The Justice Department's Office of Inspector General has found that the Drug Enforcement Administration paid more than $2.9 million in unreasonable and potentially unallowable costs to an 8(a) contractor staffing its Diversion Control Program, according to an audit released by DOJ OIG covering task orders issued to Ocean Bay Information and Systems Management, LLC.
Background
DEA's Diversion Control Program tracks and investigates the diversion of legally manufactured controlled substances and listed chemicals into illegal markets. The program is funded through the Diversion Control Fee Account, a self-sustaining fund built from registration fees paid by manufacturers, distributors, dispensers such as pharmacies and physicians, and importers and exporters of controlled substances.
To staff the program, DEA turned to the Small Business Administration's 8(a) Business Development Program, awarding Ocean Bay an indefinite-delivery/indefinite-quantity contract (Contract No. 15DDHQ22D00000001) with a $156 million ceiling. Ocean Bay, working with subcontractor Bennett Aerospace, supplied more than 150 contract workers across 15 labor categories to DEA offices in the continental United States and Puerto Rico. OIG's audit examined four task orders under that ID/IQ, totaling $20 million as of December 2022, and reviewed costs billed between June 2022 and February 2023.
Because the Diversion Control Fee Account is self-sustaining rather than appropriated, the costs OIG questioned are borne by registrants' fees rather than general taxpayer funds — but the account still exists to fund a specific regulatory mission, and unreasonable or unallowable spending against it draws the same scrutiny OIG applies to appropriated dollars.
This is not DEA's first brush with contractor-oversight findings on its books. The audit report says many of its concerns reflect DEA's departure from corrective actions taken after three prior OIG reviews: a 2018 audit of DEA's Asset Forfeiture Program financial-investigative task orders, a 2020 DOJ-wide management advisory on contract administration and oversight, and a 2021 audit of DEA's Laboratory Information Management System support contracts. Counting the Ocean Bay findings, that is at least four separate OIG reviews since 2018 flagging similar contractor-oversight lapses at DEA, suggesting a pattern in how the agency administers service contracts rather than a one-off breakdown tied to a single contract vehicle.
Key Details
Auditors traced the $2.9 million in questioned costs largely to DEA's acceptance of contract workers who did not meet the position qualifications specified in the task orders. The contract required Ocean Bay and Bennett Aerospace to obtain a waiver from DEA contracting officials before placing any worker who fell short of stated qualifications on the job. OIG found DEA did not consistently enforce that requirement, allowing underqualified personnel onto task orders without the required sign-off.
The audit also flagged DEA's role in contractor hiring. Under the ID/IQ, Ocean Bay held sole responsibility for screening and hiring its own staff. OIG found DEA personnel instead conducted "meet-and-greets" that effectively let government staff dictate who Ocean Bay hired. DEA's own Contracting Officer's Representative manual identifies this kind of government-directed hiring as a hallmark of an improper personal-services arrangement — a red flag because personal-services contracts require special statutory authority DEA did not have here.
OIG raised a related concern about the nature of the work itself. The report cites instances where contract personnel — including a Data Analyst IV and a Subject Matter Expert II — were placed in a custodial role over surrendered drugs at prescription drug take-back events, activities auditors say could be construed as inherently governmental or personal-services work rather than the support functions the contract was designed to cover.
The audit further found that neither DEA nor Ocean Bay monitored compliance with SBA 8(a) rules requiring the prime contractor to perform at least half the work itself, leaving the government without visibility into whether the prime-subcontractor labor split threatened Ocean Bay's small-business program eligibility. Separately, OIG determined DEA applied labor-law wage exemptions to 14 of the 15 labor categories without consulting Department of Labor wage experts, and used an outdated wage determination for one category, resulting in three contract workers being underpaid.
OIG traced much of the breakdown to staffing: the DEA contracting office responsible for administering these task orders was 83 percent understaffed, a gap auditors linked directly to the deficient post-award oversight documented throughout the report. That staffing shortfall runs through nearly every finding in the audit — from unenforced qualification waivers to unmonitored subcontracting splits — because a contracting office stretched that thin has little capacity to review contractor invoices, verify labor-category compliance, or catch government staff overstepping into hiring decisions before those practices become routine. The watchdog issued 11 recommendations to DEA, and both DEA's and Ocean Bay/Bennett Aerospace's written responses are included in the report's appendices.
What It Means for Contractors
The findings are a reminder that 8(a) prime contractors carry hiring and screening authority that agencies cannot informally override, even when government program offices feel closer to day-to-day staffing decisions than the prime. Contractors staffing task orders with qualification waivers built into the contract should document every waiver request and confirm contracting-officer sign-off in writing before an underqualified worker starts — the paper trail is what separates a defensible staffing decision from a questioned cost.
Primes teamed with subcontractors on 8(a) set-asides should independently track the required 50-percent self-performance threshold rather than assuming the agency is monitoring it; OIG's report shows the government side of that check can fail entirely. Contractors should also scrutinize task descriptions before agreeing to place staff in roles that touch custody of controlled substances or other government property — work that strays into inherently governmental territory can expose both the contractor and the agency to compliance findings, and can complicate future competition for follow-on work.
The wage-determination lapses are a caution for any contractor relying on an agency's labor-category exemption analysis. Prime and subcontractor payroll teams should independently verify Service Contract Act applicability and current wage determinations for each labor category rather than deferring entirely to the contracting officer's classification, since the contractor — not just the agency — bears exposure if workers are later found underpaid.
Finally, DEA's documented 83-percent staffing gap in its contracting office is a data point contractors doing business with the agency should weigh when planning task-order administration. Understaffed contracting offices mean slower modifications, delayed waiver approvals, and thinner oversight — all of which shift more of the compliance burden onto the contractor's own internal controls. Companies pursuing DEA Diversion Control Program work, or similar 8(a) staffing vehicles at other Justice Department components, should expect closer scrutiny of qualification documentation and prime-sub labor splits following this report.
