by Dana Hedgpeth

WASHINGTON - 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 [1]. [2]

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.
© 2008 The Washington Post