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The Defense Contract Audit Agency (DCAA), under the authority, direction, and control of the United Statesmarker Under Secretary of Defense (Comptroller), is responsible for performing all contract audits for the United States Department of Defensemarker (DoD) (and, to a lesser extent, to other agencies outside DoD), and providing accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts.

History

Audits of military contracts can be traced back 60 years or more. Initially, the various branches of the military had their own contract audit function and associated instructions and accounting rulings. Uniformity was non-existent. Contractors and government personnel recognized the need for consistency in the areas of contract administration and audit.

The U.S. Navy and Army Air Corps made the first attempt to perform joint audits in 1939. By December 1942, the Navy, Army Air Corps, and Ordnance Department had established audit coordination committees for selected areas where plants were producing different items under contracts for more than one service.

On 18 June 1952, the three military services jointly issued a Contract Audit Manual (CAM). The Manual prescribed detailed policies and procedures for use in auditing procurement contracts. Because of differences between the procurement organizations and practices of the services, finalizing standard guidelines was difficult.

In May 1962, Secretary, Department of Defense, Robert S. McNamara instituted "Project 60" to examine the feasibility of centrally managing the field activities concerned with contract administration and audit. An outcome of this study was the decision to establish a single contract audit capability.

On 8 January 1965, the Defense Contract Audit Agency (DCAA) was formed. Mr. William B. Petty, formerly the Deputy Comptroller of the U.S. Air Force, was selected as the Director with Mr. Edward T. Cook, formerly Director of Contract Audit for the Navy, selected as the Deputy Director.

DCAA Today

Today, the Defense Contract Audit Agency consists of approximately 4,000 people located at more than 300 field audit offices throughout the United Statesmarker, Europe, and in the Pacificmarker. The Agency provides standardized contract audit services for the Department of Defense, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts.

DCAA also provides contract audit services to some other Government Agencies, as well as to other countries under the Foreign Military Sales (FMS) program, on a reimbursable basis. The largest non-DoD agency for which DCAA performs audits is NASAmarker (primarily since the same government contractors, especially on major programs, do substantial business with both DoD and NASA).

DCAA's headquarters are located at Fort Belvoirmarker, in the same building as the Defense Logistics Agency. DCAA also operates a training facility on the Park Avenue Campus of the University of Memphismarker.

Under headquarters DCAA is organized into five geographic regions and a Field Detachment group, the latter handling contracts involving classified information. The five geographic regions, the location of the regional office, and the (as of 2008) general area of responsibilities are as follows:
  • Western--La Mirada, Californiamarker (Los Angeles area)
    • California, Alaska, Arizona (excluding the Raytheon offices in the Tucsonmarker area), Hawaii, Idaho, Montana, Oregon, and Washington state, as well as audits in Asian Pacific Rim countries and Australia
  • Central--Irving, Texasmarker (DFW Metroplex area)
    • Texas, New Mexico, Utah, Colorado, Wyoming, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, northern Louisiana, Arkansas, Missouri, Iowa, Wisconsin, Illinois, and the Upper Peninsula of Michigan, plus the Raytheon offices in the Tucson, Arizona area and, as of 2009, took over management of the Peninsula Branch Office in the Bay Area
  • Eastern--Smyrna, Georgiamarker (Atlanta area)
    • Georgia, Mississippi, Alabama, Tennessee, Florida, North Carolina, South Carolina, southern Virginia, Indiana, Ohio, and the Lower Peninsula of Michigan, as well as audits in Central and South American countries
  • Mid-Atlantic--Philadelphia, Pennsylvaniamarker
    • Pennsylvania, northern Virginia, Maryland, Delaware, the District of Columbia, West Virginia, and southern New Jersey
  • Northeastern--Lowell, Massachusettsmarker (Boston area)
    • Massachusetts, northern New Jersey, New York, Connecticut, Rhode Island, Maine, Vermont, and New Hampshire, plus audits in Europe, Asia (inclding Israel and the Middle East, but excluding the Pacific Rim), and Africa


Within each region are between 10-15 field audit offices, referred to as Resident Offices (if auditing only one contractor, generally used at major facilities or corporate offices) or Branch Offices (if auditing more than one contractor; Branch Offices may have Suboffices under them, which have auditors dedicated to one contractor, but not enough to establish a separate office).

