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Home News Archive Watchdog Group Says DCAA Not Implementing Meaningful Reforms

Watchdog Group Says DCAA Not Implementing Meaningful Reforms

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When Patrick Fitzgerald took over as Director of the Defense Contract Audit Agency (DCAA) in November 2009, he had a clear mandate for change.  Senators called for fundamental reforms in the way DCAA executed its audits; Senator Joe Lieberman said, "I hope that the DoD comptroller as well as the incoming DCAA director will continue to bring outside auditing expertise into the agency, strengthen quality control, improve training at all levels of DCAA, and prioritize audits based on the risk of contractor over-billings as well as waste, fraud and abuse."  The Commission on Wartime Contracting called for substantive reforms in the way DCAA audited defense contractors’ “business systems;” it reported that—

As a result of personnel shortfalls, DCAA system reviews and follow-ups are not always timely; therefore, the real-time status of contractor business systems cannot always be determined. As noted in our Interim Report to Congress, DCAA has not performed timely reviews of many contractor business systems.

And even the Pentagon Spokesperson said Mr. Fitzgerald was being brought in to replace Ms. April Stephenson “because DoD leaders feel he is the best-qualified person to continue making improvements at DCAA.  So the only impediments to substantive reform were the inertia of the audit agency and Mr. Fitzgerald’s will to change it.

We here at Apogee Consulting, Inc even got into the spirit of reform, penning an open letter to Mr. Fitzgerald, making several suggestions for his consideration.

It’s been four months, and from our outsider perspective there have been zero substantive reforms executed by the new management regime.  The status remains quo; the course seems unchanged; and it’s business as usual.  But that’s just the perspective of one consulting firm.  Surely insiders must have insight into the changes underway at the Federal government’s premier audit agency?  Senior auditors within the agency must be seeing the course changes, the personnel changes, and the changes to audit metrics and guidance that will herald the reemergence of DCAA from the ashes of its failed audits, right?


The Project on Government Oversight (POGO), an inside-the-Beltway “public watchdog” group focused on (among other things) DOD oversight of its contractors, sent a letter to influential Senators on March 2, 2010, expressing its concern that “some of the reforms being implemented at DCAA as a result of your investigations are only superficial fixes in order to alleviate political pressure on the agency.”  POGO asserted that “the ‘reforms’ implemented to date have not been meaningful, particularly when it comes to human capital management.”  In the words of POGO—

We worry that these problems are indicative of a systemic strategy for reform that seeks to decrease congressional pressure rather than to institute meaningful reform. More importantly, we think that it would be naïve to assume that removing April Stephenson from DCAA solves the systemic problems at DCAA.

POGO cited three areas where it believes reform efforts have fallen short of expectations.  The areas were:

1.      The dismantling of an ad hoc “grassroots” group of “high-level DCAA auditors tasked with evaluating DCAA’s promotion process.”  The POGO letter states, “when the group asked for information that would allow them to conduct compliance testing to see if DCAA was following its own policies, DCAA headquarters denied them the information and the group was disbanded.

2.      Implementation of a DCAA “hotline” that “was intended to be used as a tool to ensure audit quality by giving auditors the ability to report management misconduct, but in practice it may be a tool for retaliation against the kind of independence in auditing that DCAA should be fostering.”  POGO asserted that “it is frequently up to the manager responsible for the alleged wrongdoing to act upon hotline findings, presenting an obvious conflict of interest.”

3.      The lack of action taken by DCAA leadership to discipline managers found to have provided lax oversight (or worse) leading to defective audits.  The POGO letter states, “There should be accountability for managers who consistently exercise bad judgment by wrongfully changing audit opinions, facilitating ‘cozy’ relations with contractors, or creating an abusive work environment. The fact that some of these abusive managers remain at DCAA continues to demoralize the agency's work force.”

The POGO letter is “based on concerns several DCAA auditors brought to POGO” and concludes that “The Pentagon thinks they got Congress off their back by removing the Director of the Defense Contract Audit Agency, but the problems at DCAA are far from solved.”

We understand that several fundamental changes are actually underway at the audit agency, focused on changing the way in which contractor internal control systems are audited and the way in which DCAA provides the results of its audits to its customers.  Practitioners should start to see those changes being implemented in the near future, perhaps in the next few months.  That being said, we are forced to agree with POGO’s concerns that agency reforms, if any, have been hidden—and it is past time that DCAA signals its willingness to transform, by making fundamental, substantive reforms to its culture visible to outside observers.



Effective January 1, 2019, Nick Sanders has been named as Editor of two reference books published by LexisNexis. The first book is Matthew Bender’s Accounting for Government Contracts: The Federal Acquisition Regulation. The second book is Matthew Bender’s Accounting for Government Contracts: The Cost Accounting Standards. Nick replaces Darrell Oyer, who has edited those books for many years.