Recently we’ve posted our thoughts about a recent DOD Inspector General audit report that took issue with DOD’s decision to forego DCAA audits on certain low dollar-value contractor cost proposals, which pushed that workload over to DCMA contracting officers. In the past, we’ve posted our thoughts about DCAA’s insane backlog of unperformed audits of contractor proposals to establish final billing rates. We’ve also posted our musings about a GAO audit report that found that DCMA had been mismanaged and, as a result, had lost critical skills—leaving it overly reliant on DCAA.

As a result of the foregoing—as well as certain other issues such as DOD’s difficult-to-understand obsession with the healthcare costs of ineligible dependents—we called out DCAA, DCMA, and DPAP leaders. We suggested that it was time for them to let other folks take their turns in the batter’s boxes. That suggestion was quoted by GovExec.com in its story about DCAA “auditing triage” approach that reviews “fewer contracts” but focuses on “high-dollar returns.”

Recently, GovExec published a “rebuttal” to the DOD IG audit report from “a senior Defense official familiar with DCAA.” That anonymous source generated a nice blind quote that the IG “analysis is fundamentally flawed” and asserted that the new audit approach does not leave “money on the table.”

There are more blind quotes from the anonymous senior Defense official. They’re hardly worth mentioning, because they’re blind quotes. Anonymity might be all the rage within The Beltway, but we don’t believe anonymous quotes should be taken too seriously. Nor should anonymous comments left by self-identified current and former DCAA auditors.

But before we move on, we want to let you know that this anonymous senior Defense official offered the following assertion to GovExec—

The official said the savings DCAA achieved through its reassignments of employee hours to high-risk contracts were higher in fiscal 2012 than the previous year, and, contrary to the IG’s conclusions, the efficiency of the ‘move of auditor resources to the right spots has proven out.’ DCAA’s backlog of pending audits, the official added, ought to come down now that the agency has been given additional people and resources.

Well.

We’ve posted our thoughts about this issue on this website blog for all to see. The fact is that we agree with the anonymous official. We also expect that DCAA will be able to show a significant reduction in its backlog of pending audits in its next reporting cycle. However, we disagree as to the cause of the reduction.

The anonymous Defense official asserts that the backlog reduction stems from “additional people and resources”—but we think it’s going to come from risk-waiving low ADV audits as well as relaxing some of the GAGAS-compliance insanity imposed on the auditors during 2010 and 2011. Other contributing factors will be the near disappearance of CAS compliance reviews, business system reviews, and post-award “defective pricing” audits from the “pending” category.

But that’s not all.

The linkage of MAARs with the 10100 audits has permitted auditors to perform only the most superficial procedures to address the Mandatory Annual Audit Requirements. We’ve also noticed that FAOs are dialing down the WAWF voucher reviews that have plagued the audit workforce since DCAA withdrew contractors’ direct-billing authority. The use of Memos in lieu of formal audit reports has permitted costs to be questioned without the unpleasant necessity of complying with GAGAS and going through all that nasty IRR and SAQ stuff that slows down more formal audits.

So we think those are the critical causal factors that will lead to the backlog reduction, and not the addition of “people and resources.”

Also: to the anonymous “senior Defense official familiar with DCAA,” we offer the observation that the phrase “additional people and resources” is, by and large, redundant. DCAA’s audit resources are made up of nothing but people. Its people are its resources. Something to consider the next time you offer a blind quote, perhaps?

And speaking of DCAA people: we get e-mails. A couple of concerned DCAA auditors (or folks who claimed to be DCAA auditors) weighed-in with some vitriolic comments about DCAA leadership and audit procedures. A couple of them asked that Apogee Consulting, Inc. sponsor a discussion forum on this site, so as to give these disgruntled DCAA folks a place to vent. To those people: we are looking at the best way to make that happen. It’s our New Year’s resolution.

But make no mistake: despite our provocative assertion that the current leaders of the DOD contractor oversight regime should consider making room for new leaders with new visions, we are NOT DCAA-haters. We respect the mission of the Defense Contract Audit Agency and we respect the mission of the Defense Contract Management Agency. Those are essential organizations that provide a critical set of skills that support the war fighters in executing their national security mission.

But we think those missions are so critical that they demand a more effective leadership. We need effective oversight, and not more entrenched bureaucracy.

So if we do open up a discussion forum on this site, it will be moderated. And we will demand constructive criticism; we will not tolerate personal attacks. Those who can’t offer respectful, informed, criticism will be banned. You have been warned.

