Leaked email shows Defense audit agency sought subpoena power, contractor pay caps

Seven weeks before being forced out as director of the troubled Defense Contract Audit Agency in October 2009, April Stephenson had sought subpoena authority for policing contracts and proposed to expand caps on contractor executive pay, according to an emailed proposal obtained by the watchdog nonprofit Project on Government Oversight and shared with Government Executive.

In an attachment to a Sept. 9, 2009, email to Shay Assad, director of the Pentagon's Defense Procurement and Acquisition Policy, Stephenson proposed adding to the fiscal 2011 Defense authorization request plans "to expand DCAA's access to contractor records required to accomplish our mission as a remedy to a prior court imposed limitation" and "to expand the application of the limitation on allowable compensation from the top five executives to all contractor employees." The email was copied to four other DCAA officials as well.

The pitch stated that "because the courts have limited DCAA's access to contractor records under the existing laws, the proposed amendments are needed to provide DCAA with the access required to obtain sufficient evidence to comply with the applicable auditing standards."

According to POGO's research, Assad rejected the proposals, which went no further that year. A Pentagon spokeswoman told Government Executive the proposal to expand the coverage of the cap on executive compensation eligible for reimbursement under Pentagon contracts was sponsored this year by the Office of the Defense Undersecretary for Acquisition, Technology and Logistics.

"It went through the department's approval process and was submitted to Congress," she said. "It has been included in both the House and Senate versions of the National Defense Authorization Act for fiscal 2012." She declined to comment on the proposal for enhanced subpoena power.

Both the issue of subpoena power -- which, according to a 2008 Associated Press report, had not been used by DCAA in 20 years -- and broad contractor pay caps remain controversial.

"If you want an effective and aggressive audit agency that roots out waste in contracting, it needs to have the power to compel contractors to produce internal documents," said Nick Schwellenbach, POGO's director of investigations. "Contractors shouldn't be allowed to bill taxpayers for million-dollar employee salaries."

POGO has long pressed Congress and the White House for DCAA subpoena power and new limits on contractor pay. In May, a proposal to cap federal payment for contractor salaries at $200,000 was offered by the American Federation of Government Employees in a letter to President Obama. The Senate Armed Services Committee has asked the Government Accountability Office to study the issue of expanding DCAA's subpoena power.

The differing language on pay caps in House and Senate versions of the 2012 Defense authorization bill are not to the liking of the Professional Services Council, a contractor trade group. Alan Chvotkin, the group's executive vice president and counsel, said capping salaries has been a perennial DCAA goal "for some time because they've been troubled by the increases in benchmark compensation levels." But PSC considers the caps "unnecessary, because very few executives make more than the benchmark, and the compliance efforts needed to figure it out may exceed the savings achieved," he said, adding that industry lobbyists plan to work with congressional staff on changes.

On subpoena power, Chvotkin said, the impetus comes from the fact that some "contractors in the past didn't provide timely access to records, and DCAA views any resistance from contractors as an inappropriate obstruction." But, he said, DCAA has an "insatiable appetite for records" and sometimes bullies contractors -- some of the records they seek may involve ongoing investigations or personnel issues, he said. Chvotkin said Pentagon procurement chief Assad and the Defense inspector general "to their credit told DCAA 'if you've got that kind of recalcitrant contractor, come to us for the authority we can use,' " which is an approach PSC supports.

Stephenson's tenure at the agency became rocky after unfavorable GAO reports found DCAA auditors were too cozy with favored contractors and rushed some audits.

During her 15 months in the position, Stephenson pursued more than 50 improvements in which the agency altered or eliminated internal performance metrics, changed how auditors assess contractor business systems, and increased protection for whistleblowers.