The Department of Defense Office of Inspector General, or DOD OIG, has issued a report that evaluated the compliance of non-federal auditors with government auditing standards when they conducted audits of DOD contractors’ incurred costs.

What Are the OIG Report’s Findings? 

DOD OIG said Thursday it evaluated 16 incurred cost audits between October 2018 and September 2022 and found noncompliance with government auditing standards for 69 percent of such audits.

The office identified 34 instances of noncompliance among the 11 audits, including failure to obtain sufficient evidence to support their reported compliance for eight audits and inability to use a sufficient sample methodology to back conclusions for four audits.

For 11 audits, OIG found that non-federal auditors did not inquire about audit-related legal or investigative proceedings with DOD contractor management.

“Government Auditing Standards are crucial because they ensure the integrity, accountability, and transparency of Government operations,” said DOD Inspector General Robert Storch. 

“By adhering to rigorous guidelines, auditors can identify inefficiencies, detect fraud, and recommend improvements, thereby enhancing the economy, efficiency, and effectiveness of Government programs. The significant concerns identified by the OIG in this evaluation go to the core of the DoD’s responsibility to serve as a careful steward of a large volume of taxpayer funds,” added Storch.

OIG Recommendations

The report recommends that the director of the Defense Contract Audit Agency, or DCAA, determine if the eight reports where the auditors did not obtain sufficient evidence should be revised or rescinded.

The inspector general’s office also recommends that the DCAA director, in coordination with the head of the Defense Logistics Agency, assess and make any revisions to performance work statements of all future contracts with auditors to ensure that DCAA contracting officer’s representatives have sufficient responsibility and authority to assess non-federal auditor work for compliance with standards.

According to the report, the DCAA chief should work with the DLA director in requiring auditors to address compliance with the standards in their quality control plans.

The Defense Advanced Research Projects Agency is calling for research proposals for its Anticipatory and Adaptive Anti-Money Laundering, or A3ML, program, which seeks to improve the ability of U.S. authorities to eliminate global money laundering.

Need for Algorithmic Capabilities

DARPA said Thursday that the goal of the A3ML program is the development of algorithms that can rapidly sift through graphs of financial transactions, detect suspicious patterns and learn new ones. The algorithms would also have to be able to match those data patterns with patterns of illicit financial behavior.

Ensuring Privacy

These new algorithmic capabilities would work to replace current analytical processes, which are manual, reactive and expensive. The capabilities would also have to be able to function without sharing sensitive financial data.

Commenting on the issue, A3ML Program Manager David Rushing Dewhurst said, “Money laundering finances our adversaries’ weapons programs, global terrorism, and the illicit drug trade, all of which threaten U.S. national security. The way we address these threats today is largely through manual data collection and analysis methods that threaten privacy. We are looking for new technological ideas that preserve privacy while setting a course to end to our adversaries’ financial warfare.”

Proposers Day

DARPA will sponsor a proposers day for the A3ML program on Feb. 20. Interested parties have until Feb. 10 to register.