GSA Spending Spree—We Were Wrong
“When I’m wrong, I say I’m wrong.”
– Dr. Jake Houseman, from the movie Dirty Dancing
We were proud of the story we posted on the GSA spending spree, which (infamously) included a 2010 “conference” in Las Vegas that led to the resignation of the GSA Administrator as well as a tarnished image for the entire General Services Administration.
We were proud that we were able to link the GAO reports regarding excessive Industrial Funding Fee (IFF) payments to the excessive spending, and we were proud that we were the first to point out the connection and to understand that it was contractors’ payments that had been used to fund the lavish living of the GSA folks (and not taxpayer funds). And we were proud that Francine McKenna showed an interest in our story and posted it on her popular blogsite re: The Auditors. And then Francine cross-linked to it in her Forbes online blog and we were tickled pink.
We were less tickled pink, and certainly far less proud of our work, when folks more knowledgeable that we were about how GSA operated pointed out the fundamental flaws in our investigative reporting. We learned that GSA is a complex organization, not only managed by Region, but also by product/service. For example, we learned that GSA provides a “Federal Acquisition Service” as well as a “Public Buildings Service.” It certainly appears that the Federal Acquisition Service manages the MAS programs that receive the IFF payments from contractors, while the Public Buildings Service manages the Federal Buildings Fund, which receives payments from renters and lessors of GSA-managed buildings.
And Mr. Neely, the focus of much of the ire directed at GSA’s spending habits, was a Region 9 Public Buildings Commissioner. As several commenters asserted, the excess IFF profits only accrued to the benefit of FAS but not to PBS, and Mr. Neely spent only PBS funds, and therefore he did not spend the IFF profits. We got that part entirely wrong.
We are chagrinned that we missed the mark by such a wide margin. In particular, we offer a heartfelt apology to Francine McKenna, who trusted that we knew what we talking about. We let her down.
Things we got right—
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GSA receives payments from contractors and from other agencies, which act to offset the need for direct appropriations from Congress and minimizes the use of taxpayer funds.
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GSA’s IFF program has been criticized for nearly a decade for generating revenue excessive to the agency’s needs.
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GSA’s IFF program profits have been retained in reserves and have not been transferred to the Treasury, which would have reduced the current budget pressures (to a limited extent).
We hope the things we got right will not be overshadowed by the things we got wrong. Nonetheless, we apologize for our errors.
Audit Problems at Los Alamos
The National Nuclear Security Administration (NNSA), a special agency within the U.S. Department of Energy (DOE), operates the Los Alamos National Laboratory (LANL), using funding provided in part from the U.S. Department of Defense (DOD).
Los Alamos National Security, LLC (LANS) operates LANL on behalf of NNSA and DOE.
LANS is a limited liability corporation formed by the University of California, Bechtel, Babcock & Wilcox Technical Services, and URS Energy and Construction. LANS has operated LANL since 2006, when it took over from the University of California, who had operated the Laboratory on behalf of the DOE (and its predecessor agencies) since the days of the Manhattan Project in World War II.
Still with us? Good. You will need to know that alphabet soup in order to navigate this article.
On April 19, 2012, the DOE Inspector General (DOE IG) issued audit report number OAS-L-12-04, with the catchy title: “Questioned, Unresolved, and Potentially Unallowable Costs Incurred by Los Alamos Laboratory During Fiscal Years 2008 and 2009.” According to the DOE IG audit report, during those two years LANL “incurred and claimed” $3.7 Billion, of which approximately $2 Million was identified as being “unresolved questioned costs” and another $437 Million was identified as being “FYs 2008 and 2009 and prior year subcontract costs that were unresolved pending audit or review by Los Alamos' Internal Audit.”
$2 Million out of $3.7 Billion is a pretty paltry amount: it’s about three-tenths of one percent, according to our math. But we were interested in the story behind the audit report, and we think it’s worth bringing to your attention as well.
Unallowable Labor Costs
According to the DOE IG audit report, the $2 Million in “questioned and unresolved” costs related to costs questioned by LANL’s own Internal Audit function, which found certain costs to be either unallocable to the contract or else in violation of the contract’s “allowable cost provisions.” $1.9 Million of the $2 Million in questioned costs was related to employee labor charges. The audit report stated—
For example, the [internal] audit identified two employees who charged a combined total of 1,656 hours to the contract between November 2007 and June 2008 while conducting job searches. Internal Audit recommended that Los Alamos senior management determine if the costs should be refunded to NNSA as unreasonable costs.
