The Project On Government Oversight (POGO) Blog

Backlog of Unaudited Pentagon Contract Costs Could Reach $1 Trillion

By BRYAN RAHIJA

It's been almost four years since the Government Accountability Office (GAO) issued a scathing report on the Defense Contract Audit Agency (DCAA)--a key contract oversight agency at the Pentagon--and it's time to ask ourselves whether taxpayers are better off as a result of the "improvements" implemented by DCAA.

If performing audits and saving taxpayer dollars is a measure of success, then the answer is a resounding no. As an article by government contract law professor Richard C. Loeb in the latest issue of Government Contract Costs, Pricing & Accounting Report outlines, DCAA has had a reduction of over 400 percent in audits completed in fiscal year 2011 since 2008—a reduction of nearly 23,000 reports per year. The reduction in audits represents almost $330 billion in contract costs going unaudited in FY 2011 alone—and that doesn't count the growing backlog from prior years.

Meanwhile, staffing levels at DCAA have actually increased since 2008.

According to Loeb, this output is unacceptable:

From Comfort Capsules to Human Trafficking, Schwellenbach's Investigations 'Ahead of the Curve'

By DANA LIEBELSON

The "comfort capsules," as the Air Force so aptly dubbed them, had everything a discriminating world traveler could want: swiveling leather chairs, couches, wall-to-wall carpeting and a 37-inch flat-screen video monitor with stereo speakers, as well as other amenities a four-star general might need when flying on Uncle Sam's dime.

Heck, the chairs were even re-upholstered from brown to “Air Force blue” at a cost to taxpayers of $21,000 per four chairs. While the Air Force was spending millions of taxpayer dollars on these capsules, men and women on the frontlines were flying on torn-up netting.

After a Project On Government Oversight (POGO) investigation exposed the details in the summer of 2008, top military officials sputtered denials, and the news outraged Congress, which had twice told the Pentagon that the money needed to be spent on “higher priority” needs. The New York Times, the Washington Post, and the Colbert Report all followed the story.

It was an investigation that further strengthened POGO’s reputation as a Pentagon watchdog and helped make a name for Nick Schwellenbach, the 26-year-old  POGO national security investigator who unearthed the scandal.

For Schwellenbach, whose last day as POGO’s director of investigations is this week, exposing the comfort capsules was one of the highlights of his career, which has included investigating the failures of the military whistleblower protection system, spurring reforms in how the U.S. deals with human trafficking, and exposing cost overruns in the F-35 Joint Strike Fighter—among other things.

Government Contractor Survey Disses GAO, Says DCAA Audits Are of Lower Quality

By NICK SCHWELLENBACH

Consider the source: the latest government contractor industry survey conducted by Grant Thornton LLP, a contractor consulting firm, shouldn't be seen as the most independent and objective voice when it comes to contracting. Grant Thornton is clearly offering industry's perspective. But the strong words they have on the Defense Contract Audit Agency (DCAA)—long the bane of government contractors—and that of the Government Accountability Office (GAO), which issued two very critical reports on DCAA are worth noting.

Members of Congress and the GAO have praised the new leadership at DCAA for reforms that they say are intended to improve the quality of DCAA audits and the agency's independence. But the Grant Thornton report has a diametrically opposite view:

...in our view, the quality of the audit reports being issued by the DCAA under the new policies is far lower than was the case prior to the GAO reports. It appears that the net result from the GAO reports is that the DCAA’s production-oriented culture has been replaced by a system in which the DCAA takes far longer to issue lower quality reports to a contracting officer who must seek DCAA concurrence before conceding some of the DCAA’s positions in negotiations with the contractor. A possible remedy for the current inefficiencies that plague government contracting would be a statement of the basic principle that an audit report must be completed in a timely fashion if it’s going to be useful as part of an efficient and cost-effective procurement process.

Later in their report, Grant Thornton takes aim at what the GAO chose to examine:

Two Former Watchdogs Ring in the New Year on the Other Side of the Revolving Door

By NEIL GORDON

Welcome to another episode of "As the Washington Revolving Door Turns." The two latest ex-government officials to land jobs with private companies formerly served as very high-profile watchdogs of those companies.

The first revolver is Michael Thibault, former co-chairman and commissioner of the Commission on Wartime Contracting in Iraq and Afghanistan (CWC). The CWC released its final report in August and officially sunset a month later—with all of its internal records sealed from public view until 2031, unfortunately. Last month, Thibault joined DynCorp International as its vice president of government finance and compliance. Thibault worked for many years at the Defense Contract Audit Agency (DCAA), serving as Deputy Director from 1994 until 2005. Between his government postings at the DCAA and CWC, Thibault briefly worked for federal contractors Navigant Consulting and Unisys.

