work," which reviews contracts before they are finalized to help contracting officers negotiate a price.
The result of the backlog is that an estimated billions of dollars worth of savings are not being identified and returned to the Defense Department, experts say.
Also, such delays make it more difficult for auditors to prove overcharging that occurred years ago, because people involved with those transactions have moved on to other jobs or they remember less about the circumstances surrounding particular transactions.
Michael Thibault, who has been investigating DCAA's work as co-chair of the Commission on Wartime Contracting, said the agency needs a bigger audit staff, but that solution will take time.
Thibault blames the agency's inadequate staffing levels on poor planning by the Defense Department. Over the last several years, DoD contracting increased to support the wars in Iraq and Afghanistan, and yet DCAA staffing levels remained about the same, he said.
"They should have been increasing the oversight needed for contracts … and they just didn't," Thibault said. "They missed it."
DCAA has added about 500 auditors to its work force over the last couple of years. Director Patrick Fitzgerald said in an interview last year that he plans to add 1,000 more by 2015. But Saccoccia said the current budget standstill makes staffing plans difficult to predict.
In the meantime, Thibault, who worked at DCAA for more than 30 years, including a 10-year stint as its deputy director, said he supports other solutions Fitzgerald has outlined, including changing the risk thresholds that require forward-pricing audits and simplifying the business systems that auditors use.
Still, as auditors work through the buildup from 2006 through 2008, 2009 and 2010 audits are piling up, Thibault said.
Since some problems that auditors find occur more than once, that means issues that could have been identified in 2006 and prevented in the following years may have happened repeatedly, he said.
Thibault and others, like Nick Schwellenbach with the Project on Government Oversight, are especially concerned about the amount of money being left on the table as these contracts go unaudited.
Historically, DCAA identifies between 1 percent and 2 percent in savings from incurred cost audits, Thibault said.
That means $4 billion could be recovered right now if DCAA were to complete backlogged audits. And the longer it takes to audit a contract, the greater the chances that records get lost and employees change jobs, Thibault said.
Saccoccia said timeliness is always a concern at DCAA. But he said they hope contracting rules allow DCAA to obtain sufficient evidence from the contractor to perform quality audits and give contracting officers necessary information for negotiations to close contracts.
DCAA also has turned down some audit requests from non-Defense agencies that pay for its services, forcing those departments to seek audit help from private firms, and causing some to revive suggestions for another audit agency within the federal government to serve non-DoD agencies.
Saccoccia said audits of incurred contract costs can be put on the back burner because they can be picked up more easily at a later time than forward-pricing audits, which can hold up a contract award.
"The audit effort on those high-risk proposals is crucial to ensure the fair and reasonable price is established by the contracting officer," he said.
At a Senate contract oversight committee hearing this month, Schwellenbach spoke in favor of creating another audit agency.
He said the contract auditing done by DCAA is highly specialized and often cannot be replicated by inspectors general or outside auditors. And with more contracts coming out of non-Defense agencies, DCAA's problems could get worse, he said.
Schwellenbach pointed to recent criticisms of DCAA's past auditing practices as the cause of the backlog, saying auditors now take much longer to perform their duties for fear of mistakes.
"Some of that makes sense given the problems, but some think the pendulum has swung too far the other way," he said. "Essentially, taxpayers are going to be the big losers."
Despite the slowdown, Saccoccia said the percentage of costs DCAA questioned more than doubled in 2010 when compared with the average between 2001 and 2008, resulting in a savings of almost $3 billion.
"Really, we focus on the high-risk areas," he said. "Right now, I would say wartime contracting is our highest risk. So this year, we're dedicating resources in that area for looking at those incurred costs."
DCAA plans to get auditors to spend one-third more time on incurred cost audits then they did in 2010, Saccoccia said.
"That's our initial plan," he said. "That always can change, based on higher-risk forward-pricing effort that comes in."