That tells us that the internal audit found employees spending time working on tasks unrelated to the contract’s Statement of Work. (We have to assume that job searches were unrelated to the contract Statement of Work. The audit report doesn’t tell us that, but the finding would be nonsense otherwise.) Now, we are not sure what the LANL timekeeping policies were or what LANL’s internet usage policy was, or whether the employees in question were in violation of those polices. There’s a lot we don’t know, because the DOE IG audit report doesn’t provide any of those details. But if “unreasonable labor cost” is the best that the LANL Internal Audit function could come up with, then we suspect the problem really wasn’t so bad after all.
And LANL management seemed to have reached a similar conclusion. The DOE IG audit report stated that, “According to a September 2010 Los Alamos memo on actions in response to the report, Los
Alamos management determined that the $1.9 million was not significant or unreasonable.” That tells us that LANL management reviewed the Internal Audit report and disagreed with its findings.
The LANL management position makes some sense if you understand that the allowability of the labor cost of salaried, exempt, employees is a complex topic. (For example, you need to understand that a salaried, exempt, employee gets paid his/her salary for a full week even if the person only works five minutes, according to Federal labor laws. And you need to understand that unallowable labor charges for salaried, exempt, employees needs to be identified and segregated from allowable labor costs only if material in amount. But we digress….)
NNSA disagreed with LANL management’s disagreement, and referred the matter to the cognizant Contracting Officer for resolution. According to the audit report, as of January 2012 no resolution had been reached. So that’s the “unresolved part” of the issue: nearly five years after the labor hours were recorded, the parties still haven’t reached a resolution on this miniscule issue. Hey DOE Contracting Officer, if you just delay making a decision for another 18 months, you can forget about it because the Contract Disputes Act’s Statute of Limitations will have precluded any claim you could make.
And taxpayers wonder why government contracts cost so much…
Unresolved Subcontractor Costs
The DOE IG audit report reported that $165,092,842 in costs incurred by LANL subcontractors during Fiscal Years 2008 and 2009 were also “unresolved.” The costs were unresolved because, even though LANL reviewed those costs, the reviews (allegedly) did not comply with Generally Accepted Government Audit Standards (GAGAS). Since the reviews did not comply with GAGAS—
Therefore, the reviews did not comply with the terms of the prime contract, which requires periodic audits of subcontracts where costs incurred are a factor in determining the amount payable. We reviewed the workpapers used to support two of ASM's reports and concluded the workpapers did not provide sufficient evidence to determine what work was done or to support the conclusions reported by ASM.
We found that comment to be quite interesting. The DOE IG audit report provided some details that shed light on the situation.
LANL’s Acquisition Services Management (ASM) function reviewed the $165 Million in subcontractor costs. However, ASM’s strategy and methodology were found to be lacking—not only by the DOE IG, but also by LANL’s own Internal Audit function. The DOE IG audit report stated—
… we noted that [LANL’s] Internal Audit found that ASM’s audit function was inadequately staffed, there were no FY 2008-2009 risk assessments of subcontracts requiring audits, and no audit work plan had been prepared for either FY 2008 or FY 2009, as required by the contract. After Internal Audit’s assessment of ASM’s subcontract audit function, Los Alamos management returned responsibility for the subcontract function to Internal Audit effective 2010. … Based on our review of ASM’s subcontract audit function and Internal Audit’s determination that the function was ineffective, we concluded that ASM reviews did not meet generally accepted Government auditing standards.
In addition to the $165 Million issue discussed above, the DOE IG audit report also stated that, in 2009, the DOE IG had informed NNSA that “28 subcontracts with $285,177,886 in FY 07 incurred costs … required audit.” However, LANS “believed most of the 28 subcontracts did not require audit under the thresholds approved in May 2009, which were made retroactive to the beginning of the contract.”
So which is it? Did the subcontracts need to be audited, or not? The DOD IG audit report doesn’t say.
