Pentagon Legislative Proposals to Strengthen Contractor Oversight Shot Down Internally

By NICK SCHWELLENBACH

Did the Pentagon ignore proposals by the Defense Contract Audit Agency (DCAA) to increase oversight of federal contractors and save taxpayer dollars? POGO has obtained documents outlining legislative proposals submitted by the DCAA to Pentagon leadership back in September 2009—but the Department of Defense (DoD) did not submit these proposals for inclusion in either the fiscal year 2011 or fiscal year 2012 defense authorization bills (see update below). The proposals would have strengthened DCAA's power to subpoena contractor records and would have limited the amount that government contractors could bill the government for their employees' salaries.

In September 2009, then-DCAA Director April Stephenson submitted the two proposals to the DoD General Counsel and Shay Assad, a senior DoD acquisition official. However, Assad did not support the DCAA proposals, POGO has been told. Stephenson had proposed that the language be included in the fiscal year 2011 defense authorization bill.

The two proposals to change the law were: (1) “to expand DCAA's access to contractor records required to accomplish our mission as a remedy to a prior court imposed limitation”; and (2) “to expand the application of the limitation on allowable compensation from the top five executives to all contractor employees.”

“Because the courts have limited DCAA's access to contractor records under the existing laws, the proposed amendments are needed to provide DCAA with the access required to obtain sufficient evidence to comply with the applicable auditing standards,” according to the subpoena proposal that was drafted. The Associated Press reported in 2008 that DCAA has not used its subpoena power in over 20 years. The Senate and the Government Accountability Office (GAO) have repeatedly criticized the DCAA for failing to adhere to auditing standards.

Some quick history on the contractor employee compensation issue, according to the compensation proposal:

In the mid-nineties, there was increasing concern in Congress regarding seemingly excessive individual compensation charged to contracts. As a result, for FY 1995 and FY 1996, Congress limited the allowability of individual compensation [of all employees] on covered contracts. For 1997 through 2009, Congress revised the application of the compensation ceiling so that it applied only to certain contractor personnel generally identified as the top five most highly compensated individuals in senior management positions at each home office and each segment of a contractor. We believe that the current law which limits the compensation of only the five most highly compensated employees in management positions places the Government at an unacceptable risk of reimbursing contractors for excessive compensation costs.

The intent of the compensation cap is to reduce the risk of excessive individual compensation charged to Government contracts. Our audits have shown that there are lower level executives not subject to the cap and non-executive employees who receive compensation in excess of the benchmark compensation amount. In addition, if a contractor is not organized into multiple segments only the top five executives are covered by the benchmark compensation amount whereas similarly sized contractors with multiple segments will have additional employees subject to the cap.

POGO supported stronger subpoena power for DCAA in testimony before a Senate subcommittee this February and has supported expanded limits on how much contractors can charge the government for employee compensation in testimony before the House in 2008 and in a letter to the Office of Management and Budget last year.

The GAO is studying the issue of expanding DCAA’s subpoena power at the request of the Senate Armed Services Committee. Currently, there are no legislative proposals to expand DCAA’s subpoena power.

Provisions to expand the limitation on what contractors can charge the government for employee compensation currently exists in House and Senate versions of the FY 2012 defense authorization bill. However, these provisions have been pushed by the American Federation of Government Employees and by POGO, rather than by DoD.

Update: Government Executive reports that the DoD did support an expansion of contractor employee pay caps this year:

A Pentagon spokeswoman told Government Executive the proposal to expand the coverage of the cap on executive compensation eligible for reimbursement under Pentagon contracts was sponsored this year by the Office of the Defense Undersecretary for Acquisition, Technology and Logistics. "It went through the department's approval process and was submitted to Congress," she said. "It has been included in both the House and Senate versions of the National Defense Authorization Act for fiscal 2012."

Nick Schwellenbach is POGO’s Director of Investigations.

Comments

[Sunny Corleone]

Whoa, Dave. What a pantload!

[John]

Fred, the best defense of you can come up with when your lies are exposed is “Those savings you quote are most likely not accurate”? That’s laughable, just like the rest of your defense which amounts to nothing more than goading Sunny to react to your insults rather than address the issue at hand. You (Jackson and especially Truman) are abusive. When you make highly negative unfounded statements that are disrespectful, no one really wants to pay attention to you. You all sound just like the bully you accuse DCAA management and the CIGIE team of being. If you want to make a real impact, then channel that negative energy into something truthful and intelligent that people will pay attention to. There is a big difference between providing meaningful feedback which focuses on the issues fairly versus counterproductive criticism that relies on gross exaggerations, unfounded generalizations, and personal affronts that get under people’s skin. I’m sure you have something insightful to add, if you could just engage yourself in the blog like rational persons. If you did that, you’d have some credibility when you do have something justifiable regarding DCAA to complain about.

