More problems reported with Defense Contract Audit Agency

For the second time in as many years, investigators at the Government Accountability Office have found widespread deficiencies in audits conducted by the Defense Contract Audit Agency, according to internal memos obtained by Government Executive.

GAO issued a draft copy of its report on DCAA's internal control reviews to Defense Secretary Robert Gates on Monday, the memos state. The watchdog reportedly found major problems with the agency's adherence to government auditing standards. The findings are reminiscent of a July 2008 GAO report, which sparked a contentious congressional hearing and a massive overhaul of agency performance standards.

In the most recent GAO review, investigators examined 37 audit reports issued between 2004 and 2006. These reports were chosen for further examination because DCAA leadership had previously "opined the system under review was adequate," the memos said.

"GAO found [Generally Accepted Government Auditing Standards] issues with all audit reports reviewed," the memos said. "The extent of the GAGAS deficiencies varied by assignment. GAO believes there were some cultural issues within DCAA that will take several years to change, that contributed to the deficiencies noted. As you know, DCAA has implemented a number of changes that are helping to address the cultural issues."

Government Executive was unable to obtain a copy of the draft GAO report. According to the memos, DCAA field office personnel have not seen the report either. A GAO spokesman declined to comment, noting that the draft report has not been finalized.

In a statement, Pentagon spokesman Cmdr. Darryn James said, "The DCAA and Comptroller Directorate have been cooperating fully with the GAO on a draft audit report that has not been finalized. The DoD has not provided any official comment on the draft GAO report so it would be inappropriate to speculate until it has been completed. However, it is important to note DCAA and Comptroller leaders took immediate action to address issues cited in the last year's GAO report and that we are committed to making even more improvements that help our auditors conduct their important work."

The internal memoranda, authored by branch managers in DCAA's San Francisco offices and apparently sent to auditors there, were identical in language and appeared to be coordinated. The memos said the report contains short- and long-term recommendations.

"They [GAO auditors] recognize the importance of the audit function DCAA provides, but believe we should be more independent from the Department of Defense with greater power similar to that of an inspector general," the memos said. "Such organizational changes would require legislative and statutory revisions, which will take quite some time."

DCAA auditors who have seen the memo agree the agency must be more independent -- many have called for it to become a stand-alone agency -- but argue that management has had more than enough time to reform the culture and operations.

"The audits DCAA [are] issuing now are untimely and poor in quality," one California auditor said. "The metrics still control the audit risk, despite the better judgment of the senior auditors that do all the real heavy work at DCAA. The morale is as bad as it has ever been with the senior workforce."

One government official who has reviewed the draft report said the GAO focuses much of its attention on a lack of quantitative testing conducted by DCAA auditors.

Investigators suggest that auditors failed to review a sufficient amount of transactional data such as payroll records, vendor receipts and system invoices, the source said. But, the official claims GAO did not clearly establish how the government would have benefited had the additional testing been conducted.

"What did the GAO find that the DCAA missed?" asked the source, who does not work for the audit agency. "The answer is, there is no answer. They did not explain how the additional testing would have affected the results."

DCAA's management and internal control problems first came to light last year when the GAO found that agency management was too cozy with the contractors they were assigned to audit. The report found that contractor officials were allowed to improperly influence the scope, conclusions and opinions of some audits.

Agency auditors pinned many of the problems on DCAA's overreliance on job performance metrics and arbitrary deadlines. The agency has since revamped many of its metrics and in February, DCAA Director April Stephenson told staff that progress had been made in addressing the management concerns.

GAO also reported last July that DCAA staffers who cooperated with its investigation were subjected to harassment by agency managers and threatened with disciplinary action. An upcoming Defense Department inspector general report will further examine those claims. The IG's office did not respond to requests for comment about the status of its investigation.

Much to the disappointment of many DCAA auditors, disciplinary action has not yet been taken against any of the managers cited in the GAO report. Stephenson has said she would hold off on disciplining any of the supervisors until the IG's report is released.

It appears, however, that the GAO report will not jeopardize the jobs of agency auditors or management.

"At this time, our jobs are secure," the memo concludes. "We do not anticipate that the recommendations made by the GAO will have a direct impact on the [field audit offices]. We will continue to see changes and revisions to guidance to address cited deficiencies. However, we have come a long way in the last year and will continue to work toward issuing quality audits."

DCAA will have 30 days to provide a response to the draft findings, which will then be included in the final GAO report. It is not clear when the final report will be released.