Defense Contract Audit agency not improving fast enough

The Defense Contract Audit Agency, like many in the acquisition community, is finding that decisions made during the 1990s are having a negative impact today.

April Stephenson, DCAA director, says part of the reason the agency has felt the ire of lawmakers is it does not have the resources to audit the large amount of cost type contracts the Defense Department uses.

"In 1995 during acquisition reform, there was a drive to reduce overhead and our ability to audit," she says. "The thought was audits would be more streamlined because DoD and other agencies would use more firm fixed price contracts. But we've seen an increase in cost type contracts, and the streamlined audit approach is not appropriate for cost type contracts."

Stephenson also knows that lawmakers don't necessarily want to hear excuses, and want to see improvements across the board.

And Stephenson says DCAA is making progress in fixing its problems, but she heard Wednesday that it still is too slow for some senators.

That is why for the second time in a year, DCAA came under fire from the Senate Homeland Security and Governmental Affairs Committee for continued problems in how it audits Defense Department contracts.

"DCAA is in need of a complete cultural transformation," says Sen. Joseph Lieberman (I-Conn.), chairman of the committee. "DCAA still seems driven by a culture that emphasizes speed and production of audits over quality of results."

Sen. Susan Collins (R-Maine), ranking member of the committee, adds that DCAA's inability to fix its problems is an "epic failure by the agency and the department."

The Government Accountability Office and the DoD inspector general found both in audits in 2007, 2008 and one from August, that DCAA suffers from:

• A lack of independence from undue influence on audit outcomes by contractors, program managers and some senior management;

• Poor or inadequate audit quality;

• Gross mismanagement of government resources;

• Ineffective audit practices that allow contractors to over-bill the government.

Many of these findings came from GAO's work between August 2006 and December 2007. But a DoD IG report from August found some of these issues persist.

The IG reviewed 13 cases and interviewed auditors for 12 cases as well looking at current audits DCAA performed to correct the problems GAO identified.

DoD IG Gordon Heddell says employees continued to face time pressures, were not compensated for overtime and unprofessional behavior still created a work environment not conducive to performing quality audits at two DCAA regional offices out west.

Lieberman says the IG's latest report comes on the heels of DCAA rescinding 80 audits because they were faulty.

"This is the fifth major report sounding the alarm for DCAA," he says. "Certainly due to DCAA's unique role, it must have the independence it needs to stand up to pressures from both agencies and contractors. And perhaps that independence should be strengthened."

Lieberman says that could mean making DCAA an independent agency outside of DoD.

DoD chief financial officer and comptroller Robert Hale agrees with committee members that DCAA needs to improve in several areas, but he says the military doesn't support making the agency truly and fully independent.

Hale and Stephenson are taking steps to clean up the audit agency's problems.

Hale says he has assigned a senior official in his office to oversee DCAA's improvements. He also created an oversight group made up of the Army, Navy and Air Force auditors general as well as the director of Defense procurement and acquisition policy and the DoD deputy general counsel for acquisition and technology.

"This senior group will assess DCAA's activities and the actions taken to correct problems identified by GAO and others," Hale says.

He adds that DCAA is considering hiring 700 new auditors between 2009 and 2011.

Stephenson says DCAA already has changed for the better in several areas.

She points to new metrics focused on audit quality and timeliness in terms of the requestor's due date and not a standard DCAA cycle time.

Stephenson says DCAA added 25 field offices to have 109 as of August to provide greater oversight and better training.

"We completely revamped the quality assurance organization," she says. "We changed the manner in which the reviews are performed and greatly expanded the number of reviews conducted at each office every year."

GAO found that DCAA conducted between 22,000 and 30,000 audits a year, which equals 60 reports a day for the entire year. Greg Kutz, GAO's managing director for forensic audits and special investigations, says the volume of work was part of the reason for DCAA's problems.

Stephenson says DCAA has new priorities where it will focus its audits on high risk programs.

She says these include all war-related effort in theatre, requests for audits of contractor bid proposals prior to awarding of a contract and billing and accounting system audits at the largest contractors.

Sen. Tom Coburn (R-Okla.) emphasized that DCAA should use a risk based approach instead of trying to do everything and not doing any of it well.

"If you change the expectation that you will get a real audit, you will change the behavior of the contractors," he says. "That is how auditing works best."

Lieberman asked Hale to provide in person or written status updates monthly, and promised further hearings on DCAA.

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On the Web:

Senate Homeland Security and Governmental Affairs Committee - DCAA hearing documents

FederalNewsRadio - Contractor integrity, performance to face higher level of scrutiny

FederalNewsRadio - DCAA and DCMA: who's the boss?

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