Summary

Pursuant to a congressional request, GAO evaluated the adequacy of controls for preventing fraud, waste, and mismanagement in Department of Defense (DOD) subcontracts and analyzed defective pricing audits performed by the Defense Contract Audit Agency (DCAA) to determine: (1) if subcontractors ensured fair and reasonable prices on noncompetitive procurements; (2) the frequency with which defective pricing occurred in subcontracts; and (3) the dollar impact of defective pricing.

GAO found that: (1) DCAA completed 2,066 subcontracts audits between October 1, 1986, and September 30, 1990 and identified 888 as defective; (2) DCAA reported that, on a per subcontract basis, defective pricing increased from about $870,000 in fiscal year (FY) 1987 to over $1.1 million in FY 1990; (3) DCAA found defective pricing in 43 percent of subcontracts audited, as compared to 41 percent of prime contracts audited; (4) branch offices detected 44 percent of the subcontracts with defective pricing, while field offices detected 40 percent of the subcontracts with defective pricing; and (5) smaller subcontracts had more defective pricing than did larger subcontracts.