[Mike]

Franklin, you are so far off it is unbelieveable. Leaking the memo does nothing for April and she would have not been involved. If you wonder why it was leaked, you need to understand that it is budget season and the appropriation and authorization bills are in the process of being drafted for FY 2012/2013. The timing is right for Congressional change. If April wanted the memo "leaked," she would have done it in 2009 when she was reassigned not 2 years later. You are one of those individuals that just bashes April for the sake of bashing. Give it up. She had nothing to do with it. If you did not agree with her approach and policies, say so, but keep it professional and do not resort to name calling. You make DCAA employees look like a group of idiots.

[Franklin]

Why was the memo leaked and who leaked it? My guess is an April apologist if not April herself, so eager to re-write history. April may have wanted more access to records but April's bed was made in her last appearance before the HSD Senate hearing, where after one year to take corrective action to get problem management away from the people they abused, she came up empty. For such a supposedly smart woman, she was exposed as a naked swimmer when the tide goes out. One year to do anything and this lady did nothing except protect the entrenched cancer. Not to worry April, Mr. Fitzgerald has no control of the ship either. He has way more in the people department than you ever did but he is just counting time.

[Sue]

Dave, your comments do not make sense. Either you agree that DCAA should be given greater access to contractor records and that the exec comp cap should apply to all employees or not. This is not about Stephenson vs. Fitzgerald. It is about POGO supporting DCAA having greater access to contractor records and saving taxpayers dollars on contract exec comp. That is it. Do you agree with the memo? If not, then you should leave DCAA. Your "gangster" talk is a discredit to the fine employees of DCAA.

[Dave Truman]

This "news" story is really just the Stephenson gangsters dropping a dime on the Fitzgerard gangsters and it does nothing but muddy the water of real reform and take the focus off of accountability. POGO has messed this story up from way before the GAO came in. Lazy reporting makes the public settle for Washington/Virginia bureaucrats, or rather white-collar criminals, to explain to them how defense procurement should work. POGO is just part of the problem of the whole DCAA house fire, now, providing a forum for gangster talk.

As for you gangsters and white collar criminals responsible for billions in wasted procurements over your careers in and around DCAA - Fair Play, Sunny, Henry, Tom, Mike, etc., there is nothing more profane I can say than your greedy, cowardly, remorseless, unethical careers have not already said and done to the public's trust and treasury. The full story will be told how you gangsters soldout the public for over 20 years and continue to do so with this misinformation you feed lazy reporters. DCAA could return the taxpayers 20 to 1 or more and still maintain a strong defense. The banality of evil - unassuming 9 to 5 ers mask your gangster ways. Sooner or later you will be brought to justice - fired and imprisoned, sleep well!!!

[Fred]

Sunny, I have no problem with expanding DCAA's access to records. I think this is a positive. Why do you believe any negative comments about DCAA are so bad? Is it because you know it's all true and you don't want the truth to be aired? Could it be that you are so blind that you are unable to see it? Perhaps you have some non value added mamangement job? Just as the original issues in California were said to be "Isolated Incidents", which they were not. Now no one can complain about the current intertia in DCAA? Those savings you quote are most likely not accurate. What good is DCAA is it never gets around to auditing many proposals because we spend so much time making nice Work Papers on the ones we do audit? If you cannot see how bogged down DCAA is in "Process" and fear then your eyes are closed.

[Dfens]

We don't need more people to watch the watch dogs that watch the watch dogs that watch the watch dogs. The system of procurement we have is failing. What part of that do you people not understand? When you pay for process you get process. When you pay for results, you get results. We pay for process and then whine about not getting results. Hiring more people will not make that turd any shinier.