DynCorp, one of the three primary LOGCAP IV contractors, is currently the 32nd largest contractor in POGO’s Federal Contractor Misconduct Database. It has nine instances of misconduct since the early 2000s and $19.6 million in penalties. Readers of POGO’s blog are probably familiar with some of DynCorp’s checkered history, as are those who saw the 2010 movie “The Whistleblower”, which was based on the harrowing experiences of former DynCorp employee Kathryn Bolkovac.

Pentagon Whistleblower Suffered Years of Retaliation, OSC Says

By NICK SCHWELLENBACH

A senior auditor with the Defense Contract Audit Agency (DCAA) was subjected to years of reprisal in violation of the Whistleblower Protection Act after she blew the whistle on flawed audits produced by DCAA, according to an April 2010 Office of Special Counsel (OSC) investigative report obtained by POGO. According to a press release issued Friday, DCAA has made several corrective actions in response to the OSC report substantiating that the auditor was retaliated against. The auditor, Diem Thi Le, works in DCAA’s Santa Ana, California branch office.

“I’m grateful to Diem-Thi Le for her courage to speak out. Whistleblowers like Diem-Thi Le put their careers on the line when they expose this kind of fraud and abuse,” said Special Counsel Carolyn Lerner in a written statement. “They make our government stronger and they save taxpayer money.” Lerner’s agency, OSC, investigates claims of whistleblower retaliation against federal employees.

OSC says it is making the findings of its investigation on Le public now because corrective actions have been taken recently, with suspensions of the two main officials roughly a month ago, according to an OSC spokeswoman.

Le’s disclosures catalyzed a chain reaction that radically transformed DCAA and led to the demise of a metrics-oriented culture there that focused on quantity of audits done quickly over quality. POGO has followed the changes closely since they surfaced publicly in 2008.

A previously unreleased redacted 38-page report by OSC from April 2010 into the Le case provides numerous details into Le’s journey as a whistleblower. The OSC report was obtained by POGO (a 5-page summary version was made public by the Orange County Register last week).

The OSC report documents the perilous gauntlet that Le faced.

Blowing the Whistle

Insiders: Defense Audit Agency Not As Aggressive in Accessing Contractor Records As It Could Be

By NICK SCHWELLENBACH

Last week, POGO revealed that the Pentagon failed to act on a 2009 legislative proposal from the Defense Contract Audit Agency (DCAA) for enhanced power to compel contractors to turn over internal records.

While few inside DCAA would quibble with the desire for greater subpoena power, there is a debate internally about how aggressive DCAA has been in gaining access to records it should be able to get with the powers it does have.

For instance, in a 2009 Government Accountability Office (GAO) report on DCAA, GAO said, “our discussions with DCAA auditors and reviews of audit documentation identified numerous instances where requests for contractor records were not met.” More info was contained in a footnote in the report, “in these cases, there was no evidence that DCAA supervisors elevated the issue to management or to procurement officials to initiate enforcement action, as set out in DCAA policy.”

POGO inquired further about these instances where DCAA auditors had access to records problems. According to a source intimately familiar with the instances GAO referred to:

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.”

Comment of the Day: Will the Army be Held Accountable for Ignoring DCAA Findings and for Boeing Spare Parts Markups?

By BRYAN RAHIJA

POGO reader Mike offers his two cents on Boeing's taxpayer ripoff:

The real question is when will the Army be held accountable? The Army was permitted to ignore billions in DCAA [Defense Contract Audit Agency] findings on contracts with KBR for war related contracts. The Army and DoD in general will continue to permit contractors to rip off the taxpayers because the contractors hold the power. Nothing will change as along as the Army and other services get away with it. POGO, please continue to track and report these type of abuses. Push for a hearing; this needs public exposure of a massive nature.

Bryan Rahija edits POGO's blog.

Details on the March DCAA Meeting With House Defense Staffers

By Nick Schwellenbach

In a March 22 meeting, House Armed Services Committee (HASC) staffers told the Defense Contract Audit Agency's (DCAA) leadership about various contractors' complaints regarding the timeliness of DCAA audits, POGO has learned from a reliable source within the Defense Department.

