Monday, October 5, 2009

Some members of Congress are so disturbed by failures and malfeasance described in a recent government report that they are considering removing the agency that audits hundreds of billions of dollars in Defense Department contracts from Pentagon supervision.

One legislator said he felt physically sickened by the report.

The lawmakers were reacting to findings by the Government Accountability Office (GAO), the investigative arm of Congress, about the Defense Contract Auditing Agency (DCAA).

The agency, which last year was responsible for ensuring that taxpayers got good value for more than a half-trillion dollars in defense contracts, revised audits to curry favor with contractors, promoted a supervisor responsible for such revisions to a top position and rushed through other audits out of fear that the work would be outsourced if employees took too much time, the GAO said.

“Unbelievable problems at Def Contrctng Agncy [sic],” Sen. Claire McCaskill, Missouri Democrat, wrote on her Twitter account just before a recent hearing on the report. “Top of my head is about to pop off.”

“I read a summary of the GAO report last night and quite frankly got sick,” said Sen. Tom Coburn, Oklahoma Republican, adding that he would not use all his allotted time for questions because he was “a little bit too upset to go where I really want to go.”

“Each and every audit that GAO reviewed for this report was out of compliance with auditing standards,” said Sen. Joe Lieberman, Connecticut independent and chairman of the Homeland Security and Governmental Affairs Committee. The DCAA “has a unique role,” as a steward of taxpayer dollars, and consequently “needs to have independence. It needs to stand up to pressures from both agencies and contractors,” he said. “Perhaps it’s time for us to consider separating DCAA from the Department of Defense and … making it an independent auditing agency.”

The flaws identified by the GAO “allow contractors to overbill the government in some cases for millions of dollars,” said the committees ranking Republican, Sen. Susan Collins of Maine.

Calling the DCAAs performance “completely unacceptable,” she noted that when the agency failed, “the fallout can cascade throughout the system and ultimately shortchange our troops in the field.”

Pentagon officials told the hearing that the GAO investigation examined audits conducted years ago and that a series of remedial measures already had been implemented, including a new oversight committee of all the service comptrollers.

Robert Hale, the undersecretary of defense who serves as the departments comptroller and chief financial officer, and the official to whom the DCAA currently reports, said it might take time for the reforms to show results and argued against any change in the agencys status.

Nonetheless, Ms. Collins declared her “frustration” - a sentiment widely shared by lawmakers at the hearing.

In one case, DCAA officials had attempted an audit of a major U.S. defense contractor doing reconstruction work in Iraq. The contractor was not named in the report, but a person familiar with the investigation told The Washington Times that it was Parsons Corp., a Pasadena, Calif.-based engineering firm whose work in the past has been criticized as shoddy.

The GAO report said the firm did almost $900 million of U.S. government contracting in 2004, the year the audit started, a quarter-billion dollars worth of it in Iraq.

Two years after the DCAA began a review, in 2006, Stuart Bowen, special inspector general for Iraq reconstruction, pledged to investigate all of the $1 billion worth of contracting Parsons had done in Iraq, after evidence emerged about unfinished and substandard work. Last year, he released a report charging that the firm had been paid $142 million for canceled reconstruction projects.

The initial DCAA audit identified eight serious deficiencies in the firms billing system. But after the contractor objected, a supervisor ordered DCAA staff to delete some of the documents the audit had generated and revise others, the GAO found. When the final audit was published, five of the eight deficiencies had been removed altogether and the other three downgraded to suggestions, meaning the firm got a “clean” audit rating.

That supervisor was subsequently promoted to become the quality assurance manager for the DCAAs Western region, serving as the last line of quality control over thousands of audits every year - including many that ended up being questioned by the GAO - a circumstance Ms. Collins called “devastating” to morale at the agency.

Erin Kuhlman, Parsons vice president for corporate relations, said the company would not comment on the findings.

The GAOs top forensic accountant, Gregory Kutz, told lawmakers that his staff had found a “lack of independence” at the DCAA, which had a “production-focused culture resulting in part from flawed metrics … intended to show that they could do their work faster and cheaper than public accounting firms,” partly because it feared its work might otherwise be outsourced.

“Taking time to find and address issues was discouraged,” he added, concluding that “thousands of good auditors [are] trapped in a broken system” at the agency.

The GAO said that, in the short term, Congress could legislate to provide the agency with the same budgetary and legal independence that inspector generals have.

“This change could strengthen leadership, independence and transparency,” Mr. Kutz said.

In the longer term, he said, lawmakers could consider elevating the agency to a “component agency” of the Department of Defense, reporting directly to the Pentagons powerful deputy secretary; or even moving it outside the department altogether, creating an independent audit agency.

Mr. Hale, the Pentagon comptroller, told the hearing that the administration opposed any such move.

Instead, he said, officials were working to strengthen the agencys independence within the department, boosting resources and improving oversight by establishing a special committee of defense auditors to look at the agency’s work.

DCAA Director April Stephenson told lawmakers that the agency hoped to hire 700 more people for training over the next three years and had already “completely revamped” its quality assurance processes.

Mr. Hale pointed out that the audits reviewed by GAO and the inspector general “were completed three to five years ago,” and that officials had begun implementing corrective actions late last year, after the problems were first identified by a DCAA whistleblower.

But he acknowledged that the effects of those reforms might not be visible.

“It took us years to get into this problem. It may take several years for the full benefit of these actions to be realized,” Mr. Hale said.

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