Overseas Civilian Contractors

News and issues relating to Civilian Contractors working Overseas

Fix the Pentagon Part I: Create an Independent Audit Agency

Truthout February 16, 2011

Today’s Solution column is written by Charles Smith, a little known, retired, Army civilian employee hero, who went up against the Iraq contractor KBR on behalf of the troops and the taxpayers and was demoted. Smith was chief of the Field Support Contracting Division of the Army Field Support Command in Rock Island Arsenal, and one of his main jobs was to oversee the enormous Army contract with KBR during the Iraq and Afghanistan wars. In 2004, he became concerned when the auditors of the Defense Contract Audit Agency (DCAA) told him that KBR could not justify more than a billion dollars in spending because of their chaotic documentation. He backed the auditors and would not sign off on payments and bonuses to KBR until they provided documented proof of their costs. He also backed DCAA and told KBR that he would legally be withholding 15 percent of all payments to KBR until their auditing systems caught up to their spending.

KBR, with their enormous influence and ability to stop their work on the Iraq and Afghanistan bases, pushed back. Smith was replaced and shuttled off to look at future contracts, while his replacement approved and paid KBR the money without major changes in the billings. That contract, known as LOGCAP III, has now provided KBR with over $40 billion for slinging hash, doing laundry, driving trucks and building barracks in Iraq and Afghanistan. For the full picture of what can happen when a contractor “owns” the service they are working for, i.e. the US Army, see a New York Times profile outlining how Smith, with all his experience, could not get away with doing the right thing for the troops and taxpayers.

The DCAA, even with all the auditing problems and undue influence in DoD contracting, is being used to audit more and more of the rest of the federal government. This is a dangerous trend and could cause the bad contracting habits to infect the rest of the government agencies. DoD has not been able to pass a fiscal audit since 1999, when required by law, and the fraud, waste and abuse of their contractors is legendary, with overruns and lost money. As I mentioned in last week’s column introducing our Solutions series on DoD problems, the DoD is considered “unauditable” on many levels, with contracts and with fiscal audits. As one of my Defense Financial and Accounting Service (DFAS) sources has told me over the years, the DoD may never be able to get its financial and contracting house in order because they don’t know where their money is going at the base level, so it is “garbage in, garbage out.” And, now, the rest of the government may also go down that road by using the DCAA for their auditing, or even worse, hire private contractor auditors, as the Army did to justify pouring money on KBR.

Read more of Dina Rasor’s lead in here

The Need for a Federal Contract Audit Agency
Charles M. Smith

Last fiscal year, the United States Government awarded over $535 billion in contracts with private corporations, nonprofits and other entities. A significant percentage of these contracts are awarded not as safer fixed-price contracts or they were awarded without adequate price competition, meaning auditing is the only realistic defense American taxpayers have against contractor overbilling. There is only one agency with the authority and the ability to audit contractor proposals, assist negotiations and audit incurred costs under massive, fraud-prone and complicated cost-type contracts. That agency, despite conducting work across most of the federal government, is located within the Defense Department, underneath several layers of senior officials. The DCAA conducted 76 percent of contracts audits outside of the DoD, according to a recently published Senate fact sheet. But despite the existence of the DCAA as a de facto government-wide contract audit agency, the US government still does not have the complete capability to use audits to help manage and provide oversight on the hundreds of billions of taxpayer dollars that go out the door to contractors every year. Also, the DoD has the worst history of all agencies in knowing where its money is, having flunked many contract audits and having never passed an overall fiscal audit, as required by law. If this trend is allowed to continue, the DoD’s tolerance for disastrous contracting habits could infect the rest of the government

On February 1, Sen. Claire McCaskill (D-Missouri) chaired a hearing where she explored this issue in her Senate Homeland Security and Governmental Affairs Subcommittee on Contracting Oversight. She noted that the DoD utilized contract auditing far more than the rest of the federal government – while the DCAA conducts one audit for every $24.7 million, the rest of the US government conducted one audit per every $511 million spent. (Ironically, the DoD contracting officers can ignore the DCAA audit results and billions of dollars are not recovered.)

The reason why the DoD had approximately 15,000 contract audits conducted in 2009, and the rest of our government had 1,800 audits conducted in the same period, is due to DCAA’s DoD-centric orientation, the way it is funded and its lack of visibility to the rest of the federal government. A proposed Federal Contract Audit Agency would remedy all of these problems, and bring numerous other benefits, such as greater independence and less pressure from undue agency influences.  Please read the entire report by Charles Smith here

February 16, 2011 - Posted by | Civilian Contractors, Contingency Contracting, Contractor Oversight, Department of Defense, Follow the Money, Government Contractor, KBR, Pentagon | , , , , , , ,

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