In early December 2009 the Department of Defense Inspector General (DOD IG) issued its 9/30/2009 semiannual report to Congress.  As the name implies, the report is issued every six months in accordance with Public Law.  While the report is interesting reading, our primary interest lies in what it reports about DCAA activities during that time period.  But before we get into the DCAA discussion, let’s take a moment and note some highlights.

• The DOD IG staff is reported to be 1,570 with a budget of $272 million.
• In the six month reporting period, the DOD IG pursued many investigations, obtaining 197 indictments, 175 convictions, 55 suspensions, and 81 debarments.
• 224 subpoenas were issued.
• 1,153 hotline cases were opened, and 909 cases were closed.
• 53 official audit reports were issued. In addition, 78 “other oversight” reports were issued—among which was the IG’s assessment of DCAA’s work environment (D-2009-6-009), as well as a review of DCMA’s follow-up actions in response to DCAA audit reports on CAS compliance and contractor internal control system adequacy with respect to contractors involved in Iraq reconstruction activities (DD-2009-6-004).
• Roughly 1,000 vouchers representing more than $90 million in payments “were provided to [the Defense Criminal Investigation Service, DCIS] and its partners to support seven investigations.”

The report includes several anecdotes of fraud and corruption.  Among them are allegations of bribery, bid steering, false statements, false claims, wire fraud, money laundering, etc.  All of the items reported were related to Defense Department contracts, contractors, and/or Pentagon employees. Contracting activities were primarily (though not solely) in Southwest Asia, and covered such areas as construction, trucking/logistics, and even acquisition of bottled water.

For example:

On April 17, 2009, three DoD contractor employees were each sentenced to a total of 125 months imprisonment and three years supervised release, and ordered to pay more than $1.1 million in restitution for major fraud against the government, theft, mail fraud, and conspiracy.  The defendants defrauded the government and two other victims by submitting false time and material bills for reconstruction work during the post-9/11 reconstruction of the Pentagon. Some of the falsely billed labor and materials represented work on a newly constructed bar and restaurant owned by two of the defendants.  On May 1, 2009, a subcontractor involved in the scheme was sentenced to two years probation and fined $10,000 for conspiracy to defraud the government. The subcontractor received home remodeling materials and labor that he charged to the Pentagon reconstruction contract.

Another example:

Between May and July 2009, four U.S. Army civilian employees, a former Army major, and a DoD contractor were sentenced to serve a combined 121 months imprisonment and ordered to pay more than $116,000 in restitution to the government for conspiracy to defraud the United States. Acting as public officials on behalf of the Army, the coconspirators circumvented the government’s competitive bidding process to influence and steer the award of lucrative government computer contracts to an information technology company in return for cash and merchandise.  The co-conspirators provided the IT company with internal procurement information related to impending U.S. Army acquisitions, which allowed the company to submit the lowest bid and obtain contract awards in lieu of fair and open competition. In addition to influencing the bidding process, the co-conspirators engaged in a scheme where they shipped undamaged government property from the Tobyhanna Army Depot to the IT company for repairs, but the items were misbranded as new equipment and resold to the government.

With respect to contractor disclosures (about which we’ve written before), the reports notes that DOD IG is in the process of “closing out” disclosures made under the now-defunct Voluntary Disclosure program, and has received 81 disclosures under the new Mandatory Reporting program through the end of the reporting period.  According to the report, the majority of the disclosures have involved labor mischarging.  A chart from the report, illustrating the breakdown of contractor disclosures under the new program, is shown below.

Appendix D of the report is devoted to DCAA activities.  According to the report, DCAA completed 11,688 audit assignments in the six month period reporting period.  Of that amount, 76 reports were related to post-award (defective pricing) audits, and 708 audits were related to compliance with the Cost Accounting Standards (CAS). In the reporting period, DCAA examined $133.5 billion dollars.  Of that amount, auditors questioned $971.4 million (0.73%). With respect to forward priced proposals, DCAA recommended negotiation savings of $9.572 billion. There was no discussion regarding amounts of questioned costs sustained or successfully negotiated by the recipients of the audit reports.

With respect to audit reports issued to various commands and entities that are being tracked in the DOD’s Contract Audit Follow-up (CAFU) database, the report states that 2,020 audit reports are being tracked. Of this amount, 403 audit reports were closed in the reporting period.  The 403 closed audit reports included $468.1 million in questioned costs.  Of that amount, $176.6 million was sustained, representing 37.7% of total questioned costs.

In addition, DCAA reports that 153 of the CAFU reports are in litigation (47 of which are under criminal investigation).  DCAA estimates that the questioned costs in the litigated findings are valued at $1.826 billion.

Were one of an analytical mindset, one could find a series of DOG IG reports and plot some trendlines that would look at audit reports issued by DCAA, amount of dollars examined, costs questioned, and questioned costs sustained.  We’ll leave that exercise for the reader.

See the entire semiannual DOD IG report here.