The staffers wanted to help DCAA defend itself from the contractor complaints, according to this source, who is not authorized to speak on the record and fears retaliation. Timeliness of business system reviews, contract closeout, and forward pricing audits are the major timeliness concerns.

POGO reported on March 16 that a meeting between DCAA Director Patrick Fitzgerald and the HASC staffers was scheduled for the 22nd. At the time, a Defense Department spokeswoman, speaking on behalf of DCAA, told POGO that "we do not have any direct knowledge on the complaints."

DCAA, through its Defense Department spokewoman, did not respond to multiple emails and phone calls over several days requesting a followup comment on the meeting. The HASC spokesman also did not respond to requests for comments.

In the meeting, DCAA agreed to provide a white paper on DCAA's top ten issues and on what the agency has done to mitigate these issues and why, POGO has been told.

POGO continues to keep tabs on the evolving situation at DCAA and are closely monitoring the push and pull of various constituencies—the Pentagon, the contractors, and Congress—on the agency. The agency has significantly changed its behavior since the release of a critical 2008 Government Accountability Office (GAO) report, subsequent critical Senate hearings, and a follow-up GAO report in 2009. Contract auditors are often the first to detect and prevent potential contract overbilling and the reach and aggressiveness of DCAA is critical to keeping contractors in check.

Nick Schwellenbach is POGO's Director of Investigations.

Did the Army Blow Off DCAA's Warnings About the Stoner Arms Dealers?

By Nick Schwellenbach

The new issue of Rolling Stone magazine has a great inside look at how two South Florida stoners built an arms trading network—and how their illicit deals with the Defense Department delivering defective Eastern European and Chinese ammo and grenades to Afghan forces landed them in Club Fed. The article offers a lot of insight into how Efraim Diveroli and his partner David Packouz of AEY Inc were able to snag a $300 million deal to supply the Afghan National Army (ANA) and Afghan National Police (ANP) after having won only relatively tiny contracts previously. 

The House Oversight and Government Reform Committee under the Chairmanship of Henry Waxman (D-CA) investigated the episode some years back, concluding:

The evidence before the Committee shows that the AEY contract can be viewed as a case study of a dysfunctional procurement process. At nearly every turn, Defense Department officials made serious mistakes that have cost the taxpayers tens of millions of dollars. The documents and interviews show that there was a questionable need for the contract, an inadequate assessment of AEY’s qualifications, and poor execution and oversight of the contract.

But at least one key Pentagon agency thought the company was shady from the start and questioned AEY's ability to adequately carry out the much larger contract: the Defense Contract Audit Agency (DCAA). Here's the skinny, from a very credible Pentagon source with knowledge of the incident:

Hill Bringing In DCAA To Respond to Contractor Complaints

By Nick Schwellenbach

Early next week, Patrick Fitzgerald, the director of the Defense Contract Audit Agency (DCAA) will brief House Armed Services Committee staffers on “Contractor Complaints of DCAA.” The Defense Department confirmed the briefing is scheduled on March 22nd.

We asked DCAA and the committee what the complaints are about.  “This question would be better addressed by the Committee as we do not have any direct knowledge on the complaints,” a Defense Department spokeswoman, speaking on DCAA’s behalf, told POGO.  “It is our understanding that based on discussions with the Committee, there have been complaints from companies regarding the timeliness of DCAA audits.”

POGO called and emailed Josh Holly, the spokesman for the House Armed Services Committee, but have not heard back.  We hear the committee staffers to be briefed are: Cathy Garman, Vickie Plunkett, Spencer Johnson, and Jenness Simler.

Nick Schwellenbach is POGO's Director of Investigations.

The Diminishing Role of DCAA in the Pentagon Means Increased Risk to Taxpayers

By Nick Schwellenbach

Today we issued a press release stating POGO’s opposition to the reduction of the Defense Contract Audit Agency’s (DCAA) role in the Defense Department.

POGO has obtained a January memo signed by Shay Assad, the Director of Defense Procurement and Acquisition Policy (DPAP), stating that DCAA will, in various areas, yield to the Defense Contract Management Agency (DCMA), an agency considered less aggressive than DCAA in rooting out problems. DCAA Director Patrick Fitzgerald issued a memo to all DCAA employees a few weeks ago informing them of the changes.

“It really makes me angry that DPAP, DCMA and most of all, DCAA, are so willing to increase the risk to the government and the taxpayer who ultimately foots the bill,” said one experienced former DCAA auditor. “Some of us have fought for years to protect the Government and in a few months, it is wasted away. I bet contractors are very happy.”