Contracting Audit Agency Target of Investigations

By Robert O'Harrow Jr. and Dana Hedgpeth
Washington Post Staff Writers
Wednesday, September 10, 2008

In 2005 and 2006, the Defense Contract Audit Agency helped enable Boeing to recover about $270 million in losses from a failed commercial satellite business, approving unorthodox accounting methods that allowed the company to receive the payments through an Air Force contract, according to testimony to be presented to a congressional panel today.

When veteran auditors at the DCAA pointed out potential violations of federal acquisition regulations, they were repeatedly told by supervisors to ignore them, according to the testimony from whistle-blowers and a recent investigation by the Government Accountability Office.

"My office was directed by DCAA upper management to basically play along with this outrageous government bailout," Paul Hackler, a supervising auditor at DCAA, said in prepared testimony obtained by the Washington Post. "Boeing seized this opportunity to recover past losses by developing proposals that violated numerous procurement regulations."

Boeing spokesman Dan Beck said the company had not seen the testimony, and that the GAO's July report on the DCAA faulted the agency, not the company. "Boeing absolutely did nothing improper," he said. "Boeing will not comment on one agency reporting on another."

An Air Force spokesman declined to comment.

The testimony and investigations offer an unusually critical look at one of the most respected audit agencies in the country, which many lawmakers, watchdog groups and other federal auditors have traditionally considered a last line of defense against fraud, waste and abuse at the Pentagon and other agencies.

But the DCAA has suffered from sharp budget and stuffing cuts over the past 15 years. Since 2000, its workforce has dropped about 6 percent, to 4,006, while Pentagon spending rose more than 136 percent, to $315 billion last year, because of wars in the Middle East and demands for new information technology and weapons systems.

DCAA director April G. Stephenson in her written testimony acknowledged shortcomings identified by the GAO's inquiry, which pinpointed problems on contracts overseen by agency auditors. She said some of the problems stem from perceived pressure by managers to issue audits by a certain date, which led to cutting findings they did not think were adequately supported. She said the agency has launched changes to ensure that audits are properly conducted, independent of outside influence.

"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.

"My heart sank when I learned what has been happening in the trenches at the DCAA," said Danielle Brian, director of the Project on Government Oversight, a nonprofit watchdog group that has been tracking defense spending for years.

"The DCAA is perhaps the single most important entity in the government for its work in protecting taxpayers," Brian said. "They're our last hope."

Today's hearing, before the Senate Committee on Homeland Security and Governmental Affairs, follows two years of investigations by the GAO, the Pentagon inspector general's office and the Defense Criminal Investigative Service, or DCIS. Calls by DCAA auditors to hotlines triggered those investigations.

DCIS investigators found that managers deleted material from audits without auditors' knowledge. The managers issued "clean" audit reports without supporting documentation, according to material to be disclosed at the hearing. The DCIS investigators also confirmed that pressure to issue audits on deadline contributed to problems.

The GAO probe found that three DCAA offices under scrutiny had repeatedly diverged from standard accounting practices in their audits. In some cases, agency supervisors allowed contract officials and contractors to subvert DCAA's independence and "improperly influenced" the scope and findings of audits. The GAO investigators also turned up evidence that managers had tried to intimidate or silence auditors, according to a recent report.

Greg Kutz, GAO managing director for forensic audits and special investigations, said the problems at DCAA may be widespread. "It's clear that the issues go beyond the 14 audits that we investigated," he said in an interview.

Hackler's testimony touches on a contract involving Boeing satellite launch capabilities, including a Delta IV launch vehicle. At issue were complex pricing methods that Hackler said were used to help Boeing recoup some of the hundreds of millions in losses from a failed commercial satellite cellphone business that also involved launches.

Hackler, who supervised audits of the Boeing proposals, said they included "costing methodology" he had not seen before, according to his prepared testimony. Boeing also did not include pricing details from subcontractors, the testimony said. The Air Force awarded a contract granting Boeing the recovery of losses.

"Time after time, GAO investigators and others have found that DCAA has issued audits of contractors that are favorable to contractors but are not supported by facts, thus encouraging waste, fraud and abuse of taxpayer money," said Sen. Joseph I. Lieberman (I-Conn.), committee chairman. "It appears that DCAA is more interested in the speed of its process than the accuracy of the results. DCAA's mission is too important for this to be tolerated."

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