Government Acquisition of Goods and Services with auditors?

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Question: 

I work for the federal government as an auditor of costs proposed/incurred by government contractors, for goods and services for which there is no competitive market, and cannot be priced by the normal forces of supply and demand. We are supposed to help make sure the costs for the goods and services received are not unreasonable, or for purposes not allowed by the contract. My question is: What impact, if any, would it have on the economy if there weren't people in my position, and contractors could more easily charge the government unreasonable and unallowable costs for the goods and services provided?

Answer: 

I am not sure I agree with the premise that the government buys a lot of goods and services which are otherwise not traded in a competitive market. (I suppose military expenses come under that description, to some extent.). If we assume that goods that the government buys are otherwise also sold in competitive markets, and if auditors were not present, then the government  could pay a contractor $x for a good only if the contractor could prove that the same good was being sold on the market at a price no lower than $x. Of course, even for enforcing such contracts, some amount of auditing would be needed. In short, if auditors like yourself were absent, the government (and hence the taxpayer) could easily lose billions in overpayments to contractors. Those billions would then be unavailable for important government expenses and may even lead to tax increases.

Last updated on February 3, 2017