Audit | The Contracting Education Academy

August 27, 2019 By cs

10 areas for no-nonsense contractor auditing

An audit is a systematic, independent, and documented process for obtaining objective evidence and evaluating it to determine the extent to which program criteria (policies, procedures or requirements) have been fulfilled.

There are three types of audits.

First-party audit, performed within an organization to measure its strengths, weaknesses and conformity with established standards. This also is called an internal audit. Internal audits satisfy internal requirements and audit results remain in-house.

Second-party audit, an external audit performed on a supplier by a customer or by a contracted organization on behalf of a customer. In second-party audits (for our purposes) Department of Defense (DoD) program managers (PMs) measure and evaluate the DoD contractor’s ability to conform to contract requirements and specifications.

Third-party audit is performed by an audit organization independent of both the contractor and DoD and is free of all conflicts of interest. Third-party audits (e.g., by an International Standards Organization [ISO] Registrar) may result in certification, registration or award certificate issued by the third party.

This article discusses second-party audits; specifically, wherein DoD PMs audit their contractors’ ability to execute the contract. I strongly recommend that PMs incorporate second-party audits into DoD contacts, regardless of contract size, scope or final deliverable.

Like the organizations or contracts that they address, the audits themselves must have objectives, scope and criteria. Anything less is a waste of time.

**Figure 1. Second-Party Audit of DoD Contracts by DoD Program Managers**

Figure 1 summarily describes a comprehensive program of second-party audits. Note especially the inclusion of “operators and warfighters.” This inclusion alone distinguishes effective second-party auditing from routine program management. Participation by experienced, credible operators/end-users helps to ensure that programs do not stray from the goals of the contract or the purpose of the end products.

Keep reading this article at: https://www.dau.mil/library/defense-atl/blog/Second-Party-Audit-

July 25, 2019 By AMK

Audit: Pentagon acquisition reform requires more leadership attention

The Defense Department has made progress implementing acquisition reforms in recent years, but leadership needs to pay more attention for meaningful change to take place, according to an audit released this week by the Government Accountability Office.

The audit was completed at the request of the House and Senate Armed Services committees, which sought to determine whether and how the Pentagon was handling numerous acquisition reforms included in the 2017 and 2018 National Defense Authorization Acts.

The answers are a mixed bag, according to GAO auditors.

On one hand, military departments have taken on a larger share of the decision-making authority for major multibillion-dollar, multiyear defense acquisitions since 2016. That year, the Office of the Secretary of Defense oversaw 30 major defense acquisition programs, compared to 58 overseen by military departments. As of March, OSD only oversaw nine major defense acquisition programs, while military departments oversaw 80.

OSD oversees only those programs that are high-risk, joint or had significant cost or schedule growth, like the F-35 Joint Strike Fighter program or the Army’s Integrated Air and Missile Defense program.

Keep reading article at: https://www.nextgov.com/policy/2019/06/audit-pentagon-acquisition-reform-requires-more-leadership-attention/157548/

July 4, 2019 By AMK

Shoddy contracting practices lead to overbilling at EPA

The Environmental Protection Agency is overpaying contractors due to poor contract management controls, according to an audit released Monday by the agency’s office of inspector general.

The audit—conducted from March 2018 to February 2019—examined 11 of 64 total invoices made through a single task order on a $100 million IT contract awarded in 2011 to SRA International following a response to an anonymous hotline complaint about invoices and payments. According to the audit’s “limited review,” all 11 invoices EPA IG tested within the task order “did not comply with contract requirements,” leading to an overbilling of more than $5,100 paid to the contractor.

“Our limited review noted $5,158.29 for an unallowable fixed fee billed and paid by the EPA,” the audit states. “However, without adequate review of all invoices submitted under [the task order], the EPA does not know whether there are further unallowable costs that it has paid for under the task order.”

The IG cites various reasons issues occurred, including staffing problems, high turnover, poor contract file management disorganization and inadequate oversight.

Keep reading article at: https://www.nextgov.com/it-modernization/2019/05/shoddy-contracting-practices-lead-overbilling-epa/157143/

June 19, 2019 By AMK

GSA out of compliance on improper payments, watchdog finds

Financial controls designed to minimize agency payments to undeserving parties are not being fully followed by the government’s landlord, the General Services Administration, according to a watchdog report released on Friday.

GSA in fiscal 2018 failed to comply with two of six requirements in the amended Improper Payments Act, said the agency’s inspector general. Specifically, the agency “did not publish an accurate improper payment estimate in its Fiscal Year 2018 Agency Financial Report and … [did not] publish accurate and complete improper payments data in its Fiscal Year 2018 Agency Financial Report,” said the report by the team under IG Carol Fortine Ochoa. “GSA’s risk assessment process is flawed and its procedures for the Do Not Pay initiative contain significant deficiencies and are ineffective.”

Federal law requires agencies with programs susceptible to significant improper payments to estimate and report on them annually to the Office of Management and Budget, in addition to implementing corrective actions. But if a program’s estimated and reported improper payments are below the statutory thresholds for a minimum of two consecutive years, the agency may request relief from the annual reporting requirements.

The IG reviewed GSA’s improper payments in rental of space and purchase cards in fiscal 2017 and 2018, having found $109 million in total improper payments in 2017, and then $16.7 million in 2018 in the rental of space program only. The new report’s review covered August 2018 through February 2019.

Keep reading article at: https://www.govexec.com/management/2019/06/gsa-out-compliance-improper-payments-watchdog-finds/157447

June 5, 2019 By AMK

A Pentagon contractor’s 9,400% profit on a half-inch metal pin is challenged

As the Pentagon weighs whether to recommend legislation to require more disclosure by contractors, the House Committee on Oversight and Reform will review the audit and TransDigm’s pricing policies in a hearing on Wednesday.

The inspector general’s report “exposes how a company entrusted with supporting our military men and women took advantage of American taxpayers by overcharging the government more than $16 million” in parts sales sold between 2015 and 2017, Oversight Chairman Elijah Cummings said in a statement. The hearing will “investigate whether these pricing issues are more widespread, and demand answers,” he said.

From 2013 through 2015, according to the audit, the contractor increased the price of a valve that opens and closes to change the pressure of fuel moving through an engine to $9,801 from $543. In those years, TransDigm also charged $1,443 each for a “non-vehicular clutch disk” that cost $32 to make.

Planes, Copters

The Pentagon’s inspector general first raised pricing concerns over TransDigm in a 2006 report, followed by the one this year that was released in redacted form in February.

TransDigm manufactures spare parts for airplanes and helicopters including the AH-64 Apache, C-17 Globemaster III, F-16 Fighting Falcon and the CH-47 Chinook. From April 2012 through January 2017, DOD issued 4,942 contracts valued at $471 million to TransDigm.

Liza Sabol, a spokeswoman for the Cleveland-based company, said in an email “that we are not providing comments on specific questions related to the IG report.”

Keep reading article at: http://amp.timeinc.net/fortune/2019/05/14/transdigm-pentagon-costs