DoD Auditors Pressured on Contracts

WASHINGTON - Auditors at a Pentagon oversight agency forced changes to unfavorable reports on contracts with some of the nation's largest defense companies, hid contractor over-billing and attempted to hinder an investigation into the alleged problems, according to a new report.

The Government Accountability Office report released Wednesday reviewed audits by the Defense Contract Audit Agency and found examples where pressure by contractors and senior agency auditors led to changes in initial reports that detailed problems with contracts.

In 2002, DCAA auditors allegedly made an upfront agreement with a "major aerospace company" to limit the scope of a review of the contractor's estimate system. When the audit still uncovered problems, the contractor complained, prompting the removal of one auditor working on the case and job threats against another. A final report was then drafted labeling the contractor's work as adequate, the GAO found.

A 2005 audit of a billing system found deficiencies that may have led contractors to overcharge the government by as much as $3.5 million. Once again, auditors overseeing the case were removed, and a new staff reworked the report to approve the system.

"Contractor officials and the (Defense Department) contracting community improperly influenced the audit scope, conclusions and opinions of three audits - a serious independence issue," according to the GAO report that reviewed DCAA audits conducted between 2003 and 2007.

The GAO also concluded that DCAA supervisors at two of the locations tried to intimidate staff and block investigators during the probe through threats of disciplinary action and other punishments.

The DCAA did not agree with "the totality" of the GAO report, but had taken steps to correct some of the issues, according to a July 11 letter from DCAA Director April Stephenson. She added that there was no evidence that the probe was hindered by DCAA. The agency also told the GAO it did not find evidence that supervisors willfully removed findings from audit reports.

The investigation began after tips came in to a fraud hotline, and focused on audits conducted at three DCAA offices in California. The contracts involved some of the nation's largest defense firms and covered billions of dollars awarded annually to the contractors. At one office, the GAO said the actions of two supervisors called into question the reliability of audits of contracts worth $6.2 billion between 2004 and 2006.

The 80-page GAO report did not name the contractors, but the Senate Committee on Homeland Security and Governmental Affairs, which requested the report, identified big defense companies like Boeing Co. and Northrop Grumman Co. as among the list.

A Boeing spokesman said the Chicago-based company had to review the report before commenting. A spokesman for Los Angeles-based Northrop did not immediately return a call seeking comment Wednesday afternoon.

Committee Chairman Joseph Lieberman, I-Conn., said the GAO report substantiated whistleblower allegations that pressure led to favorable audits.

"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," Lieberman said in a statement.

Sen. Claire McCaskill, D-Mo., a member of the Senate Armed Services committee, on Wednesday sent letters to both Defense Secretary Robert Gates and head of the DCAA, April G. Stephenson, demanding answers and assurances that appropriate parties will be held accountable.

"Somebody needs to be fired for this," said McCaskill. "As a former auditor, I read this GAO report with a mixture of disbelief and anger. This is completely unacceptable."

Headquartered at Virginia's Fort Belvoir in the Washington suburbs, the DCAA provides oversight for negotiations and the administration of contracts with the defense industry. It also does audit work for other federal agencies.