The Defense Contract Auditing Agency As the Whipping Boy

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.