Government Criticisms of DCAA Mount

(Editor’s Note. Criticisms of DCAA seem to be the number one “hot topic” these days and commentary on these criticisms and more importantly, how they are likely to affect contractors subject to DCAA audits, are starting to appear. We intend to address these issues in more depth in the next issue of the GCA DIGEST.).

Following whistleblower allegations about DCAA audits in California the General Accountability Office issued a July 2008 report substantiating significant problems (see the July-August 2008 REPORT for details). Congress asked the GAO to expand its audit of DCAA where Gregory Kutz of the GAO gave testimony to the Senate Security and Government Affairs Committee on the most recent GAO report. He stated that 65 of the 69 DCAA audits it reviewed did not meet professional audit standards and demonstrated adverse opinions on accounting and billing systems were reversed with little evidence to support the change. Mr. Kutz stated DCAA had rescinded 80 audit reports in response to GAO’s reports representing an “unprecedented” action. Mr. Kutz testified that DCAA’s problems result from a culture overemphasizing producing audits on time and within budget and discouraging taking time to do it right. The GAO report called for extensive changes that would give DCAA protections and authority granted to inspectors general and recommended, long term, that DCAA be made a separate DOD component as an independent audit agency no longer reporting the DOD procurement.

The Comptroller testified that DCAA should improve its audit quality and determine whether its 24,000 audits per year are appropriate. He stated many of the problems stem from understaffing announcing the addition of 500 new auditors in 2010. He disagreed with the GAO recommendations to grant them powers enjoyed by IGs and making them an independent audit agency. DCAA director April Stephenson testified that DCAA has worked diligently since the 2008 GAO audit report to improve quality of its audits citing 50 specific improved actions including (1) doubling quality reviews (2) no longer providing feedback to contractors on draft corrections or removing corrected deficiencies from the audit reports (3) launching an anonymous hotline so DCAA employees can report management abuse without fearing retaliation where allegations will be investigated by an internal DCAA ombudsman or the IG.

The Senate committee members chimed in stating they are “outraged” and the charges are equivalent to “capital crimes” and they have “run out of patience” where DCAA will need a “complete overhaul.”

A week later, the DOD IG released a report stating the work environment at DCAA is “not conducive for performing quality audits.” Its interviews with DCAA employees indicated concerns over excessive time pressures to complete audits, uncompensated overtime, changes to its audit results and opinions and unprofessional behavior but earlier allegations of an “abusive environment” was not confirmed. The report cited several problem areas either it or the GAO uncovered: (1) recession of defective pricing audits were not explained (2) contractors are not removed from the direct billing program when billing system deficiencies are found (3) inadequate corrective actions were taken following negative results from floor check audits and (4) DCAA needs to identify negative impacts to the government for uncompensated overtime hours.

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