July 23, 2008

McCaskill Calls for Terminations at Audit Agency

WASHINGTON, D.C. – U.S. Senator Claire McCaskill fired off letters to Secretary of Defense Robert Gates and the head of the agency which oversees contractors for the Department of Defense regarding a Government Accountability Office (GAO) report released today uncovering serious allegations of impropriety by agency auditors.  The GAO found in its study that supervisors at the Defense Contract Audit Agency (DCAA) used intimidation, harassment, and threats to get their employees to alter audits in favor of contractors. 
“Somebody needs to be fired for this,” McCaskill said after reading the GAO report.  “As a former auditor, I read this GAO report with a mixture of disbelief and anger.  This is completely unacceptable.”
McCaskill’s letters are below:
July 23, 2008
Honorable Robert M. Gates
Secretary of Defense
1300 Defense Pentagon
Room 3D844
Washington, D.C. 20301
Dear Secretary Gates:
I am sorry to say this, but you have another mess on your hands. You have by now, I hope, heard about and read the GAO audit released today on the failure of the Defense Contract Audit Agency (DCAA) to conform to government auditing standards in 100% of the audits reviewed. This GAO audit contains numerous troubling findings about audits being changed to favor government contractors without any basis, and auditors being threatened if they refused to change the audits. There are also several instances when auditors were harassed and intimidated about their cooperation with the investigation by GAO.
Today I sent a letter to April Stephenson, the Director of DCAA, demanding answers and assurances that the appropriate parties will be held accountable for this travesty. I enclose it herewith for your review. I look forward to learning that DCAA, and DoD, take this matter very seriously and deal with it appropriately.
Claire McCaskill
United States Senator
July 23, 2008
April G. Stephenson
Defense Contract Audit Agency
8725 John J. Kigman Road
Suite 2135
Ft. Belvoir, VA 22060-6219
Dear Ms. Stephenson:
I read the GAO audit released today relating to improprieties with several DCAA audits with a mixture of complete disbelief and anger. The allegations substantiated in this audit are absolutely unacceptable for any government agency, much less the DCAA, which plays such a crucial role in oversight of the DoD contractors who collect billions of federal taxpayer dollars every year. You, in your role as the head of this agency, owe the American public immediate answers as to how this could happen, and a plan to ensure that this never happens again. You also need to assure us that those supervisors who harassed and intimidated your employees just for doing their job and for co-operating with GAO have been terminated.
I would insert all of the GAO language that spells out the malfeasance that occurred in the thirteen audits reviewed by GAO, but that would make this letter far too long. I would assume you have read this audit several times. I do feel compelled to repeat some of the more egregious findings. In every audit the GAO reviewed (13 out of 13) the working papers were found to not adequately support the final conclusion and opinion of the audit. In two of the three locations examined, DCAA supervisors dropped findings and changed audit opinions, always so that the audit was more favorable to the contractor, without adequate evidence for their changes. During the course of the GAO’s work, at two separate DCAA locations, DCAA managers took actions against their staff in an attempt to intimidate their auditors and discourage them from speaking with the GAO investigators.
Then when I thought I had seen and heard it all, I read further and the report got worse. The GAO gave three examples of the heinous facts they found. In one audit of one of the top five government contractors (based on contract dollar value), GAO found that the DCAA had an up-front agreement with the contractor to limit the scope of work on an audit of a contractor estimating system. The DCAA actually let the contractor know which draft basis of estimates (BOEs) they would select for the audit. This is akin to giving the student the answers to the final before he takes it. And, even with that insider info, the contactor still could not produce compliant BOEs. So, did this contractor then find themselves with an unfavorable audit opinion? No, the DCAA Resident Auditor replaced the original supervisory auditor and threatened the senior auditor with personnel action if he did not change the draft audit opinion.
At a third location investigated by GAO the situation was no better. Supervisors admitted they did not review audit work papers, which are supposed to back up the findings of an audit, until after the audit was released. This, of course, is too late to change anything incorrect in the audit. Supervisors also admitted that contracting officers at this location would tell auditors to issue proposal audit reports in as few as twenty days, whether or not that was enough time, with whatever information they had at the time. The problems at this location are so severe that the GAO says that the accuracy of forward pricing audits performed there, connected with over $6.4 billion in government contract negotiations, must be called into question.
I know that your tenure as Director of DCAA is new, and that you were not the head of this agency at the time the DCAA audits were taking place. But it is your job to fix this mess. Nowhere in the DCAA’s response to these findings does it indicate that any
supervisor was reprimanded for their malfeasance. You do not indicate that the supervisors who directed the audit findings to be changed to favor the contractor have been disciplined in any way. You do not indicate that those supervisory auditors who pressured auditors to tell them what they were disclosing to GAO have been fired. Some of the employees who were subject to this intimidation were probationary employees, and they told GAO they felt uncomfortable with this pressure. It can not be denied that they may have felt that their jobs were being threatened. Yet, for some reason, DCAA has chosen not to accept the findings of GAO related to intimidation, harassment, reassignments, and threats of disciplinary action by supervisors of DCAA. Perhaps you can explain to me why you would think GAO would have a motive to make this stuff up. If you can not think of a reason, then you need to explain why people have not been fired over this travesty.
These findings in this audit do not just cast a cloud over three of your offices. It casts a deep, dark cloud over your entire agency. It calls into question the reliability of every audit your agency performs. Your response to GAO is wholly inadequate. You state that the agency does not agree with the “totality” of their findings, but do agree that “shortcomings” existed in the working paper documentation. The fact that the GAO found that none of the audits investigated had adequate work paper documentation is not a shortcoming. It’s a debacle and embarrassment. Zero percent of the audits reviewed were found to comply with government auditing standards. Employees reported to GAO that they were threatened and made to change their findings to favor contractors, and felt intimidated and harassed concerning their cooperation with GAO. Yet, DCAA states that they believe all the offices where this investigation took place are currently operating at a satisfactory level of compliance. That defies explanation.
Please consider this letter a formal request for a thorough and complete explanation from you, spelling out every action taken so far and being planned in response to this audit. This explanation must include what disciplinary actions have been taken against supervisors alleged to have changed audit reports and/or intimidated
employees of DCAA. If the facts as given to you by GAO do not supply you with enough information for you to figure out which of your own employees are involved, you should spell that out in your letter. I anxiously await your response.
Claire McCaskill
United States Senator