Defense audit agency maps out response to damaging report

The Defense Department's lead contracting oversight unit may have allowed internal performance metrics to compromise the quality of its audits at times, the agency's director acknowledged in a staffwide memorandum last week.

The missive, one of several obtained by Government Executive, shows the Defense Contract Audit Agency scrambling to repair its damaged reputation after a report by the Government Accountability Office that found supervisors had improperly influenced audits to favor large federal contractors.

In the Aug. 7 memo, which outlined steps DCAA is taking to address GAO's findings, DCAA Director April Stephenson wrote that the agency will reassess its metrics to determine whether they are appropriate and if they are being implemented correctly. The review is expected to be completed by Sept. 30.

"Metrics should not override audit quality and in some instances we may have let metrics compromise performance of an audit in accordance with the auditing standards," Stephenson said.

The memo appears to respond in part to allegations of former DCAA auditors published the previous day in a Government Executive report. The article was based on interviews and correspondence with nearly a dozen former employees who said the agency "was broken" and beholden to sometimes arbitrary job performance targets rather than taxpayers.

According to several agency officials, who spoke only on the condition of anonymity, the article quickly circulated in DCAA offices and headquarters, causing concern among supervisors.

"Upper management is seriously scared right now," said one DCAA employee, who spoke on his cell phone for fear that the agency would check his office line. "Everyone is in duck-and-cover mode."

In the Aug. 7 memo, DCAA also announced that it would conduct a comprehensive assessment of staffing. The review, Stephenson said, would determine if the agency has the right number of employees and offices, whether offices are in the right locations and whether they are distributed appropriately across DCAA regions.

Stephenson also announced that DCAA would cease participation on integrated product teams due to concerns about audit independence. IPTs, developed in 1995 to streamline the acquisition process, are multidisciplinary teams that make coordinated decisions about requirements, design and source selection. They often include the contractor.

GAO's report alleged that DCAA had reached an upfront agreement with a large contractor, later revealed to be Boeing Co., to limit the scope of its work and the basis for its audit opinion on a 2002 estimating system. At the same time, DCAA was participating in an IPT that was reviewing the estimating system. GAO found that the final audit opinion had been heavily influenced by the contractor and by an agency manager.

In a detailed, 19-page response to the GAO report, released this week by the nonprofit watchdog group the Project on Government Oversight, DCAA Regional Director Christopher Andrezze said he disagreed with the finding, arguing that DCAA's independence "was not compromised" through its participation in the IPT.

But in her memo, Stephenson said the agency would err on the side of caution, noting that it is in the "process of issuing guidance on independent audit services that may be provided by DCAA during an IPT."

This memo was one of three distributed by Stephenson in as many days last week.

In the first, issued on Aug. 6, Stephenson announced that August, already almost one week old, had been designated as audit quality month.

"To recognize this initiative, we request that each office hold a stand down-day this month in which audit quality is discussed as a group," the memo stated. "The regional director or deputy regional director will participate in these conferences to further emphasize expectations and answer questions or concerns on audit quality."

The memo included a more general warning that audit quality should not "suffer or be jeopardized by external factors or internal factors (e.g., agency metrics)."

A third memo, sent on Aug. 8, touched on how DCAA employees should handle follow-up investigations of DCAA's operations. Such reviews are currently being conducted by the Defense Department Inspector General, GAO and the Defense Business Board, an independent panel of corporate executives. DCAA also is conducting its own internal investigation.

"It is imperative that all employees cooperate fully with the reviewers," Stephenson wrote. "Employees at all levels in the organization should feel free to have open and candid discussion with the evaluators."

The GAO report alleged that auditors who complied with its investigation were subject to harassment and intimidation from their supervisors.

The Stephenson memos represent somewhat of an about-face for the agency, which initially downplayed GAO's July 23 report. In their official response to the report, DCAA officials said they disagreed with "totality" of the watchdog agency's findings and argued that DCAA's field offices were "operating at a satisfactory level of compliance."

In his separate 19-page reaction, regional director Andrezze wrote that the agency's "audit independence was not impacted by pressures from either the contractor or buying command," although he did acknowledge that working papers did not always support final audit opinions.

And a July 25 letter, signed by Dan Hawkins, senior DCAA auditor, and sent to GAO, Defense Secretary Robert Gates, Sen. Claire McCaskill, D-Mo., and others, claimed the GAO report was "way off base." McCaskill had called for widespread firings at DCAA as a result of the report.

"DCAA is one of the few government organizations that holds its employees to high standards day in and day out," Hawkins wrote. "It takes personnel actions against employess that do not perform up to standards. I have seen poor performing auditors come and go. The poor performing auditors always blame management and complain about the lack of budget hours and due dates that cannot be met. It is smoke and mirrors."

According to several sources who reviewed an internal DCAA personnel directory, there is no Dan Hawkins who works for the agency. The letter also was not printed on DCAA letterhead.