Contract Pricing

DOD's Audit Follow-up System Is Inaccurate and Incomplete Gao ID: NSIAD-92-138 May 28, 1992

Still plagued by billions of dollars in contract overpricing despite laws and regulations to prevent it, the Pentagon needs to crack down harder on companies with a history of significant defective pricing or chronic cost-estimating problems. During fiscal years 1987-91, the Defense Contract Audit Agency (DCAA) discovered defective pricing totaling more than $3.6 billion, much of which was linked to subcontracts. Small-dollar contracts involve a particularly high risk of defective pricing. For example, the amount of defective pricing found in audits of subcontracts of $100 million or more averaged 2.9 percent of the subcontract value. In contrast, defective pricing in contracts of less than $10 million averaged 11.2 percent of the subcontract value. While levels of defective pricing continued an upward trend during fiscal years 1987-91, peaking in 1990 at more than $896 million, the frequency with which DCAA spotted defective pricing steadily declined. Defective pricing tends to be concentrated among a relatively small number of contractors--about six percent of these companies accounted for 80 percent of the defective pricing over the five-year period. Refer to our related reports: GAO/NSIAD-92-131, GAO/NSIAD-92-173, GAO/NSIAD-92-183, GAO/NSIAD-92-187.

GAO found that: (1) the DOD audit follow-up system data were inaccurate or incomplete for 35 of the 49, or 71 percent, of the high-risk contractors; (2) the follow-up system was missing reports on 13 contractors, understated the length of time cost-estimating deficiencies remained uncorrected for another 17 contractors, and incorrectly showed that 5 contractors had corrected deficiencies; (3) some reports are not included in the follow-up system because of administrative contracting officers' decisions about whether an audit report should be in the follow-up system or the contractor has adequately responded to audit recommendations; (4) the age of outstanding deficiencies is understated because audit follow-up system procedures require current reports to supercede earlier reports, even though the earlier deficiencies have not been corrected; and (5) DOD has proposed changes to improve the accuracy and completeness of audit system follow-up data and has recently taken action to ensure that the audit follow-up system contains information on when DCAA initially reported cost-estimating system deficiencies.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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