The DOD IG also “questioned whether Los Alamos’ subcontract audit strategy, which was based on a subset of the Defense Contract Audit Agency’s (DCAA) requirements, provided sufficient coverage to ensure that only allowable costs were paid with NNSA funds.” The DOE IG reported—
Specifically, in addition to not auditing most subcontracts, we noted that ASM’s invoice review was not effective in ensuring that unallowable costs were not paid. Further, Internal Audit reported … that ASM’s validation of subcontract invoices … was not adequate to ensure that billed costs were accurately compiled, properly supported, and allowable. … We benchmarked Los Alamos’ subcontract audit strategy against the DCAA Audit Manual and found that Los Alamos’ strategy did not meet key DCAA requirements. For example … Los Alamos’ strategy had not procedures for: (a) independently determining or reviewing risk, leaving risk determination solely to ASM management’s judgment; (b) selecting or auditing a random sample of low-risk subcontracts; and, (c) triggering referral of contracts below $15 million annual incurred costs for audit.
Did you notice what we noticed?
Did you notice that the people most critical of LANL’s ASM subcontract audit strategy were the very same people who (a) used to perform subcontractor audits, and (b) would perform subcontractor audits again when the function was taken away from ASM.
Does that sound like the Internal Audit folks had an incentive to find problems with ASM’s work? Do you think that incentive might create a bias that could interfere with objectivity and independence?
We do.
That’s not to say that ASM’s strategy was faultless. Nope. In fact, the DOE IG report stated that, under ASM’s strategy, “only two of the 975 cost-type subcontracts and none of the 429 time and materials/labor hour subcontracts” were audited by ASM. Clearly, ASM had room for improvement.
But making LANS re-perform audits of somewhere in the neighborhood of $400 million in subcontractor costs, by the very same function that criticized the prior audits, seems a bit questionable to us. Surely there has to be another approach that would satisfy the need to protect taxpayer funds while minimizing the cost of doing so.
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City Treasurer/Comptroller “Looks After Every Tax Dollar as if It were Her Own”
Rita Crundwell was the longtime Treasurer and Comptroller for the city of Dixon, Illinois. Until recently, Dixon was notable for being the boyhood home of President Ronald Reagan. Now it is notable for being the scene of a humongous embezzlement scheme allegedly masterminded by Ms. Crundwell.
On April 19, 2012, the accounting-oriented website, Going Concern, reported that “Prosecutors allege that [the embezzlement scheme] went for the last six years and that Crundwell made off with $30,236,503 (and 51¢).“ The Going Concern story quoted a Chicago Tribune article, which stated—
Bank records obtained by the FBI allegedly show Crundwell illegally withdrew $30,236,503 from Dixon accounts since July 2006, money she used, among other things, to buy a 2009 Liberty Coach Motor home for $2.1 million; a tractor truck for $147,000; a horse trailer for $260,000; and $2.5 million in credit card payments for items that included $340,000 in jewelry.
Going Concern’s comment:
So a decent haul, but a Ford Thunderbird? Good Christ, spring a bit for the Lincoln Continental at least. Questionable taste in automobiles aside, one can't help but wonder how Dixon - a city with a population of just ~15,000 - could not notice millions of dollars missing. But they did! It's strange because in a city of that size, people gossip about one another's $35 overdraft fees, never mind millions of dollars being spent on multi-million dollar motorhomes.
According to Going Concern and the Chicago Tribune, Crundwell’s (alleged) scheme came to light when she took 12 weeks of unpaid vacation. Another employee noticed activity in a bank account that nobody knew even existed, and brought the issue to the attention of the City Mayor. Things kind of snowballed from there.
A follow-up Going Concern story reported that Crundwell had resigned from her position after being put on administrative leave without pay; yet even after that event Dixon City Commissioners “still voted to terminate Crundwell for falsifying city records, misconduct, criminal conduct and misappropriation of city funds.”
Ouch.
We like Going Concern’s view of these events—
… these allegations came as a surprise to the sleepy Illinois town because usually everyone knows everyone's business in a small town (legal, illegal, and otherwise) and you'd think that a town on a budget of approximately $8 million would, ya know, miss [$30 Million].
