As pointed out this afternoon by the Project on Government Oversight's (POGO) Scott Amey, the Commission on Wartime Contracting in Iraq and Afghanistan released a special report yesterday summarizing their review of inadequate contractor business systems. The report follows up on work the commission did over the summer when it held a hearing on contractors' deficient internal control systems. Based on testimony and evidence from the hearing, the special report lays out five recommendations for the Department of Defense (DOD) to improve oversight of and encourage better business systems from contractors.

As Scott points out, defects in contractors' estimating, billing, purchasing, labor, and compensation systems cost taxpayers billions of dollars annually in unsupported, unallowable, and unreasonable charges to the government. To fight this fraud, the commission recommends:

• DOD ensure that government speaks with one voice to contractors – Signs emerged during the summer's hearing that two of DOD's contract management agencies, the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA), often contradict each other and send mixed messages to contractors
  
• DOD improve government accountability by rapidly resolving agency conflicts on business systems – The commission uncovered separate government reporting lines of authority for management agencies that often complicate issue resolution.
  
• DCAA expand its audit reports to go beyond rendering a pass/fail option – This was a major issue during the hearing, as commission members felt that DCAA audit reports were not informative enough to help contracting officers make effective decisions.
  
• DCMA develop an effective process that includes aggressive compliance enforcement – Criticized by the commission during the hearing for not motivating contractors to improve business systems, DCMA needs to move on contractors aggressively.
  
• DCAA and DCMA request additional resources and prioritize contingency-contractor oversight workload – With personnel once numbering in the hundreds, DCMA's staff now numbers in the teens and the oversized problems that contingency contracting present require prioritization of resources.

Contractors must improve their business systems in order to provide accurate data to government auditors so that those auditors may accurately gauge contract performance. Unfortunately, the commission cannot propose direct solutions to this problem, but possibly these five recommendations, if implemented, will indirectly bring about more responsible reporting by contractors.

Image by Flickr user Barrybar used under a Creative Commons license.