Executive Summary

Background	NASA uses the services of other Federal agencies to perform audits of contractors, educational institutions, and nonprofit organizations receiving NASA grants and contract awards. In fiscal years (FY's) 1997 and 1998, NASA spent $32 million ($16.5 and $15.6 million, respectively) on contract audit services provided by the Defense Contract Audit Agency (DCAA). Of the $32 million, NASA paid $6 million for audit services performed for NASA contracts at the Marshall Space Flight Center (Marshall). To improve the effectiveness and efficiency of Government operations, the Office of Management Budget (OMB) Circular A-50(6) requires all agencies, including NASA, to establish audit follow-up systems "to assure the prompt and proper resolution(7) and implementation of audit recommendations." Resolution should occur within a maximum of 6 months after issuance of a final report, and corrective action should proceed as rapidly as possible. The Circular also requires that the follow-up systems provide for a complete record of action taken on both monetary and nonmonetary findings and recommendations. Furthermore, the Circular establishes 11 standards that follow-up systems must meet, including assuring that "performance appraisals of appropriate officials reflect effectiveness in resolving and implementing audit recommendations." As part of its oversight duties, the NASA Headquarters Office of Procurement conducts surveys at NASA installations that address, in part, contract audit follow-up of reportable contract audit (RCA)(8) reports.
Objective	The overall audit objective was to evaluate the adequacy of NASA's contract audit follow-up system at Marshall. Additional details on the objective, scope, and methodology are in Appendix A.
Results of Audit	NASA policies and procedures for resolution and disposition of contract audit findings and recommendations comply with the OMB Circular A-50 requirements. However, the contract audit follow-up system at Marshall can be improved. The system did not include complete records of action taken on findings and recommendations for 16 of 19 sampled DCAA audit reports(9) for which the resolution and disposition authority had been delegated to the Department of Defense (DoD).(10) As a result, Marshall could not ensure that audit findings and recommendations were resolved in a timely manner and that the resolutions were in NASA's best interest (Finding A). Marshall contracting officers also did not track 1 RCA report that identified $549,000 in questioned costs and did not resolve or disposition(11) 10 of 11 RCA report findings and recommendations within the 6 months after report issuance pursuant to OMB Circular A-50. Consequently, audit findings were not resolved in a timely fashion and NASA funds that should have been disallowed, withheld, or reduced could not be reallocated to other NASA programs (Finding B).
Recommendations	We recommend that NASA management reemphasize Agency and Federal requirements to ensure that NASA contracting officers maintain a dialogue with DoD administrative contracting officers who have been delegated activities on NASA contracts and resolve contract audit report recommendations within 6 months of issuance of the report. Also, NASA management should provide the definition of RCA reports to Marshall contracting officers and establish performance standards that address Marshall contracting officers' effectiveness in resolving and implementing audit recommendations.
Management's Response	Management concurred with three recommendations and concurred with the intent of the recommendation concerning the establishment of performance standards for Marshall contracting officers to provide effective contract audit follow-up. The complete text of the response is in Appendix F.
Evaluation of Management's Response	Management's planned actions are responsive to all the recommendations.

6. OMB Circular A-50, "Audit Followup," September 29, 1982, replaces and rescinds Circular No. A-50, "Executive branch action on General Accounting Office reports," revised, dated January 15, 1979, and incorporates certain provisions previously set forth in Circular A-73, "Audit of Federal operations and programs," revised, dated November 27, 1979.

7. Resolution is the point at which the audit organization and agency management or contracting officials agree on action to be taken on reported findings and recommendations; or in the event of disagreement, resolution is the point at which the audit follow-up official determines the matter to be resolved.

8. A detailed definition of a reportable contract audit report is in Appendix B. The Defense Contract Audit Agency provides NASA a monthly list of audits that are identified as reportable contract audits because NASA has the authority to resolve and disposition the audit findings and recommendations. Disposition is achieved when the contracting officer renders a decision as to the treatment of the audit recommendation and has executed a contractual document with the contractor.

9. Of the three remaining reports, one cost accounting standards noncompliance report will be issued in the near future, and the findings in the two other reports did not meet reportable criteria.

10. When contractors have both DoD and NASA contracts, NASA may delegate to the DoD contract administration functions, including resolution and disposition authority on DCAA audit findings and recommendations.

11. Contract audit report disposition is achieved when the contracting officer renders a decision as to the treatment of the audit recommendation and has executed a contractual document with the contractor.