Notable Cases

In the 1990s DCAA supported a 9 agency Federal Task Force investigation, led by NASA's Office of Inspector General, into an elaborate multi-million dollar embezzlement and money laundering scheme perpetrated by Ralph Montijo, owner of Omniplan Corporation. Omniplan was a NASA prime contractor and subcontractor under Rockwell Space Operations Company. This investigation led to the largest count indictment and conviction in NASA's history. Ralph Montijo was indicted on 285 counts and convicted of 179 felonies. Five of his companies were also convicted of felonies, they were, Omniplan, Papa Primo's of Texas, Papa Primo's of Arizona, Omnipoint Production Services and Mercury Trust. These five companies, together with two unincorporated companies, Space Industries Leasing and Space Industries Properties, were ordered liquidated. Each embezzlement count was associated with a corresponding money laundering count which resulted in dozens of convictions for money laundering. In a New York Times story NASA's Office of Inspector General Senior Special Agent Joseph Gutheinz, who led the Omniplan task force investigation, was quoted as saying: "We didn't get any pizzas, but we got the bills", referring to the fact that some of the alleged mischarging to the NASA contract also involved costs associated with two of Ralph Montijo's pizza companies, Papa Primo's of Texas, and Papa Primo's of Arizona . "Mr. Gutheinz said the Montijo case was the most significant (case) the space agency had had."

Allegations of intimidation, retaliation, lax oversight, and poor performance

A report released by the Government Accountability Office (GAO) on July 23, 2008 alleged that DCAA managers threatened a senior auditor with personnel action if he did not remove negative findings from a report criticizing a large federal contractor. The report found a too-cozy relationship between management at the DCAA and some of the contractors they are assigned to audit, including Boeing. GAO also said auditors who complied with the investigation were subject to harassment and intimidation from their supervisors.

The DCAA responded on July 25 that it had asked the US Department of Defense's (DoD) Inspector General (IG) office to investigate the GAO's claims. "We take the GAO report very seriously," said April Stephenson, DCAA's director. US Senator Claire McCaskill said GAO may have uncovered the "biggest auditing scandal in the history of this town," and asked the DoD to immediately fire the supervisors cited in the report.

An Associated Press report on November 10, 2008 revealed that DCAA challenged $4.6 billion, or only 1.2 percent, of the contracts it audited as lacking necessary documentation. The agency has not used its subpoena authority in over 20 years to produce the required paperwork from defense contractors under audit. According to the Associated Press, in contrast to the GAO, which saves taxpayers $94 for every dollar it spends, DCAA's return on investment is only $7 . As an example, the Associated Press reported that a May 2008 audit of Bechtel Group, supervised by DCAA regional director Christopher Andrezze, showed a "chronic failure" by Bechtel to produce the required documentation for the audit. In spite of this, DCAA issued a report rating Bechtel's internal accounting procedures as "adequate," a passing grade which meant DoD auditors could ease up on the company. The DCAA report did not mention the company's failure to produce the required documentation.

A Government Accountability Office (GAO) report in September 2009 found that agency auditors failed to follow basic auditing standards in 65 of 69 audits. The GAO noted that the agency lacks independence from the contractors it audits and the DoD agencies doing business with those contractors. The GAO concluded that pressure from outside groups helped create a hostile work environment which caused agency auditors to rush reviews of contractor billing systems, falsify audit reports, and appease contractors when auditing their business methods and systems. Said Senator Joe Lieberman in response to the report, "This organization needs bold changes. The larger question … is whether, as [GAO] suggested, we ought to take a look at creating a totally independent auditing agency for the federal government overall and go back to the idea of an auditor general."

The DoD IG released a report of its investigation into the agency on August 31, 2009. The IG found that the DCAA has an "environment not conducive to performing quality audits." The IG report cited an audit of Boeing in which the company was allowed to keep $217 million in taxpayer's money because a DCAA regional auditor did not perform his/her duties properly. When Boeing was unresponsive to a request for information, the regional auditor ordered a subordinate to change the audit report in Boeing's favor. Said Senator Tom Coburn about the agency in response to the report, "It’s atrocious. Several of those people ought to be fired." Added Senator Claire McCaskill, "This report is just further confirmation that DCAA is fundamentally broken. I certainly hope the Department of Defense takes these accusations seriously. As I said before, if somebody is not held accountable for the shoddy audits the DCAA has produced, nobody should take this agency or their work seriously in the future." DCAA director Stephenson stated in the IG report that her agency concurred with the IG's recommendations.

In the wake of the investigations, Stephenson was removed from her position as director of the agency by DoD comptroller Patrick Hale and reassigned to Hale's staff effective November 9, 2009. She was replaced by Patrick Fitzgerald, previously the director of the United States Army Audit Agency.

References

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