Our old friends at the Defense Contract Audit Agency are back in the news again.  In Hollywood they say there’s no such thing as “bad” publicity, but we doubt Mr. Fitzgerald and his Executive Committee would agree with that saying.

Before we relate DCAA’s latest woes, let us first look at its sister Executive Branch oversight agency, the Minerals Management Service (MMS).  We have posted before about the seemingly disproportionate focus on contractor wrongdoing, and the seeming lack of similar focus on government employee wrongdoing.  Recently we have learned that employees of the agency—which regulates offshore drilling such as that of BP in the Gulf of Mexico—accepted “lunches, football tickets, hunting trips and other gifts” from the same companies it was supposed to be overseeing.  That type of independence violation makes all the hoopla about DCAA’s “lack of independence under GAGAS” seem kind of de minimus, doesn’t it?  But that’s not all.

A so-far unreleased audit report issued by the Department of Interior’s Inspector General found evidence of a “cozy relationship” between the Federal regulators and those they regulated, according to statements made by Secretary of the Interior Ken Salazar.  But that not anything new. In mid-May, the Project on Government Oversight (POGO) reported that “In 2006 then-Interior Department Inspector General Earl Devaney gave Congress numerous explicit signs in testimony before the House's Energy and Resources Subcommittee, when he described the culture at the Department of the Interior as one that ‘sustains managerial irresponsibility and a lack of accountability.’”  Sound familiar?  DCAA received similar criticisms based on DOD IG and GAO reports.

Moreover, as the article (link above) reminded readers: “In 2008, federal inspectors rapped workers in MMS' Lakewood, Colo., office for having sexual relationships with and accepting gifts from energy company representatives. Federal investigators also documented millions of uncollected oil and gas royalties because of accounting problems at MMS.” On May 28, 2010, MMS Director Elizabeth Birnbaum resigned.  Sound familiar?  DCAA Director April Stephenson “accepted reassignment” after more than a year of constant criticism leveled at her agency.

But despite what you may hear about DCAA, at least we don’t have IG—or mainstream media—reports braying about defense auditors accepting gifts and going hunting with the defense contractors that they audit.  So they’ve got that going for them….

On the other hand, DCAA doesn’t seem to have completely silenced its critics, or persuaded Congress that it has turned the corner with respect to audit quality.  For example, Senator Charles Grassley (R-Iowa) has expressed concerns that the Centers for Medicare and Medicaid Services (CMS)—the oversight agency charged with combating healthcare fraud—is overly reliant on DCAA for performance of audits.  This article at GovExec.com reported that Senator Grassley was drafting a letter to CMS acting Administrator Charlene Frizzera in which he stated his “deep concerns” with CMS’ reliance on DCAA, and asserted that DCAA was a “substandard auditor.”  According to the article, Grassley will request that CMS “provide a written justification to his office for its continued contracting with DCAA and details of any independent verification of the agency's work.”  The article also notes that DCAA has received roughly $3 million in inter-agency reimbursement payments from CMS over the past 3 Government Fiscal Years.

But that’s not all.  A May 28, 2010 blog post at POGO reported on a memo jointly prepared and signed by DCAA Director Patrick Fitzgerald and DCMA Director Charlie Williams.  The memo, which can be found at the POGO blog post (link above), largely reiterates testimony by Shay Assad (Defense Procurement & Acquisition Policy) before the Commission on Wartime Contracting.  It also reiterates language from the DCMA/DCAA dispute resolution process that Mr. Assad published earlier this year.  It seems pretty benign to us.  But POGO isn’t so sure.  The blog author writes—

I think there are two ways to look at this memo. On the one hand, this could be an effort from the new DCAA Director to try to ensure that DCAA findings aren't ignored by the Defense Contract Management Agency (DCMA), as many at DCAA have claimed was the case in the past, and that this is a step in the right direction to make sure that both agencies work together to hold contractors accountable.

But on the other hand—and I think this is probably the case—this memo demonstrates another instance where DCAA's independent audit findings may be undermined. The memo states that auditors and contracting officers should work together to ‘resolve’ audit issues and emphasized that even when differences occur, DCMA and DCAA should strive to work the issues within the respective organizations. This memo gives the impression that audit findings are something to be ‘resolved’ between the two organizations rather than audit findings to be acted upon by the contracting officer. And to the degree that this is the case, or that this memo confuses the independent role of DCAA, the Director of DCAA should consider withdrawing the memo.

The author demonstrates ignorance of the relationship between DCAA and DCMA in the DOD oversight process.  Most readers understand that DCAA’s role is advisory only, and it is the DCMA contracting officers and administrative contracting officers who have the authority to act officially on behalf of the Defense Department.  That relationship is not a gap in contractor oversight or internal controls—it’s the way the FAR requires it to be.

Moreover, when contrasted with the previous audit guidance in place at DCAA—which goes just short of expressly requiring auditors to report DCMA contracting officers to the DOD Inspector General if the CO’s don’t accept audit findings as submitted—it is clear that DCAA and DCMA are trying to patch-up their strained relationship.  It seems to us that POGO is trying to stir up a tempest in teapot.

Regardless of the foregoing, DCAA has yet to be let out of the doghouse.  Neither GAO nor the DOD IG has issued any reports that would suggest things have improved at the Defense Contract Audit Agency.  Until such reports are issued, Mr. Fitzgerald should be considered to be on probation.  But things could be worse for him—he could be assigned to the Minerals Management Agency!