Defense audit agency rapped by senators, whistleblowers

The Defense Department's premier contract audit agency has collapsed under a culture beholden to arbitrary performance metrics, a pair of agency whistleblowers testified on Wednesday, saying saving money has taken a back seat to meeting deadlines and saving face.

The two auditors at the Defense Contract Audit Agency described to the Senate Homeland Security and Governmental Affairs Committee how they identified inappropriate fees billed by large and powerful contractors. But DCAA supervisors removed those findings from reports, the auditors said, without the approval of the field auditors or the working papers to back up the adjustments.

The whistleblowers testified that these "clean" audit reports might have cost taxpayers millions of dollars. Their allegations were included in a stinging report released in July by the Government Accountability Office, which found management abuse of government auditing standards in DCAA's California region.

"DCAA management has become so metric-driven that our audit quality and independence have suffered," said senior auditor Diem Thi Le, a 19-year veteran of the agency. "Audits are not dictated by the audit risks but rather by the established budgeted hours and due dates. The pressure to close out audits and to meet the productivity rate is so intense that it often prevents auditors from following their instincts in questioning the contractor costs, reporting internal control deficiencies and evaluating any suspected irregular conducts. In the end, contractors are getting away with murder."

In September 2005, Le was performing an audit, requested by the Energy Department, of the accounting system of the Fluor Corp., an engineering and construction company and a major federal contractor.

Le discovered that the accounting system was flawed and, as a result, the contractor was misallocating and mischarging costs to the government. Her audit opinion was that the system was "inadequate." But that determination was changed by a branch manager to "adequate," allowing Fluor to avoid corrective action.

Le filed a hot-line complaint that was forwarded to the Defense Department inspector general. But when the IG's office mistakenly sent a copy of the complaint back to DCAA managers, Le said she was the victim of repeated harassment and intimidation by her supervisors. Le said her performance evaluation was downgraded; she was transferred to another auditing team and told to see a psychiatrist.

At the hearing, Defense's acting IG, Gordon Heddell, admitted that his office had erred by disclosing Le's identity. "We made a mistake and feel bad about this," he said.

Le later filed a complaint with the Office of Special Counsel. But when she attempted to access e-mails and documents relevant to her case, DCAA's Office of General Counsel drafted a letter signed by her supervisor that warned of disciplinary action if she turned over any documents to OSC.

"You are not permitted to access or copy or possess any agency document for your private purposes, including preparation of complaints in any forum," the letter read, which was signed by Sharon Kawamoto, a supervisory auditor. Kawamoto has since been tapped for promotion, but because of the complaints and investigations, her upgrade has been put on hold.

DCAA Director April Stephenson initially told the committee there was concern that Le would disclose proprietary contractor data to OSC, but Stephenson later acknowledged that the tone and content of the letter was "wholly inappropriate."

Stephenson, who became director seven months ago -- after allegations of misconduct allegedly occurred -- said she had taken immediate action to fix the problems discovered by GAO, the IG and the Defense Criminal Investigative Service.

DCAA is performing a top-to-bottom assessment of its staffing, metrics and management structure, she said. The agency has 3,500 auditors investigating nearly $400 billion in proposed or billed contractor costs.

Stephenson added that DCAA no longer participates in integrated product teams due to concerns about audit independence. IPTs are multidisciplinary teams that make coordinated decisions about requirements, design and source selection. They often include the contractor.

"DCAA is committed to ensuring that the agency is above reproach -- that all of its audits are performed in accordance with auditing standards, that its culture promotes the kind of vigilance and quality that protects the interests of the American taxpayers," Stephenson said."

Stephenson said she has been instructed by DCAA attorneys not to take any disciplinary action against the supervisors cited in the report until additional investigations by the IG and GAO are concluded, likely in January.

The IG is investigating allegations that auditors who complied with GAO were subject to harassment and other forms of reprisal. GAO is conducting a widescale investigation of DCAA's organizational environment and quality control systems. Gregory Kurtz, GAO's managing director of forensic audits and special investigations, said thus far, many of the problems found in California appear common in other DCAA regions.

Once those reviews are complete, Stephenson said, "necessary disciplinary actions will be taken." The agency also is attempting to recover funds from various contractors, based on GAO's findings.

Stephenson's assurances were not sufficient for Sen. Claire McCaskill, D-Mo., however. A former Missouri state auditor, McCaskill hammered DCAA for obsessing about how quickly audits moved through the system, rather than how much money they saved for taxpayers.

"At the root of the problem is a phony-baloney performance-based metric," she said. "It's all about people wanting to look good and pleasing the contractor and the military … The culture is broken. The performance metrics are broken, and the oversight is broken."

DCAA supervisory auditor Paul Hackler, another DCAA whistleblower, said agency metrics and the desire not to discover any major findings might have cost taxpayers $270 million.

He said Integrated Defense Systems, a Boeing Co. subsidiary, structured costs under an Air Force contract for satellite launch capability in a way that allowed the contractor to make up for losses in its commercial markets -- a process not allowed by federal procurement law.

Hackler alerted his supervisor to the findings, but said he was told to leave them out of the report. As a result, he said, the Pentagon ended up paying for Boeing's $270 million loss when the contractor's plan to sell its satellite systems to the cell phone industry fell through. Meanwhile, the supervisor responsible for changing the audit was promoted, Hackler said.

"Early in my career, I would never have suspected this kind of inappropriate behavior could be rewarded, but of late, I've seen it over and over again due to the emphasis placed on performance metrics and customer satisfaction," he said.

Sen. Susan Collins, R-Maine, the committee's ranking member, suggested that DCAA might not be sufficiently insulated from Defense managers. The audit agency is under the auspices of the Defense Comptroller's Office, but Collins suggested that Congress could change that structure.

"When the audit agency fails, problems cascade through the system, and ultimately can shortchange our troops in the field," Collins said. "Congress must carefully consider the reforms needed at DCAA in light of these disclosures."