Senate Committee on Homeland Security and Governmental Affairs

September 10, 2008

DEFENSE WHISTLEBLOWERS TELL OF MANIPULATION OF AUDITS
Agency Values Deadlines, Efficiency More Than Accuracy and Saving Money

Homeland Security and Governmental Affairs Committee Chairman Joe Lieberman, ID-Conn., and Ranking Member Susan Collins, R-Me., Wednesday heard testimony from Defense Contracting Audit Agency (DCAA) whistleblowers who said audits of government contractors were manipulated by supervisors without consideration of the facts and sometimes in response to pressure from federal procurement officials and the contractors themselves, potentially costing taxpayers millions of dollars.

The hearing was called to examine in detail a report from the Government Accountability Office (GAO), which substantiated whistleblower claims that auditors’ conclusions were overruled by supervisors without supporting evidence and that audit conclusions were changed, allowing contracts to bill the government under reduced scrutiny.

“Investigators have found DCAA has issued audits favorable to contractors that are not supported by facts, thereby encouraging waste, fraud, and abuse of taxpayer money,” Lieberman said. “One of the causes of these problems is that DCAA is obsessed with the speed of process rather than the accuracy of the results. The reports also raise questions of whether the DCAA is independent enough to be able to stand up to pressure from both federal agencies and contractors.”

Senator Collins said, “The GAO findings suggest that wasteful or fraudulent use of taxpayer dollars has gone undetected and that the government may have been overbilled by some contractors to the tune of millions of dollars. Thorough, accurate, and tough audits are essential, and DCAA’s work must be untainted by pressure or conflicts of interest. Instead, the GAO found ‘numerous failures’ to comply with government auditing standards. That is a serious failing for, as the GAO notes, substandard audits do not provide assurances that billions of dollars in payments to these contractors complied with federal regulations, accounting standards, or contract terms. As we address the particular problems that the GAO has identified, we must also work to reestablish DCAA as a first-rate audit agency.”

Whistleblower Diem Thi Le told the Committee that one of her audits concluding a contractor’s accounting systems were “inadequate” was reversed because DCAA is more concerned with completing audits quickly than it is in saving the taxpayers money. Her complaint to the Defense Department Inspector General’s whistleblower hotline about the case was referred back to DCAA headquarters. “I believe that my identity as a whistleblower was not adequately protected and therefore I have suffered reprisal from DCAA management,” she said.

The GAO report – publically released last month – also found:

• Contractors and DOD contracting officials improperly influenced the audit scope, conclusions and opinions of some audits;

• DCAA managers took actions against staff, discouraged them from speaking to investigators and created a generally abusive work environment.

• Trainees were assigned to very complex audits. In one DCAA office responsible for auditing over $6.2 billion in contract negotiations, supervisors signed off on audits without reviewing work papers, and inexperienced trainee auditors were assigned to handle complex audits.

Lieberman and Collins have long considered mismanagement of federal contracts to be one of the biggest operational challenges facing the federal government. In August 2006, the Senators asked GAO to look into DCAA’s auditing practices, in part because of the whistleblower allegations and because they wanted GAO to determine how pervasive the problems were within DCAA. That report is expected to be completed later this year.

The two Senators also co-authored comprehensive legislation, which has been passed by the Senate, to address the lack of competition, transparency, and accountability in government contracting. Parts of the bill were enacted as part of the FY08 National Defense Authorization Act. In addition, Lieberman and Collins have held hearings to expose waste, fraud, and abuse in government contracts, including Iraqi reconstruction contracts. They are strong supporters of the Special Inspector General for Iraqi Reconstruction and cosponsored legislation to extend the authority and increase the resources for SIGIR.

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