A week after Ms. Crundwell was terminated for (among other things) “misappropriation of city funds,” Going Concern was back with another piece of the evolving story, based on details found in Crundwell’s indictment. Going Concern reported that Crundwell’s (alleged) embezzlement may have been larger than first thought: prosecutors alleged that she purloined $53 million, and that the scheme had been in operation since 1990. Going Concern stated—
… Crundwell [started] the scheme in December of 1990 and was ‘[creating] fictitious invoices purported to be from the State of the Illinois to show the auditors for the City of Dixon that the funds that defendant was fraudulently depositing into the [bank] account were being used for a legitimate purpose.’ When she was away, she had a relative pick up all the mail for the City of Dixon, thus allowing her to keep the account set up for her fraudulent deposits secret.
How did Crundwell (allegedly) pull-off a scheme that took $53 million of city funds over a period of 22 years? According to this Chicago Tribune story, she was (allegedly) able to get away with it because of a “perfect storm” of “abysmally weak” financial controls in the city of Dixon. The Trib reported—
The local bank didn't alert the mayor about a city bank account listed in the care of Crundwell, according to federal charges.
An annual audit didn't send up red flags about the alleged transfers of hundreds of thousands of dollars at a time into and out of the account.
City officials didn't monitor the books closely enough to notice that huge amounts of tax dollars were disappearing, according to the charges.
Crundwell, a longtime, trusted employee, had a virtual stranglehold over city finances.
And those who knew Crundwell shrugged off her lavish personal lifestyle despite her comparatively modest $80,000-a-year city post, figuring her wealth came from her champion quarter horse breeding farms in Dixon and Beloit, Wis.
The Trib also printed comments about the efficacy of the city’s annual audit. It reported—
Crundwell is accused of funneling money from a handful of accounts into the city's Capital Development Fund account, which finances major capital improvements. Authorities said she then moved the money into an account that bore both the city's name and ‘R.S.C.D.A. c/o Rita Crundwell.’ It was from this account that the FBI alleges Crundwell spent more than $30 million in city money over the last six years on her horse business, a luxury motor home and horse trailer, jewelry, and credit card payments.
Sinason said the auditor might have spotted the large transactions but accepted Crundwell's explanations for them. But auditors are supposed to look more in depth at suspicious items. ‘Their answer is not enough. …You have to have other evidence,’ he said.
Czurylo, who now does forensic accounting in the private sector, said the huge transfers should have been ‘the red flag of all time.’
‘It sounds like somebody was asleep at the wheel,’ he said. ‘This should have been caught immediately.’
Maybe. But remember our articles about Sue Sachdeva and her embezzlement of $30 million at Koss. In her case, Sue had a 30 year-old antiquated accounting system, inadequate account reconciliations, inadequate controls over wire transfers, and a confederate, to assist her. Apparently, Rita was able to (allegedly) run a solo act. But one thing both ladies have in common is that they were long-time, trusted, executives of their organizations.
Maybe one way to combat insider fraud might be to shake things up every so often. Maybe rotate executives; give them some new responsibilities every so often. Who knows—it might strengthen the executive team. Or it may uncover corruption from a very unexpected source.
GFY 2011 Was a Great Year for DCAA, According to DCAA
Two documents were brought to our attention by one of our ever-attentive minions. Both of these documents appeared on the DCAA website very recently, with no public announcement or fanfare. The thing of it is: there really should have been some fanfare—because the audit agency deserves some serious applause for its efforts at spinning its problems into self-congratulatory praise.
The first document is entitled 2011 Year in Review. (Readers need to keep in mind that the Government Fiscal Year runs from October 1 through September 30 so, for DCAA, its Fiscal Year 2011 ended September 30, 2011. That’s the period being discussed.) It’s fairly innocuous but still worthy of somebody pointing out the spin.
And that somebody is us!
We grant that this document is likely produced for DCAA’s workforce and, as such, is designed to accentuate the positive and improve morale. But even granting that worthy objective, in a couple of statements the spinning is more obvious than usual—to the point of being misleading.
Everything you need to know about the spin, you can find on the cover of the document, with the following summary of DCAA activity in GFY 2011—
In 2011, DCAA examined over $125B in defense contractor costs and issued over 7,000 audit reports. These reports recommended $11.9B in cost reductions. Overall, DCAA’s efforts resulted in $3.5B in net savings to the Government. Based on these net savings, the return on taxpayers’ investment in DCAA was approximately $5.80 for each dollar invested. This $5.80 return represents actual savings that DoD can reinvest in other ways to help the warfighter.
