Target Practice with the DCAA

Yesterday the Senate Homeland Security and Governmental Affairs Committee conducted a hearing on the embattled Defense Contract Audit Agency (DCAA). The hearing — following up on a hearing the committee held last year after a Government Accountability Office (GAO) report found that auditors lacked independence — was an example of the kind of "police patrolling" oversight Congress should be conducting on a regular basis. While POGO applauds the Senators for seeking to hold agencies accountable, the dynamic behind the scene paints a fascinating picture.

Chairman Joe Lieberman (I-CT) and Ranking Member Susan Collins (R-ME) both rebuked DCAA for making insufficient progress since their last hearing, based upon revelations from a report the GAO issued today which found that 65 out of 69 audits and cost-related assignments exhibited serious government accounting standard deficiencies or other deficiencies, and that in one instance, DCAA auditors had not sufficiently tested the billing system for one combat systems contractor because "the contractor would not appreciate it." Additionally, the Department of Defense Inspector General (DoD IG) testified that his office's review found that flawed audits may have allowed defense contractors to collect hundreds of millions of dollars in unallowable costs.

Both the GAO and the IG attributed the problems to DCAA being driven by the need to produce too many audits and almost being set up to fail in its mission to protect taxpayers. Talk about being set up to fail: it appears to us that the DCAA is trapped in a corner. The defense contractor community has been whining that the DCAA has been too aggressive — describing their "aggressive new audit policies" as "wreaking havoc on the government procurement world."

In reality the DCAA's findings are only recommendations, and are hardly wreaking havoc. Let's not forget when the DCAA recommended that the Army withhold $1 billion in payments from KBR on the LOGCAP contract because the charges were "not credible." Not only were their findings ignored, but the Army civilian who wanted to follow the DCAA's recommendations was fired for trying to enforce them.  When POGO asked the DCAA how often their recommendations to cut payments to contracts are sustained by the agency, we learned about 1/3 of the time their recommendations are ignored — amounting to about $6.5 billion in savings in FY2008 alone the DCAA was trying to save the taxpayer. Then the Wartime Contracting Commission held a hearing and issued a report this week, noting that in fact the DCAA is more aggressive in its oversight compared to the complacent Defense Contract Management Agency.

So what is a girl to do? On the one hand, you're seen as too aggressive by contractors, on the other hand, the GAO and Congress are beating you up for being too soft. And to add insult to injury, we learned an important fact from the DCAA Director's testimony that was largely missed during the hearing — that DCAA is only receiving enough resources to complete 65 percent of the audits they're required to complete. As we said in our statement, DCAA can only be successful in their mission if they have sufficient independence and resources — and if DoD isn't funding them adequately, it appears that DCAA has neither. As has been much noted, former auditor Senator Claire McCaskill (D-MO) was particularly outraged by the problems at DCAA, tweeting that "the top of my head is about to pop off" before she drilled the witnesses. After declaring the problems a "capital crime," she told the Director of DCAA that unless someone is demoted or loses their job for these offenses, no one should take this agency seriously again. As much as we love St. Claire, on this one, we fear the DCAA is being unfairly thrown under the bus. As long as they are housed under the Pentagon's Controller's office, they are institutionally hamstrung.

"The time for incremental changes at DCAA is over," Chairman Lieberman concluded at the close of the hearing. One idea for major reform proposed at the hearing was to establish an independent Federal Contract Audit Agency, headed by an Auditor General, in order to increase the independence of audits. The problems at DCAA are "only a microcosm" of problems across the federal government when it comes to providing sufficient resources and independence for auditors, said Senator Roland Burris (D-IL). POGO has certainly found this to be the case for General Services Administration and the Department of the Interior.

Based on these past investigations, POGO has been warming up to the idea that the right solution is to set up an independent and Congressionally appropriated government-wide contracting auditing agency, whose services are required to be used for agency contractor pre- and post- award audits. That may be the real reform necessary in order to restore auditor independence.

