US: Pentagon Auditors Pressured To Favor Contractors, GAO Says

Auditors
at a Pentagon oversight agency were pressured by supervisors to skew
their reports on major defense contractors to make them look more
favorable instead of exposing wrongdoing and charges of overbilling,
according to an 80-page report released yesterday by the Government Accountability Office.

The Defense Contract Audit Agency, which oversees contractors for the Defense Department,
"improperly influenced the audit scope, conclusions and opinions" of
reviews of contractor performance, the GAO said, creating a "serious
independence issue."

The report does not name the projects or the
contractors involved, but staff members on the Senate Homeland Security
and Governmental Affairs Committee who were briefed on the findings
cited seven contractors, some of whom are among the biggest in the
defense industry: Boeing, Northrop Grumman, Fluor, Parker Hannifin, Sparta, SRS Technologies and a subsidiary of L3 Communications.

Supervisors
at DCAA attempted to intimidate auditors, prevented them from speaking
with GAO investigators and created a "generally abusive work
environment," the report said. It cited incidents of "verbal
admonishments, reassignments and threats of disciplinary action"
against workers who "raised questions about management guidance."

In
a case later identified as involving Boeing, the GAO said the agency
made "an upfront agreement" with the company to limit the scope of work
and basis for an audit in 2002. The audit related to a cost-and-pricing
system of aircraft that included the C-17, aerial refueling tanker, the
B-1 and other planes, according to documentation provided to
Congressional staff members. These deals were being negotiated by
Darleen Druyun who was then a top Air Force acquisition official.
Druyun later went to prison after admitting that she favored Boeing in
selecting its tanker while she was seeking a job with the company.

When
DCAA auditors found "significant deficiencies" and put out a draft
report of the problems, the contractor objected. The GAO said an
executive told the auditors that if there was an inadequate rating, he
would "escalate the issue to the highest level possible in the
government and within his own company."

The managers at the audit
agency assigned a new supervisor to the case, threatening the senior
auditor with personnel action if "he did not delete findings from the
report and change the draft audit opinion to adequate," the GAO
reported.

Dan Beck, a Boeing spokesman, said the company had no comment on the GAO report.

The
GAO said it launched the two-year inquiry after complaints on a fraud
hotline. Its investigators conducted more than 100 interviews of 50
people involved in audits between 2003 and 2007. It is working on
another report following a 2006 request from the Senate homeland
security committee due in November.

"Some DCAA supervisors were
cutting corners and pressuring their subordinates to give more
favorable audits to contractors than the auditors felt the contractors
deserved," Sen. Joseph I. Lieberman (I-Conn.),
chairman of the Senate committee, said in a statement. "This shows a
blatant disregard for the safeguards that are supposed to be in place
to ensure that contractors charge the government no more than a fair
and reasonable price."

"This report is being taken very
seriously," said Darryn James, a Pentagon spokesman. He said officials
at DCAA and the Defense Department's comptroller's office, which
oversees that agency, are reviewing the findings and "will determine
what -- if any -- of the next appropriate steps will be. . . . We have
faith in our auditors. They are held to high standards."

In a
July 11 letter to the GAO, April G. Stephenson, DCAA director, said the
agency disagreed with the "totality" of the GAO's findings. She said
the agency had "taken prompt and immediate action to correct the
issues." She said she found no evidence to support GAO's conclusions
that "DCAA managers took actions against their staff that hindered
their investigations."

Many of the companies named by Senate staff members as being in the GAO report could not be reached last night for comment.

Like
many other federal agencies, DCAA has had its contracting workforce
cut. The GAO said that DCAA went from having 6,000 auditors in 1989 to
about 3,500 last year and that workers are frequently told to rush
their reports. The agency handles about 40,000 audits a year.

The
GAO said that in a 2005 case it investigated, DCAA auditors found six
"significant deficiencies" where the contractor -- later identified as
Interstate Electronics, a subsidiary of L3 -- overbilled the government
$246,000, plus another $3.5 million in potential overcharges. When
agency auditors reported the problems, they were replaced. New managers
dropped the findings and changed the agency's opinion from "inadequate"
to "adequate."

In another case, involving Northrop Grumman, the
GAO said that supervisors at DCAA who were responsible for audits on
contracts for aircraft parts and systems worth $6.4 billion didn't
review papers and trainees were assigned to work on the case. GAO said
the DCAA field office "lost control" of papers on the case because the
trainees didn't "always properly enter them" in the electronic system.

Northrop
spokesman Randy Belote said his company was reviewing the GAO report.
"We are reserving comment on the report until we have completed our
review," he said.

Staff researcher Julie Tate contributed to this report.

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