What DCAA didn’t say was that issuance of 7,390 audit reports in FY 2011 represented a decrease of 37 percent from the number of audit reports issued in FY 2010. And DCAA didn’t say that the FY 2010 volume represented a decrease of 45 percent from the number of audit reports issued in FY 2009.
Issuance of 7,390 reports during GFY 2011 means that less than two audit reports were issued by each of DCAA’s 4,225 auditors over the course of a year.
We don’t want to seem overly harsh. But really? That’s pathetic.
But there’s more spin to be discussed.
As we’ve reported before, DCAA has a history of inflating its reported cost savings to the taxpayer, apparently so as to seem like a good investment when Congress discusses budgetary appropriations. So we view the figure of $11.9 Billion in “recommended cost reductions” with a great deal of skepticism. For instance, when DCAA reported that $9.6 of the $11.9 Billion was related to audits of “forward pricing,” then we expect that most of that reported amount related to proposals that were never awarded—saving taxpayers nothing.
Most of the document is a litany of anecdotes and case studies, much like one would find in a public company’s annual report. There’s absolutely nothing wrong with publishing this kind of stuff if it helps auditor morale. Before we move on to the other document (which is perhaps the more interesting of the two) we want to note (and quote) Director Fitzgerald’s plans for the agency in FY 2012—
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Attaining a balance between quality and schedule: As we continue to address the quality of DCAA audits, we cannot forget that timeliness is an important part of a quality audit. Attaining this balance will include continuing to revamp our audit process to build in quality early on and to increase communications with acquisition and industry stakeholders throughout the entire process. Additionally, DCAA will use the new Agreed-To-Date performance measure to track the Agency’s progress in meeting its audit commitments and attaining the balance between quality and schedule.
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Harnessing the Agency’s Strategic Plan to focus on audit quality and workforce issues: DCAA has established 16 strategic plan ad hoc groups to focus on improving audit quality and address workforce issues. During 2012, the Agency will institute many of the recommendations of the ad hoc groups. This will include changes to how new employees are brought on-board, mentored and trained, development of new audit guidance related to business system reviews at major contractors, and development of a revised Agency-wide telework policy.
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Enhancing audit quality in preparation for a Government peer review: As the Agency prepares for an external peer review, 2012 will be a critical year for DCAA. Everyone in the Agency will need to display a sense of dedication and urgency in continuing to improve our audit quality to ensure we successfully pass our peer review
We think those are excellent goals and we are in favor of anything that increases audit quality and timeliness of audit reports. So we hope that DCAA moves toward attaining those goals in the next five months (which is all that is left of GFY 2012).
The second document is the first annual DCAA Report to Congress, dated March 30, 2012. We told our readers that it was coming.
As we told our readers, the 2012 National Defense Authorization Act (NDAA) required (for the first time) that DCAA submit its own report to Congress, rather than simply including its audit metrics within the DOD Inspector General’s Semi-Annual Report. The Report was addressed to “Congressional Defense Committees,” so our readers should keep in mind that, unlike the previous report, this Report was written for external readers; indeed, it was written for the elected Representatives (and their staffs) who make policy and determine budgets.
Nonetheless, we think the spin is reminiscent of the internal employee morale-booster we discussed above. For example, the letter of transmittal to Congress stated—
FY 2011 was a very successful year for DCAA. We examined over $128 billion in defense contractor costs and issued over 7,000 audit reports. These reports recommended $11.9 billion in cost reductions. Overall, our efforts assisted contracting officials achieve $3.5 billion in documented savings to the Government. Based on these savings, the return on taxpayers’ investment in DCAA was approximately $5.80 for each dollar invested. This $5.80 return represents actual savings that DoD can reinvest in other ways to help the warfighter.
Our success in FY 2011 was a result of our commitment to the workforce and audit process. The main focus of our Agency-wide efforts was twofold: improving the quality of our audits, and supporting and enhancing our workforce. …
Yeah, no. While whether audit quality improved measurably might be a matter of some debate, there should be no debate whatsoever that GFY 2011 was not a successful year for DCAA. (See our comments above regarding DCAA’s definition of “successful”.)
But we’re just getting started ….