[Tom]

There was a comment to the GovExec article that peaked my interest and wondered whether POGO would follow-up with DoD. The comment stated that had Shay Assad supported greater access to contractor records for DCAA, he could revise the DFARS to provide the greater access by revising the defination of accounting records. If this is true, then the statute on subpoena's would not need to be revised. The issue from the Newport News case was what constituted an accounting record. If the comment is true and Assad could resolve the issue by revising the DFARS, why didn't he do it? Any comments from the readers? Gives the appearance that the Pentagon does not want DCAA stregthened. Perhaps they would rather have a weak DCAA than to deal with numerous contractor lobbyists complaining about DCAA audit findings. The Pentagon's motive regarding DCAA's role is really questioned. Nick, keep working the issue with the Pentagon and Congress.

[Henry]

Sunny, could not have said it better. Enough of the negative blogs. DCAA needs to band together and state that we need access to whatever contractor records we feel necessary to complete the audits under GAGAS. CPA firms get the information they need, why is DCAA treated any differently. For anyone reading the POGO posting, please support DCAA in its qwest to perform the best audits possible as we will return savings to the taxpayers. If contractors have nothing to hide, why not provide DCAA the necessary records. Here's a hint - they have something to hide and contractors know that the greater access DCAA is provided, the greater the reductions of contract costs. Bottom line, DCAA findings erode contractor profits and when profits are at stake, contractors will be very shaddy and not provide the necessary records to DCAA. They hide behind the Newport News case each time. We need your help!

[Sunny]

Fred, Truman and Jackason, what’s up with the negativity? The only things you have to say here are false about the state of DCAA and just show that you are not interested in the purpose of the POGO article. All you want to do is use any opportunity where DCAA is shown in a legitimately positive light to spew your venom. YOU have no interest in recognizing the constructive contributions DCAA makes in saving taxpayer dollars and providing much needed oversight despite the Agency’s struggle to overcome the blackeye the IG and GAO gave us in August 2008. You can go to the DCAA public website and find the following: “In FY 2010, DCAA audited $34 billion of costs incurred on contracts and reviewed 5,689 forward pricing proposals amounting to $185 billion. Approximately $2.9 billion in net savings were reported as a result of audit findings. When compared to the $530 million expended for the Agency's operations, the return on taxpayers' investment in DCAA was approximately $5.10 for each dollar invested.” So, why not expand DCAA's access to contractor records? What better way is there to show that our tax dollars were well spent than by gaining access to ALL the records needed to prove it? And why not to expand the application of the limitation on allowable compensation from the top five executives to all contractor employees? It only makes sense.

[Fred]

Fair Play must be a high ranking management person who feels compelled to defend the broken DCAA. Yes, in fact all we do is make nice work papers to a level of detail that someone suffering from OCD would find obcessive. Where are the great findings? DCAA is not concerned with saving the Governement money they are only interested in passing some internal quality review and the people on the quality review teams, are looking only to advance their careers. DCAA is the definition of insanity and a complete waste of taxpayers money. Don't worry though, DCMA has learned how useless DCAA is and they are at least trying to do the work themselves.

[Fair Play]

POGO, you're on the right track with this. It does not matter whether the idea came from a former DCAA director or an auditor, if it's a good idea. Unfortuntely, some think anything reflecting common sense or the taxpayer's interest could not possibly come from a DCAA management type. Don't believe it. DCAA has many good managers and field level auditors with bright ideas. We also have a few who think it's OK to use foul language and conspiracy theory to scuttle what is right-minded, just because they don't like the source. Maybe now you have a better appreciation for what most of DCAA has to put up with from a few mean-spirited, but vocal characters. We're also not spending all our time making nice workpapers while contractors get everything they propose. Most of us are working hard and getting solid findings.

[Kenny]

POGO, one thing you did not mention is that the September 2009 memo was not Stephenson's first attempt at either issue, exec comp or subpoena. DCAA had to obtain DoD Comptroller and AT&L approval for legislative proposals and in the past, neither support increased subpoena power for DCAA or expanding the application of the exec comp cap. The truly bold move by Stephenson is that she went directly to the DoD GC's office and bypassed the Comptroller and AT&L. Had she not bypassed both, exec comp never would have been pursued by AT&L. It was only after the memo was leaked to SASC staffers that AT&L decided to pursue a change to exec comp. Assad only acted on the exec comp because he had no choice.

[Stan]

DoD will not support DCAA. It never has and it never will. The revolving door and all the riches that follow are just too great of a temptation. Just ask Bill Lynn. He knows the value of keeping contractors happy.

