On July 29, 2015, the Office of the Inspector General for the Department of Defense (OIG DoD) published on its website new “Contract Audit Fraud Scenario and Indicators for Material Pricing Deficiencies in a Postaward Audit.”   While this tool – and several others posted on the Defense IG’s website – is designed to be used primarily by Defense Contract Audit Agency (DCAA) auditors to identify possible fraud, it also provides valuable insight for government contractors subject to DCAA audits.

By knowing the indicators of fraud that government auditors are looking for, contractors can be better prepared for further inquiry and investigation if the facts and circumstances of their postaward audit raise these types of “red flags.” Further, many of the fraud scenarios and indicators that DoD IG identifies are of a general nature and could be found in any type of audit.

In a postaward audit to determine if materials were defectively priced, the government’s auditors are alert to circumstances that might indicate fraud, thus requiring them to make a referral to a criminal investigator. The result could be further investigation that exposes the company to criminal, civil and/or administrative liability. The IG identifies 11 fraud indicators that DCAA auditors should be on the lookout for in defective pricing audits.

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