On Page 3 of the Report the statement was made that, “A key indicator of DCAA’s effectiveness is the increasing ratio of DCAA questioned cost to dollars examined as depicted in Figure 1.” Figure 1 showed that the percentage of questioned costs to dollars examined reached an amazing figure of 9.25 percent in 2011—literally more than four times the 2001 percentage of 2.2 percent. DCAA auditors are questioning nearly one dollar out of every ten dollars proposed and/or incurred by contractors. And that is supposed to be a good thing.
The problem with that logic is that DCAA auditors can question costs for any number of legitimate and illegitimate reasons, including costs that are deemed to be unsupported because documentation is allegedly lacking. Every DCAA auditor knows that the only way to avoid being “gigged by CIGIE” is to not have a clean audit report. Questioned costs are a good thing in the new audit environment because it means the auditor did a thorough job; whereas a clean audit report subjects the auditor to criticism for failing to do a rigorous audit “in accordance with GAGAS.” Consequently (as our readers know all too well), DCAA’s current audit approach to assuring quality calls for auditors to dig and dig and keep requesting documentation until something is found to be lacking—at which point the costs are questioned and the auditors breathe a sigh of relief. (So much for auditor independence….)
Thus we are completely unsurprised that DCAA leadership believes that the percentage of questioned costs to dollars examined is “a key indicator of DCAA’s effectiveness.” Given the audit environment they have created, how could they not think so?
We think a more important indicator would be percentage of questioned costs that are actually sustained by a Contracting Officer. Or we would think so, if we thought a DCMA Contracting Officer had the courage to stand up and (as the FAR requires of them) use independent business judgment to make a Final Decision regarding DCAA’s audit findings. Unfortunately for everybody, that is not the current business environment in which defense contractors operate. Contracting Officers live in fear and they know that if they don’t sustain DCAA’s findings—regardless of the merit of those findings—then they will be visiting at least one Review Board.
On Page 5 of the Report, DCAA tells Congress that it issued 349 incurred cost reports during GFY 2011. There is no comparison of that figure with prior years’ output. But we all know that the backlog of uncompleted (and, indeed, unstarted) incurred cost audits is growing and growing. Indeed, DCAA reported that—
At the end of FY 2011, DCAA had about 15,000 adequate annual contractor incurred cost submissions on hand with a total value of about $254 billion. Additionally, DCAA was either awaiting receipt of, or had not made an adequacy determination for approximately 9,000 incurred cost submissions with a total value of about $320 billion.
Pardon us if we assert, based on the foregoing, that 349 completed incurred cost audits in one year means that we will all be long dead before DCAA gets around to auditing FY 2012 or 2013 costs. To make things worse, DCAA reported that, under its current audit procedures, it now takes about three times as long to perform an incurred cost audit as it used to take. On Page 7 of the Report, DCAA tells readers that it now takes an average of 965 days to perform an incurred cost audit.
Yes, you read that correctly. DCAA is now taking an average of three years to audit one year of a contractor’s incurred costs. We very much hope that the alarm bells are ringing somewhere inside the Beltway.
We also noted that DCAA reported it takes 120 days (4 months) to complete and issue an “forward pricing” audit report—i.e., an audit of a contractor’s cost proposal or Forward Pricing Rates to be used for cost proposals. Four months. That’s (also) pathetic.
Predictably, DCAA blamed its lack of productivity on “resource constraints”—ignoring poorly thought-out audit procedures, multiple levels of management review, and mismanagement of the existing audit resources as contributing factors. Also predictably, DCAA blamed the contractors for its failings—as it has done since 2009. DCAA told Congress—
Inadequate contractor proposals are a significant barrier that DCAA faces in performing a timely and quality Forward Pricing audit. … FAR Part 15, Contracting by Negotiation, provides general instructions and guidelines for contractors to submit proposals. Prior to beginning a forward pricing audit, DCAA reviews the contractor’s proposal for compliance with FAR Part 15.408 Table 15-2. If the proposal is not prepared in accordance with Table 15-2, it is returned to the contracting officer so that the contractor can correct the deficiencies. However, the contracting officer often requests DCAA to audit inadequate proposals due to acquisition timeline requirements–further contributing to extended audit cycle times and less efficient use of audit resources.
Yeah, that’s bullshit.
