See figure 1 for the contract closeout process. Effective Management of Contract Closeout Varied Across the Selected Agencies

		Selected Agencies and Components Had Varying Levels of Contract Closeout Data and Some Established Related Goals and Performance Measures

The five agencies and selected components we reviewed varied widely in  ensuring that contracts were closed within the time frames prescribed by  federal acquisition regulations. DHS also had information on the number of contracts  eligible or overdue for closeout and had initiatives underway to reduce the number of low-risk, firm-fixed-priced contracts but did not have initiatives  for higher risk contracts, including those involving flexibly-priced  contracts. Our review found that DHS management made a commitment to address  contract closeout challenges, gained insight into the extent of its contract  closeout backlog, and has initiatives underway to address at least a  portion of its contract closeout backlog. Having such  information could help the agency in its oversight of contract closeout by  identifying and addressing the causes as to why contracts remain open. State acquisition officials stated that they are working to improve their  ability to track when newly awarded contracts become eligible for  closeout. These areas include: (1)  assessing actions for reducing the amount of time it takes for DCAA to  begin an incurred cost audit and establishing related performance  measures to assess its progress and (2) evaluating the use of multi-year  auditing and establishing related performance measures. DCAA did not, however, meet its original goal of having a 2-year  inventory of audit proposals—eliminating its backlog of proposals older  than 2 years—by fiscal year 2016 and acknowledged that meeting its  revised goal to do so by the end fiscal year 2018 will be challenging. DCAA has reduced its inventory primarily through the use of a risk-based  approach to conducting audits. DCAA Has Not Developed Certain Performance Measures for Its Incurred Cost Proposals

While DCAA has made progress in reducing its inventory of incurred cost  proposals awaiting audit, our work identified two areas in which DCAA  may be missing opportunities or lacking information to help identify  additional ways to reduce its inventory. DCAA’s data for fiscal year 2016 indicate that once a contractor submits  an adequate incurred cost proposal, it took DCAA on average 885 days— or nearly 2 and a half years—before DCAA completed the incurred cost  proposal audit. Having centralized information  on the number and type of contracts that need to be closed out and  where the contracts are in the closeout process could help management  address the causes as to why contracts remain open in order to reduce  the contract closeout backlog. In this regard, DCAA has  not assessed options and has not established performance measures for  reducing the length of time to begin audit work on incurred cost  proposals; the primary reason for the delay is due to the availability of  DCAA staff to begin the audit work. Recommendations for Executive Action

To enhance management attention to closing out contracts, we are  making the following seven recommendations, one to each of the five  agencies in our review and two to DCAA to manage its incurred cost  inventory. Additionally, DOD concurred with our recommendations that the Director,  DCAA, assess and implement options for reducing the length of time to  begin incurred cost audit work and to comprehensively assess the use  and effect of multi-year audits. Key contributors to this report are  listed in appendix V.

Appendix I: Comments from the Department of Defense

Appendix II: Comments from the Department of Homeland Security

Appendix III: Comments from the Department of State

Appendix IV: Defense Contract Audit Agency’s (DCAA) Average Inventory Calculation

Congress enacted a provision in the National Defense Authorization Act  (NDAA) for Fiscal Year 2016 which prohibited the Defense Contract Audit  Agency (DCAA) from conducting audits for non-defense agencies unless  the Secretary of Defense certified that DCAA’s backlog of incurred cost  audits was less than 18 months of incurred cost inventory.
Why GAO Did This Study

Closing contracts is a key step in the contracting process. GAO and others have previously reported that large numbers of contracts were not closed within time frames set by federal regulations, which can expose the government to financial risk. DCAA's backlog of audits of contractors' incurred cost proposals contribute to the delays in closing out flexibly-priced contracts.
GAO was asked to review the extent of the contract closeout backlog at federal agencies. In addition, a House Armed Services Committee report included a provision for GAO to assess DCAA's incurred cost audit backlog. This report addresses the extent to which (1) selected federal agencies effectively manage contract closeout, and (2) DCAA effectively manages its incurred cost audit backlog.
GAO selected five agencies based on the number of contracts awarded and dollars obligated in fiscal year 2015. GAO analyzed documents and interviewed acquisition officials to assess how contract closeout is managed. GAO also analyzed data on DCAA's incurred cost audit backlog.

What GAO Found

The effectiveness of management efforts to reduce the number of contracts overdue for closeout varied across five agencies GAO reviewed—the Departments of Defense, Health and Human Services, Homeland Security (DHS), Justice, and State. None of the agencies had critical elements agency-wide that would help track and oversee contract closeout processes—the number and type of contracts to be closed, where the contracts were in the process, and goals and performance measures. Having such information could help management address the causes as to why contracts remain open and reduce the contract closeout backlog.
Since 2011 the Defense Contract Audit Agency (DCAA) has reduced its inventory of contractors' incurred cost proposals awaiting audit by about half to 14,208, and DCAA has significantly reduced its backlog of older proposals—those for 2013 and prior—as of September 2016. To do so, DCAA used a risk-based approach to reduce the number of audits and began conducting multi-year audits, in which two or more incurred cost proposals are closed under a single audit. Nevertheless, DCAA did not meet its initial goal of eliminating its backlog by fiscal year 2016, and DCAA officials stated that they are unlikely to meet its revised goal by the end of fiscal year 2018. Further, GAO found that in fiscal year 2016, DCAA averaged 885 days from when a contractor submitted an adequate incurred cost proposal to when the audit was completed. The lag was due to limited availability of DCAA staff to begin audit work, as it took DCAA an average of 138 days to complete the actual audit work (see figure).
DCAA may be missing opportunities to help identify additional ways to reduce its inventory. For example, DCAA has not assessed options to reduce time to initiate audit work or comprehensively assessed how the use of multi-year audits could be improved and has not established related performance measures for both.

What GAO Recommends

GAO is making seven recommendations, including to each of the five agencies to develop means to track critical elements on contract closeout efforts and to DCAA to assess its efforts to reduce its backlog and establish related performance measures. Four agencies concurred, and DHS identified planned actions that could address the intent of the recommendation.