-- Mandy Smithberger and Danielle Brian

Comments

[Posted on: Sep 07, 2010 at 04:41 PM]

DCAA's problems are centered on the fact that almost all of their supervisor's and individuals running the organization are previous DCAA employees. Their only experience is with DCAA. To call a DCAA Auditor in an insult to the audit profession. The only concern is complying with a basely hourly budget. Examples of this can be found at the Newport News office. DCAA puts these financial liaisons in contracting organizations which the contracting officer concerning them useless. If they had to pay for the position they would send them back to DCAA. It is time for DCAA to go away, and assign this function to real auditors.

[Posted on: Nov 03, 2009 at 09:01 AM]

If the new director of DCAA is able to transform the current work environment at DCAA, the transformation will not include contributions from African Americans in senior level positions.

Mr. Fitzgerald in his previous post as the Auditor General of the U.S. Army Audit Agency refused to implement internal controls that provided enforcement of Civil Rights protections against chronic workplace discirmination occuring in the Army Audit Agency work environment.

Such controls are very much needed to provide access to equal employment opportunities. Prior to 2007 the Army Audit Agency maintained only 2 African Americans in senior level positions. That number has doubled to 4, but the Army Audit Agency has so far refused to implement the posting and reporting requirements of the No FEAR act of 2002.

Senior Leaders at Army Audit Agency exploit a work environment that has no internal controls to inhibit the occurence of chronic workplace discrimination. Senior Leaders provide a significant bias to white personnel when making employment decisions.

[Posted on: Sep 29, 2009 at 07:32 PM]

Mike, do you really believe? "Stephenson held her own" and "there was nothing she could have done." She could have taken action against the SES person in California by allowing them to maintain their title and pay but stripping them of their responsibility to make any decision or manage. It's very easy to do and does happen, just not in DCAA where problem management is allowed to flourish and mistakes will never ever be admitted or corrected. I'm sure if it were a GS-13, 12 or 7 stuff would have happened. Stephenson is now a laughing stock of inept Government management, who may well stay another 20 years like the empty suit she replaced.

[Posted on: Sep 28, 2009 at 09:30 AM]

How many layers of people watching the contractor do the work do morons need before you're happy? Is 2 enough? Is it 6, 8, 15? DCMA, DCAA, they are useless. They bring the occassional lawsuit to justify their existance. Big damn deal. How much money have they saved me? Absolutely nothing. The cost of contracts has done nothing but spiral upward during the entire existance of this government bureacracy.

Here's an idea, why don't we stop paying contractors more to screw us over than we do for them to provide a decent product on time and on budget? Wouldn't that be a novel approach? If we put the cost incentives on the side of providing a good product, maybe we wouldn't need 50 layers of watch dogs watching watch dogs to keep us safe from waste, fraud, and abuse? Of course, you'll never get one of those watch dogs to propose that solution, for obvious reasons, right?

[Posted on: Sep 24, 2009 at 08:07 PM]

Target practice hits the nail on the head. POGO, thank you for responsible reporting. We really appreciate you getting through the smoke and uncovering the truth. I feel bad for DCAA. Contractors really got their way on Wednesday. Stephenson held her own, but there was nothing she could have done. It was a sad day given how hard Stephenson works and the dedication to her people while holding the contractors accountable. She is far more aggressive than Reed would have been. Obviously she is doing something right if the contractors had to go to such an extent as having Collins, Lieberman and Coburn do their dirty work. It was an embarassing hearing. I agree with Dan. Taking Stephenson to task for no change when the assignments were more than 3-5 years old. Sad indeed.

[Posted on: Sep 24, 2009 at 12:00 PM]

The point is not whether DCAA is "independent" or "too aggressive" in its audit approach. The point is that DCAA needs to put out high-quality audits, in which conclusions are supported by evidence and facts. If they were to do that, very few would complain.