And to those who e-mailed us about the new Leadership Program at DCAI, thanks for the info. Our natural cynicism tells us that using the current leaders to train the next generation of leaders is going to be problematic. We’ve also come to the conclusion that leaders can’t flourish in an environment of fear, where the truth is suppressed in order to perpetuate the party line. (That latter comment is not directed at any particular organization; we think it’s a general truism.) So while we’d like to be able to see this as a hopeful sign, we’re not really convinced it’s going to work out as planned.

As a side note, we offer another observation that when you create so many new Branch Offices and Resident Offices, you create an artificial demand for new leaders. If you were to de-establish those new FAOs and “demote” those recently promoted Branch Managers back to the ranks of experienced Supervisory Auditors, you might find you had some excellent auditors, capable of exercising judgment and discretion. We offer that observation in the spirit of constructive criticism.

See? It’s not that hard.

The M1126 Stryker Interim Combat Vehicle is a Twenty-First Century combat personnel transport for U.S. Army Brigade Combat Teams. It is notable for the number of configurations being produced. The U.S. Army lists two main variants, the Infantry Carrier Vehicle (ICV) and the Mobile Gun System (MGS). However, the ICV has eight configurations, including: Reconnaissance Vehicle (RV), Mortar Carrier (MC), Commanders Vehicle (CV), Fire Support Vehicle, (FSV), Engineer Squad Vehicle (ESV), Medical Evacuation Vehicle (MEV), Anti-tank Guided Missile Vehicle (ATGM), and NBC Reconnaissance Vehicle (NBCRV).

We call it a Twenty-First Century combat vehicle because of its history. That history also illuminates its production challenges, as well as the challenges associated with maintenance and repair of the Strykers in the field. We quote—

The Stryker family of vehicles acquisition program began before the events that would lead us to war in Iraq and Afghanistan. As a part of acquisition reform, the Stryker vehicle was a nondevelopmental item, lending itself to a performance-based logistics approach through the use of CLS [Contractor Logistics Support] because the technical data for the vehicle were not readily available. PMO Stryker stated that the pace of acquisition became an extremely rapid effort that took 31 months from contract award to the initial operational deployment in Iraq.

In addition to the rapid effort, the Army’s deployment needs created complexities requiring concurrent development and production of a common chassis for the 10 original Stryker variants before completion of production verification testing.

Additionally, the program had little operational tempo data from garrison deployments that could be used to identify performance-based logistics metrics for deployment, as well as the first brigade deployment to Iraq, which included CLS, that was in October 2003. This escalated to three Stryker brigades deployed to Iraq in 2006, that required sustainment for 2 years. As brigades were eventually redeploying from Iraq, other brigades were deploying to Afghanistan. The Stryker brigades were now spread across two operational theaters with differing environments, operational tempos, and threats.

Metrics gathered from one theater were not applicable to the new theater. The new threat in Afghanistan led to an urgent requirement to change the design of the flat-bottom Stryker vehicles to a more survivable double-v hull model. Design, test, production, and fielding were accelerated to get this new design into the hands of the soldier within 18 months. This added another new complexity to fleet support as both flat-bottom and double-v hull vehicles required support. The Army deployed a second Stryker brigade to Afghanistan, requiring additional CLS support. The double-v hull vehicles increased the variants to 17, which caused additional development, production, and sustainment complexities. The deployed fleet increased operational miles 10-fold from when fleets were in garrison/peacetime deployment. The operational environment, tempo, objectives, deployment, and utilization plans were all fluid as the threat would change in theater, creating a higher level of complexity for identifying performance-based logistics metrics.

[Emphasis added.]

The foregoing history is quoted from a recent DOD Inspector General report reviewing issues associated with the logistics support for the Stryker PMO. The CLS is provided by General Dynamics Land Systems, who was also the Prime contractor for production. GDLS seems to be doing a bang-up job with respect to CLS—despite the huge challenges described above by the DOD IG—because (according to the DOD IG) it is achieving an operational readiness rate in excess of 96 percent—far in excess of the readiness goal of 90 percent.

So that part was working quite well but, nonetheless, the DOD IG managed to find other issues to squawk about. It reported that the PMO Stryker team “did not properly account” for nearly 20,000 line items of Government property being managed by GDLS, which had a value of nearly $900 million. To be clear, these were property items that had been acquired by GDLS and were being managed by GDLS in the Government-Owned, Contractor-Operated (GOCO) Stryker warehouse, located in Auburn, Washington. According to the DOD IG—

The warehouse has about 700,000 square feet of internal storage space and 30,000 square feet of external storage space. General Dynamics’ personnel receive, store, manage, and issue Stryker inventory for a variety of Stryker efforts, including CLS, battle damage assessments and repairs (BDAR), Reset, and retrofit. … General Dynamics also managed two other Stryker inventory wholesale warehouses at its London, Ontario Canada, facility and the GOCO European Distribution Center in Germersheim, Germany.