[Sue]

Dave, what is your problem. All POGO did was post the memo and comment that nothing was done to support DCAA management. POGO did not comment about current DCAA management or any of the issues you mention. Lighten-up and take it for what it is worth. Stephenson tried to do what was in the best interest of DCAA and DoD did not support her proposal. Why do you have an issue with Stephenson's memo? Good job to POGO for reporting the issue. May be now it will get some attention. Dave, if you truely believe in DCAA, stop the negative comments when negative comments are not warranted.

[Karen]

DoD will never support overturning the Newport News case. Stephenson's request was more about redefining "accounting records" than the actual subpoena authority. I would really like to know why Shay Assad did not support the stregthened subponea authority. If he says he can get the data from contractors, ask him to prove how many times he obtained data for DCAA (NEVER!). I am unaware that Shay Assad ever obtained data from contractors for DCAA. By the way, where is Fitzgerald in all of this, did he follow-up with DoD? Did he submit a similar request in 2010 and 2011?

[Ken]

One of the issues that lead to Stephenson to issuing the request in 2009 was the contractor dependent health care cost issue. The issue involved contractors reimbursing employees for health care costs for dependents that did not qualify as dependents under the contractor medical plans and as a result, the government should not have been charged for the health care costs. One of the top 5 contractors came forward and the issue was about $20 million per year, but they refused to refund the money to the government. Stephenson required all large contractors to assess the issue and it was discovered that many contractors had hundreds (and a few, thousands) of employees that had been reimbursed for medical costs for dependents that did not qualify as dependents. The contractors all agreed to the issue and all agreed to change the monitoring processes, but refused to provide DCAA any information and refused to refund the money to the government. They all banded together and stated that the issue was immaterial, but refused to provide DCAA any data to prove it was immaterial. Stephenson tried to obtain assitance from the DoD Comptroller and he pushed her off to Shay Assad. Assad promised to pursue the data, but then Stephenson left DCAA and nothing happended. POGO, please pursue this issue. Ask Shay Assad what his office did in response to Stephenson's request for assistance in obtaining data from contractors proving that the dependent health care cost issue was "immaterial." Ask Assad if he got the data. If yes, what did he do with it. If no, why not. Please stay with this issue POGO.

PS Truman and Jackson, you both are way off base about Stephenson. She worked endless hours to protect DCAA and should be commended for her efforts.

[Mike]

Truman and Jackson - trash Stephenson is you want, but it took real guts to submit a proposal to strengthen the subponea authority and apply the exec comp cap to all employees. Employees like you two (and those others that blog negative comments about Stephenson), do not appreciate all the changes she implemented and that she was trying to undue the years of mismanagment at DCAA. Jackson, don't forget that when Stephenson had the chance, she did away with the metrics that had been in place for years under Reed. The question now becomes what has Fitzgerald done to follow-up on Stephenson's request? NOTHING. Fitzgerald has done nothing. Now that is the real issue with DCAA of today.

[Jackson]

I agree with Truman. DCAA was once ruled by meaningless and manipulated metrics under which Ms. Stephenson thrieved. Today DCAA just makes nice work papers and little else. The contractors get everything they propose because DCAA is too busy making work papers.

[Dave Truman]

This is total collusion by DCAA mgmt and the press. Almost everytime a legitimate whistleblower comes forth at DCAA and there are not many, DCAA mgmt counters with inside information which always appears to show DCAA mgmt in a good light. This is another appearance. Now DCAA mgmt, since deposed, wants respect for asking for revised access to records laws. This is such BS. First, a whistleblower had to come forward in 2008 to expose this wide spread access to records problem and was retaliated for it by this same mgmt group. Second, the access to records problems had nothing to do with contractor mgmt reviews and internal audits, it had to do with simply getting access to general ledgers and original journal entries. DCAA mgmt is using a flawed court case as an excuse for its negligence and the POGO just eats it up thinking DCAA mgmt is a better predictor of real oversight than field level auditors.

It should also be said that the original access to records problems reported in the AP article were never dealt with. The same situation exists and the same managers are in charge. Furthermore, DCAA mgmt is permitting contractors to select their oversight by transferring auditor who report access to records at a particular contractor. In fact, it is DCAA's policy signed off by DCAA mgmt hack Ken Saccoccia. Please POGO, you should know better, don't rely on DCAA mgmt to tell you how oversight on government contractors is occurring. Pathetic!! DCAA mgmt's strategy to co-opt real problems at their agency has paid off significantly for them and anyone reading this shit will think his taxpayer dollars are well looked after by DCAA mgmt. It could not be further from the truth.