While we can debate root causes, currently DCAA gets it wrong more often than it gets it right. DCMA contracting officers have a tendency to "ignore" DCAA audit report recommendations because the reports are of poor quality and because the contractors provide them with well-crafted, high-quality rebuttals along with credible evidence showing how DCAA's findings were based on a faulty understanding of the facts.

Hiring more untrained DCAA auditors fresh out of college to audit complex, multi-year contracts isn't the answer either. We need well-trained, seasoned, skeptical auditors empowered by their management to use discretion and judgment to unearth the facts, and to write audit reports based on those facts--and not based on direction from a Headquarters that is thousands of miles and multiple layers of management removed from the work being done.

[Posted on: Sep 24, 2009 at 11:54 AM]

My experience with DCAA on the LOGCAP program, before I was removed, was quite positive. The main problem, which we all experienced, was a lack of resources during the the dramatic expansion of LOGCAP in 2003 and 2004. DCAA auditors worked very hard to review KBR proposals and cost accounting, both in theatre and at company headquarters. They did not have sufficient personnel to perform such standard accounting tests as comparing labor charges to work accomplished on work orders. They were also frustrated by KBR's lack of good data and poor business systems. Despite these issues, DCAA provided audits which identified significant problems with KBR proposals and with the way KBR was conducting business.

A greater problem was the Army decision to marginalize DCAA as a participant in the LOGCAP contract administration process. Examples are:

1. Ignoring the DCAA recommendation to withhold 15% of invoice amounts prior to definitization, as you note above. When this decision was made KBR lost all incentive to fix their business system problems.

2. Replacing DCAA as the financial analyst for negotiation support. The Army hired RCI (now SERCO) to provide the results the Army wanted. DCAA was too independent in this instance.

3. Ignoring DCAA input to Award Fee Boards. Ms. Stephenson's testimony before the Commission on Wartime Contracting makes it clear that DCAA's independent evaluation had to be ignored to give KBR high award fees.

4. Continuing to push DCAA out of the financial analysis role on LOGCAP IV. It is my understanding that the first LOGCAP IV award, for support in Kuwait, now has a major contractor claim for more money. DCAA was not used to evaluate their proposal nor was DCAA used on the awards in Afghanistan, even though the Army promised the Commission they would do so.

If the Army is free to ignore DCAA when they provide independent analysis which does not fit with the results they want, it is safe to assume they would do the same to a Government wide agency.

Based upon the performance I observed, I have no problem with DCAA under the DoD Comptroller. Only if DoD is committed to the principle of independent and thorough auditing and the mandatory use of these audits for contract administration by the Army and all other DoD agencies will we see improvement. Naturally DCAA must be provided the resources to perform this function.

Charles M. Smith, CPCM

[Posted on: Sep 24, 2009 at 11:20 AM]

"....no one should take this agency seriously again." Really? How about this: no one should take these political hacks seriously when they embarrass themselves by pretending to be outraged over the latest GAO report on audits that WERE PERFORMED BEFORE THE HEARINGS LAST SUMMER! In response to the August 2008 GAO findings and the subsequent Senate hearing, DCAA has spent the last year implementing unprecedented changes in organization and policy to try and address these deficiencies. It would be nice to actually learn whether or not these changes have been effective. Instead, the Senators are using this latest report to demonstrate that DCAA is not doing enough to clean house. Hello? How do they know these changes are ineffective by looking at audits that were performed BEFORE the changes were implemented? It never ceases to amaze me how politicians can so blatantly insult the intelligence of the general public and get away with it. A truly sad commentary. Basically, this was an insult to the hard-working rank and file who have worked during the last year to implement corrective actions and address the problems created by now-retired DCAA execs. Talk about disillusioned. Morale is now at an all-time low.

[Posted on: Sep 24, 2009 at 10:24 AM]

"POGO has been warming up to the idea that the right solution is to set up an independent and Congressionally appropriated government-wide contracting auditing agency"

Warming? Didn't POGO (when it was PMP) recommend an FCAA in the 1988 briefing paper for the upcoming administration?