GLDS performs its CLS responsibilities under a 6 year CPFF contract valued at roughly $1.5 billion. The DOD IG stated—

General Dynamics is responsible for performing scheduled and unscheduled maintenance; requesting, receiving, storing, and issuing all Stryker vehicle spares and repair parts; and documenting all part consumption and vehicle repairs.

The inventory valuation problem stemmed from the fact that, when GDLS delivered the incoming parts and equipment to the GOCO warehouse, it was properly classified as “government property”—but the PMO Stryker team (i.e., the Government folks) incorrectly classified those inventory items as “contractor-acquired property (CAP).”

It’s a subtle difference perhaps best appreciated by a Government Property Administrator or contractor Property Manager. We’ll let the DOD IG explain the issue to you—

PMO Stryker relied on the CAP definition in FAR Part 45, Government Property,” which defines CAP as “property acquired, fabricated, or otherwise provided by the contractor for performing a contract to which the Government has title.” CAP business rules for cost-reimbursable contracts were generally designed to address “property acquired, fabricated, or otherwise provided by the contractor” that would eventually be delivered to the Government as part of a higher level end item, not as used by the Army on its logistics services contract with no end item deliverable.

While Stryker inventory consumed during the contract period of performance for the logistics services contract could possibly be considered CAP, the inventory identified in this report was from prior-year periods and needed to be officially delivered and accepted by the Army and accounted for as Government property. In regards to BDAR and Reset efforts, the situation was basically the same because both efforts had specific periods of performance so inventory not consumed during periods of performance needed to be officially delivered and accepted by the Army and accounted for as Government property.

[Emphasis in original.]

The end-result of the inventory nomenclature SNAFU was that “the Stryker inventory was not reported on either the contractor’s or the Army’s financial statements, resulting in no visibility of the Army assets (parts and value).”

Hey, no big deal. That was only $892.3 million that was not being reported on anybody’s financial statements. It’s not like that was a material amount of money, or anything.

When the DOD IG auditors pointed out the SNAFU to the Stryker PMO team, they got push-back. The PMO team’s position was that the property wasn’t delivered to the Government until the item in inventory “was placed on a Stryker vehicle.” In other words, the Stryker PMO team—including the DCMA representatives—believed that GDLS retained accountability over the inventory, because GDLS managed the inventory. They did not believe that the inventory was government-owned until it was installed on a vehicle.

The DOD IG didn’t buy that interpretation, responding—

… the Stryker inventory stored at the GOCO warehouse does not support the production of Stryker vehicles that are later delivered to the Army and accepted by DCMA. Instead, the Stryker inventory consists of spare parts that are used to sustain fielded Stryker vehicles for which the Army had already taken delivery. Therefore, based on the interpretation of the CAP guidance by PMO Stryker and DCMA officials, the Army will never take delivery of the Stryker inventory, assign the inventory a value, record it in an appropriate Army property accountability system, and recognize the inventory on the Army’s financial statements.

[Emphasis added.]

The DOD IG also asserted—

Although PMO Stryker and Army Contracting Command officials classified the Stryker inventory as CAP, the officials did not require General Dynamics to account for the inventory as CAP, follow guidance and accept delivery of CAP by contract line item where the material then becomes Government property, or identify the actual cost of the CAP inventory acquired on previous contracts and transfer the inventory cost to the current Stryker CLS contract.

The DOD IG’s point was, if the Stryker PMO team really thought that all that inventory sitting in the Government-owned warehouse awaiting installation on a military vehicle was, in fact, contractor-acquired property, then they blew the accounting and control there, too.

There was more to the audit report. The PMO Stryker team got gigged for some obsolete parts that should have been disposed of. (But how would they know the parts were obsolete, if they never recorded them in any Army inventory system? How would they dispose of obsolete parts that were never part of the official property records?)

Regardless of the Stryker property SNAFU and the fun of pointing out that nearly $900 of MILSPEC parts were sitting off record, awaiting a potential eBay auction, nobody should ignore the most important fact of this story. This is a very, very, complex fleet of vehicles—with a very challenging operating environment. And yet, despite all obstacles, the PMO Stryker team and GDLS managed to maintain a 96 percent vehicle operational readiness factor.

And that’s simply outstanding.