Billion Dollar Audit Missed by Pentagon Watchdog

Billion Dollar Audit Missed by Pentagon Watchdog

Washington – Military auditors failed to complete an audit of the business systems of an Ohio- based company – Mission Essential Personnel – even though it had billed for one billion dollars worth of work largely in Afghanistan over the last four years.

In September 2007 the U.S. Intelligence and Security Command (INSCOM) awarded Mission Essential Personnel (MEP) a five-year-contract worth up to 414 million dollars to provide 1,691 translators in Afghanistan. MEP was a start-up company created by three men, including Chad Monnin, a U.S. Army Special Forces reservist who was injured in a parachute accident. Procurement rules give preference to companies owned by injured veterans, even if they have no prior experience.

When the Obama administration decided to expand the war in Afghanistan last year, MEP quickly hit the ceiling of what it could bill. On May 10, INSCOM gave MEP a 679 million dollar extension without bothering to put it up for competitive bid. MEP will also get a share of the Intelligence Support Services Omnibus III contract, a five-year contract, with a ceiling of 492 million dollars, announced on Aug. 10, 2010.

The only two other contractors that have held multi-billion dollar contracts to supply translators to soldiers and diplomats in the Global War on Terror – L- 3/Titan and Global Linguist Services – have both been investigated for alleged overcharging, suggesting that this type of work falls in the high risk category of government spending.

Yet the Defence Contract Audit Agency (DCAA) failed to conduct a full business systems audit for MEP.

Concerned about DCAA’s failure, Christopher Shays, one of the co-chairs of the Commission on Wartime Contracting told MEP CEO Chris Taylor: “You don’t have to compete for it, and you, whatever your costs are, you get something plus, and you haven’t had any audits.” Shays assured MEP that he was not suggesting that the company had done anything wrong, re-iterating that the commission considered MEP a “a great American success story.”

“We currently have DCAA auditors on our property in Columbus, Ohio, working through any number of audit issues. But we welcome it,” Taylor told the commission. “We are current on our 2008 and 2009 incurred-cost submissions,” he added, referring to the invoices that the company sends INSCOM for payment.

DCAA Director Patrick Fitzgerald says that the problem was that the contract grew quicker than expected. “Are we behind the curve? Yes. We should have been in there quicker,” he told commissioners. “Our experience has shown that when contractors grow that fast, the procedures, processes, and systems have trouble keeping up with that growth.”

When asked to respond to the charges levelled at DCAA at the hearing, a Pentagon spokesperson emailed the following statement: “We agreed with the commission that additional resources were required at MEP and have worked to ensure that additional DCAA assets are directed to MEP.” The spokesperson estimated that it will complete “much of the critical audit work needed to assess MEP’s business systems within the next six months.”

DCAA History

DCAA has oversight over half a trillion dollars of taxpayer money every year. It is supposed to constitute the “first line of defence” against corruption when the Pentagon contracts anything from bunker-buster-bombs from Lockheed Martin, to rockets from Boeing, or when it subcontracts military support operations as it did when it paid Halliburton subsidiary, KBR, to hire Sri Lankans to clean toilets in Iraq.

Founded in 1965 to provide the U.S. Air Force, Army, Navy, and Ordnance Department with uniform oversight of contractors, DCAA was first headquartered in the now closed Alexandria, Virginia Cameron Station, a cold windowless building fitted with rows of steel gray desks.

DCAA expanded quickly. By 1966, it had 3,662 staffers around the country with oversight over 21.5 billion dollars. As the Vietnam War ramped up, the DCAA’s “Flying Squad” would fly Huey helicopters to forward bases in the jungle to check up on work done by contractors.

By the end of the 1980s DCAA had more than 6,000 staff and today, with headquarters in Fort Belvoir, Virginia, it has some 300 offices and sub-offices around the world.

In the last 45 years, DCAA’s oversight of contract dollars has expanded more than four-fold (adjusted for inflation) to 501 billion dollars in proposed or claimed contractor costs that required 30,352 audits in 2008.

Not surprisingly the agency staff has struggled to keep up with demand, and as far back as the 1980s, it had a six to seven year backlog to complete audits. This lag had a major impact on payments to military contractors, which were typically paid just 85 percent of costs on delivery of services, with the remaining 15 percent paid out several years later – only if the auditors were satisfied.

Mad Metrics Meltdown

DCAA found an opportunity to change this record of inefficiency in 1993 when Vice-President Al Gore was appointed to head up a commission to “re- invent government” to “work better, cost less, and get results Americans care about.” Under the Gore mandate, DCAA Director Bill Reed, ordered sweeping changes in how the agency conducted audits.

The first step was telling auditors to catch up as soon as possible. A then senior DCAA auditor told IPS how that order was implemented: “We basically closed out outstanding audits of procurement dollars by looking the other way.”

Next, Reed instructed his staff to focus on performance “metrics.”

“To put it bluntly; cheaper, faster, better,” former DCAA director April Stephenson would recall later. Multiple layers of supervision and management were created to ensure that staff completed even the most complex of audits in less than 30 days. But tracking time under the new “Defense Management Information System” often took longer than the actual sped-up audit, defeating the whole purpose of making the system work better.

“Mad Metrics Meltdown!” wrote a former senior auditor at DCAA to the Government Executive magazine website comment section. “The application of engineering and factory floor measurements to professional activity is a lazy, risk-aversive, anti-intellectual crutch of poor management.”

Firing the Director

In September 2008, DCAA Director April Stephenson announced what appeared to be radical changes: The agency would scrap 18 of the 19 metrics and shut down Webmetrics, a staff performance management software program.

A new set of 11 new “standards” which included eight measurable “metrics” was announced. Stephenson appointed Karen K. Cash, DCAA’s assistant director for operations, to follow up on staff complaints which had been invited via an anonymous website.

Last November, the Pentagon decided that Stephenson wasn’t the right person to overhaul the agency. She was re-assigned and Patrick Fitzgerald, the former director of the U.S. Army Audit Agency, took over.

DCAA Slows Down

During fiscal 2008, the average time to complete a “contractor pricing review” was 28 days. Today the same job takes 72 days. “Some of our audits take longer because we are doing a more comprehensive job,” Fitzgerald told Government Executive magazine in July. “If there are other factors that are causing us to take longer, we need to do a deep dive on those and try to figure out how mitigate or to alleviate them.”

As a result DCAA says it will no longer be able to keep up with the 2008 metrics – 30,000 audits covering more than 500 billion dollars in proposed or claimed contractor costs. To catch up on the missed audits, like the one for MEP, Fitzgerald says that DCAA has hired 500 new auditors and will add 1,000 more in the next four years.

“We are also working to prioritize audit workload and make sure that high- risk audits are identified and completed in a timely manner,” a Pentagon spokesperson told IPS, noting that the agency was currently working to create a new strategic plan, and will re-assess the new performance measures introduced in 2008.


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