Federal Government Cost Oversight Expected to Increase

The US government is intensifying its scrutiny over federal contractors, driven by the Department of Government Efficiency (DOGE) and legislative efforts to eliminate waste, fraud, and abuse. This heightened oversight, spurred by public demand for fiscal accountability and recent high-profile inefficiencies, is reshaping the contractor landscape. For contractors, understanding these changes and adapting proactively is critical to thrive in this environment. This blog post explores reasons behind the increased audits, their implications, and actionable steps contractors can take to stay compliant and competitive.

Why?

The prevailing policy among the congressional majority is to streamline federal spending, eliminate inefficiencies, and ensure that active contracts align with the administration’s policy agenda. DOGE’s mission is to identify and eliminate wasteful expenditures, and Congress’s mission includes implementing DOGE’s budget reduction recommendations.

According to an April 2024 Government Accountability Office report, the federal government loses from $233 billion to $521 billion annually to fraud.[1] This amount provides “incentive” to the Defense Contract Audit Agency (DCAA) and other agency auditors to identify waste, fraud, or abuse. DCAA measures the results of its audits on “the return on taxpayer’s investment” and in FY24 noted a $7.20 return for each dollar DCAA expended on audits. [2]

How Does This Impact Contractors?

The intensified oversight environment carries significant implications. Contractors will face increased scrutiny, higher compliance costs, escalated risk of suspension or disbarment, and ultimately potential damage to business reputation.

Government auditors are leveraging data analytics to conduct continuous audits and verify contractor compliance. Each invoice, cost allocation, and performance metric is subject to review. Contractors will need to continuously invest in robust internal controls, documentation support, and procedures and procurement regulatory expertise.

Failure to comply could lead to financial penalties or, worse, exclusion from award of future contracts. Findings of noncompliance, fraud, or waste will erode government trust and impact a contractor’s ability to secure future government work.

However, this environment also presents opportunities. Contractors that demonstrate transparency and efficiency can differentiate themselves and gain a competitive edge in a market where trust is paramount.

How Can Contractors Prepare?

1. Strengthen internal controls. Robust internal controls are the foundation of audit readiness. Contractors should ensure accurate accumulation and billing of direct costs, effectively manage billings and forecasted indirect rates, and ensure that staff understand differences between allowable and unallowable costs.
2. Conduct regular self-audits. Contractors should identify and address discrepancies before external audits; use ongoing compliance testing to verify adherence to Federal Acquisition Regulation (FAR) standards; and perform mini-business system audits or contract-specific cost audits.
3. Educate employees. Contractors should ensure that employees understand FAR requirements with ethical conduct and fraud reporting and disclosure; and that accounting and finance staff are knowledgeable regarding the FAR 31 cost principles.
4. Enhance documentation. Comprehensive documentation is critical for audit success. Contractors should maintain detailed records and document contract-related activities, including cost allocations, labor hours, and performance deliverables. The government may not audit today but has up to six years to review costs billed. Identifying official record and retention periods will be key to supporting costs years after incurred.
5. Build cooperative relationship with government. Contractors should address audit inquiries quickly and transparently to demonstrate good faith; self-disclose overpayments; and engage with contracting officers or the Office of Inspector General to understand audit expectations and resolve ambiguities.

Conclusion

Increased auditing of US government contractors, driven by DOGE and legislative efforts, reflects a broader commitment to eliminating waste, fraud, and abuse. While this presents challenges, it also offers contractors an opportunity to demonstrate integrity and efficiency. By strengthening internal controls, enhancing documentation, engaging proactively with auditors, strengthening your accounting system, and staying informed, contractors can not only survive but thrive in this new era. The stakes are high, but with the right strategies, contractors can turn scrutiny into a competitive advantage, ensuring long-term success in the government marketplace.

Stay connected to BRG and our Government Contracts experts to assist your company through audits and strengthen internal controls.

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[1] Government Accountability Office, Fraud Risk Management: 2018-2022 Data Show Federal Government Loses an Estimated $233 Billion to $521 Billion Annually to Fraud, Based on Various Risk Environments (April 16, 2024).

[2] DCAA, Report to Congress on FY 2024 Activities, Defense Contract Audit Agency, U.S. Department of Defense (March 31, 2025).

BRG’s Government Contracts Advisory Services (GCAS) group is a leading provider of consulting services to government contractors in the defense, construction, engineering, healthcare/health insurance, higher education, nonprofit, manufacturing, technology, hospitality and retail industries.

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