As our readers know (because we’ve told you), the requirements of FAR Table 15-2 only apply when the contractor is submitting certified cost or pricing data and needs to comply with the Truth-in-Negotiation Act. For all the many other proposals being submitted, those requirements are simply Not Applicable. But current DCAA audit guidance tells its auditors to use the Table 15-2 requirements as the basis for determining adequacy of all proposals. DCAA auditors are making up deficiencies and are returning perfectly cromulent cost proposals because they don’t understand the difference between a TINA-compliant proposal and one that doesn’t need to comply with TINA. The audit guidance (and, apparently, the auditor training) is leading auditors down a path of poor performance. And somehow that’s the contractors’ fault.
But that’s not all. DCAA also told Congress that it needs enhanced statutory authority for access to contractors’ records in order to do a better job. (What’s better than “successful”? But we digress…)
On Page 10 and 11 of the Report, DCAA stated—
DCAA is required to perform audits in accordance with GAGAS. To perform GAGAS-compliant audits, DCAA must obtain sufficient evidence to provide a reasonable basis for the conclusions expressed in its audit reports. To address limitations of DCAA’s access to contractor records under existing law, DCAA believes it needs statutory authority to access: other than cost and pricing data, management reviews and internal audits related to Government contracts, contract costs, and the contractor’s internal control documentation related to compliance with applicable Government regulations.
Currently, under Public Law 99-145, 10 U.S.C. §2313(b), the Director of DCAA has the authority to issue subpoenas when a contractor refuses to grant DCAA access to the records covered by the statute. However, in 1988 the United States Court of Appeals, Fourth Circuit denied enforcement of a DCAA subpoena related to internal audit material from Newport News Shipbuilding. The Court ruled that DCAA’s subpoena power provided by 10 U.S.C. §2313(b) is limited to negotiations, pricing, or performance of a particular contract. This ruling denied DCAA access to records of management reviews and internal audits which the Court determined to be beyond the statutory provisions of DCAA’s subpoena power. Consequently, government contractors frequently use the Newport News court case as a basis for denying DCAA access to specific records.
Amendments to 10 U.S.C. §2313 would give DCAA access to the types of records needed to accomplish the Agency’s mission. The Newport News decisions bring into question the DCAA statutory authority to require contractors to provide other than certified cost and pricing data supporting the reliability of the related internal control systems. It is essential for DCAA to have access to contractor reviews, inquiries, investigations, and internal audits in order to evaluate contractor business systems. …
Greater access to contractor records means that DCAA would have a more accurate picture of cost and price data. DCAA needs access to contractors’ internal documents to determine if contractors are taking appropriate corrective action when irregularities or misappropriations are identified, that the Government is not overcharged, and that appropriate contractor disclosure has been provided to Government officials in compliance with the FAR. Therefore, it is also essential for DCAA to have access to contractor reviews, inquiries, investigations, and internal audits in order to evaluate contractor internal control systems and determine compliance with any applicable contract clauses or Federal or agency acquisition regulations. Greater access by DCAA would lessen the burden on the contractor to identify and isolate specific records that have already been analyzed internally. This increased access would allow DCAA to take a comprehensive look at contractors’ internal audits that have already been completed, thus reducing duplication of effort and increasing the cost effectiveness of audit analysis.
Well, that’s just more bullshit, isn’t it?
Those damn activist judges, interfering with DCAA’s access to records. Something needs to be done about that! But of course, let’s all ignore the fact that DCAA doesn’t actually use the subpoena power it already has. And let’s ignore the fact that most DCAA auditors don’t think contractor internal audit reports are even relevant to their audits. That’s not our opinion: it was the official finding of a GAO audit report (link in the previous sentence). GAO reported—
Auditors from three DCAA audit teams stated that they did not believe that access to contractor internal audit information is critical to their own audit work and that the internal audit reports do not have enough detail to be helpful. They also stated that they are restricted by auditing standards in relying on the work of others.
The DCAA Report used the foregoing as support for a request to Congress for more resources. And you know what? The agency probably does need more auditors. But before Congress gives DCAA more budget, we hope DCAA is first required to (a) better manage its current workforce and (b) better train its current workforce.
Oh, and (c) quit misleading Congress. Man up and admit your shortcomings. Admit that GFY 2011 was not a successful year under any reasonable definition of “successful.” When you have admitted you’ve hit bottom, anything else will be an improvement.
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