After an absence of nearly two decades, the General Accounting Office has returned to the business of auditing defense contractors.
Within the past year, the congressional watchdog agency has sent 50 auditors into the plants of 10 of the nation's top 50 arms suppliers, according to an exchange of letters between U.S. Comptroller General Charles A. Bowsher and Sen. William Proxmire (D-Wis.).
The agency now assigns 1,100 of its 4,000 auditors to Defense Department matters, according to Bowsher, who heads GAO.
During the nearly 20 years that the GAO kept hands off of the books of defense contractors, auditing was done mainly by the Defense Contract Audit Agency, which makes reports only to the secretary of Defense. Those reports rarely become public, while GAO reports are circulated routinely unless they contain classified information.
Bowsher said in an interview that procurement reforms already being recommended by his agency as a result of the audit work ultimately could save the government billions of dollars if they were implemented by the Pentagon and Congress. He said the 50 auditors involved in checking the books of the 10 arms suppliers are focusing on subcontract pricing and cost estimating. They will be joined by at least 20 more auditors within the next few months, he said.
According to the GAO, the 10 companies are:
General Electric Co.'s Aircraft Engine Business Group, Evandale, Ohio; Martin Marietta Corp.'s Orlando Aerospace, Orlando, Fla.; McDonnell Douglas Corp.'s McDonnell Aircraft Co., St. Louis; Raytheon Co.'s Missile Systems Division, Bedford, Mass.; RCA Corp.'s Government Communications Systems, Camden, N.J.; Boeing Co.'s Boeing Aerospace Co., Seattle.
Also, FMC Corp.'s Ordnance Division Operations, San Jose, Calif.; General Dynamics Corp.'s Pomona Division, Pomona, Calif.; Hercules Inc.'s Hercules Aerospace Co. Bacchus Works, Magna, Utah; and Texas Instruments's Equipment Group, Dallas.
As of June 21, all but three of the parent companies -- RCA, FMC and Hercules -- were on a list of 36 contractors that Joseph H. Sherick, the Pentagon's inspector general, said were being investigated concerning allegations including bribery, kickbacks and bid-rigging. He told a House Energy and Commerce subcommittee that nine other companies couldn't be named because they hadn't been notified they were under investigation.
In a July 16 letter, Proxmire, who has led numerous investigations into military contracting, asked Bowsher to renew the audits to counter "an increase in defense contracting abuses of epidemic proportions." Several recent congressional investigations "have confirmed suspicious that contractors have engaged in wholesale bending, if not breaking, of the law," he added.
Proxmire suggested that a principal cause of the abuses is "the absence of cops on the beat and other deterrents." He said he is "convinced that GAO once played, and can play again, a much more important role in this area." His letter also contained several pointed questions, such as whether "legal or political obstacles" prevent GAO from auditing contractors' books.
Bowsher, replying Sept. 24, said he shared the senator's "concern that defense contracts receive appropriate oversight, and to that end we plan to maintain our recently expanded effort in this area." Even before the Proxmire letter, Bowsher had begun moving in the direction of resuming oversight of defense contractors.
"We are undertaking a certain amount of defective-pricing work reviewing individual contracts at prime contractors and related subcontractors," Bowsher wrote. He said the GAO's legal authority to audit military contractors "is clear."
His letter referred cryptically to the key explanation of GAO's two-decade "de-emphasis" of checks on the books of military contractors: In the mid-1960s, the House Committee on Government Operations -- the GAO's overseer -- "was critical of our audits."
Bowsher took office in October 1981, seven months after Comptroller General Elmer B. Staats ended a term that began in March 1966. Under Staats' predecessor, Joseph Campbell, the GAO made hundreds of contractor audits that drew wide press notice, partly because they named names and used phrases such as "wasteful practices," "improper charges" and "failure to protect the government's interest."
In the mid-1960s, the GAO came under concerted attack by Rep. Chet Holifield (D-Calif.), then chairman of the House Government Operations Committee, the agency's overseer; the Pentagon; and defense contractors and their trade associations. Holifield's home state is the leader in military contract awards.
Holifield retired and was succeeded by Rep. Jack Brooks (D-Tex.). But while the climate favoring defense contractor audits began to change, Staats didn't budge. He ended his 15-year term without having once authorized a GAO-initiated contractor audit.
Proxmire said that he understood GAO's rationale for not doing contractor audits -- a rationale echoing the Pentagon's and the contractors' -- was that the DCAA's auditing role and the 1962 Truth-in-Negotiations Act -- made them unnecessary. But Proxmire said the DCAA "was stripped of influence and effectiveness, if it had any to begin with."
As to the negotiations act, Sen. Roth charged in 1983 that the Pentagon "has managed to pull, break or grind down most of its meager teeth . . . "
The Pentagon's inspector general also has investigated defense contractors, but is "not accountable to Congress in the same way GAO is," Proxmire said.
Bowsher said in the interview that, for a year after he took over, "I really didn't change much," although "one of the things that worried me was the defense area" because President Reagan "was going to run the defense budget up pretty damn high." The budget went from $140 billion in fiscal 1980 to $292 billion in fiscal 1985.
"I didn't think we were properly organized," Bowsher continued. He named Frank C. Conahan, director of the agency's National Security and International Affairs Division, to lead a study task force. One result was the merger of four GAO divisions. Another was a "continuing dialogue" with Brooks and Sen. William V. Roth (R-Del.), chairman of the Senate Governmental Affairs Committee, "to develop the issues that we had to zero in on."
Bowsher said that his desire was "to get our people back into the plants of the major contractors" and that the legislators turned out to share that desire. This signalled a radically different atmosphere on Capitol Hill than the one Campbell faced: The GAO would have what Bowsher called "joint thinking" rather than traumatic opposition. Indeed, he said, it was Brooks and Roth who requested the GAO to send auditors to the 10 plants.
By the fall of 1983, the GAO was short of auditors expert in examining contractors' books and was training a new cadre. Starting in the summer of 1984, they went to the plants to examine, in Conahan's description: the reasonableness of subcontracting costs negotiated under prime contracts, the adequacy of Defense Department "surveillance of contractors' cost-estimating methods and practices," the adequacy of Pentagon "technical reviews of contractors' price proposals," unpriced contracts and overhead costs.