GAO: Defense Dept. Auditors Too Cozy with Contractors

Companies improperly influence agency's audit scope, conclusions, and opinions, U.S. government watchdog finds.
Kate PlourdJuly 24, 2008

A report released this week by the Government Accountability Office found that the Defense Contract Auditing Agency, which audits defense contractors, has a “serious independence issue.”

In three cases, the GAO charges, Department of Defense officials and officials of the companies contracted to do business with the government agency improperly influenced DCAA’s audit scope, conclusions, and opinions.

In many other cases, the GAO found, the audit agency didn’t comply with generally accepted government auditing standards. DCAA’s role is to provide oversight of companies that contract with the Department of Defense and other agencies to provide auditing, accounting, and financial services.

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The GAO had received complaints on its hotline about alleged failures to comply with generally accepted government auditing standards in 14 DCAA audits. The complaints alleged that working papers did not support audit opinions, some supervisors had dropped findings and changed opinions without proper evidence, and audit opinions were based on insufficient work. In a letter responding to the report, DCAA assistant director of policy and plans Kenneth J. Saccoccia, stated that the hotline tips came from the agency’s southern California field offices.

“We do not concur with the totality of the GAO’s overall conclusions. However, we do acknowledge that shortcomings existed,” Saccoccia wrote.

The GAO investigated three companies that were supposed to be under DCAA scrutiny: a major aerospace company, a company that produces and supports military and satellite systems, and a major weapons system contractor. Names of the contracting companies and DCAA locations involved in the investigation were not given in GAO’s report.

The aerospace company and DCAA allegedly made an up-front agreement to limit the scope of work and the basis for the audit opinion, according to GAO. DCAA also hired a new auditor to supervise the account when the company complained about its findings. As even more evidence of the close-knit relationship, the GAO found that DCAA management threatened a senior auditor with “personnel action” if he didn’t upgrade an audit opinion.

At the military and satellite systems producer, improper practices left the government with a $246,000 overbilling, according to the report. Further, the GAO found 28 systemic deficiencies in nine of 11 pricing audits at the weapons system contractor that was investigated.

During its investigation, GAO says, auditors claimed that time constraints affected the completeness of their audit testing. DCAA managers at two locations tried to intimidate auditors and prevent them from cooperating with GAO investigators, according to the report.