Beleaguered Defense audit agency crafts new vision for the future

Two years after unfavorable GAO report, new director is attempting a difficult reform.

For two tumultuous years, the Defense Contract Audit Agency has been at the center of a bureaucratic storm, barraged by negative watchdog reports, rebuked by lawmakers and criticized from within by frustrated employees. But after taking its share of lumps -- and losing its director in a political firestorm -- DCAA now is attempting to reinvent itself as a streamlined, employee-friendly workplace that makes audit quality, rather than quantity, its top priority.

In his first interview since taking over as DCAA director eight months ago, Patrick Fitzgerald told Government Executive the agency has learned from its mistakes and is moving forward with a new vision.

"We want to get to that one team where management and the workforce are pulling together in the same direction," Fitzgerald said in an upbeat, but occasionally guarded conversation last week at the Pentagon. "Where auditors feel like they are making a difference, their work is adequately considered and has a positive impact on taxpayer dollars."

Once little known outside the contractor community, DCAA found itself in the spotlight in 2008 when the Government Accountability Office revealed that managers were too closely aligned with contractors.

GAO found contractors improperly influenced reports and supervisors threatened senior auditors with personnel action if they did not suppress negative findings. Auditors told investigators they were harassed, intimidated and silenced by their bosses. Follow-up reviews by GAO and the Defense Department inspector general found other cases of flawed audit reviews and inappropriate behavior by supervisors.

In October 2009, shortly after the second GAO report, the Pentagon reassigned Director April Stephenson and brought in Fitzgerald, the Army's auditor general. A certified public accountant with almost 30 years of audit experience, Fitzgerald fit DCAA's dual goals for the position -- fresh eyes but familiarity with the agency. He had previously led the DCAA Oversight Committee, an improvement initiative established to review operations.

Fitzgerald has implemented a number of changes. For example, a December policy memo allows him to elevate disagreements between auditors and contracting officers about contract costs to the top levels of Pentagon leadership. The agency also has increased training, revamped the promotion and hiring process, and introduced a pilot program that will put a single DCAA manager in charge of major contractor accounts.

"The issues identified in the GAO's second report were an indictment of the agency's policy, guidance and metrics," Fitzgerald said. "But it was not a reflection on the workforce. In my seven months, I have been very impressed with the dedication and commitment of DCAA's workforce to our mission of saving taxpayer dollars."

But multiple DCAA auditors have expressed concern about the agency's new direction.

They said managers have overreacted to the GAO reports and now are obsessively focused on documenting their audit opinions and submitting perfect working papers. In some cases, DCAA employees said they were being told to fix minor typos or grammatical errors, bogging down the process. In addition, Stephenson introduced a policy that requires a field office manager to sign off on all audits, which employees said has compounded delays that hamper price negotiations with contractors.

In fiscal 2008, the average time to complete a contractor pricing review was 28 days, compared with 72 days in fiscal 2010.

"Some of our audits take longer because we are doing a more comprehensive job," Fitzgerald said. "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."

Despite the perceived logjam, DCAA has reaped $900 million in contractor savings so far in fiscal 2010, he said.

While auditors remain skeptical about the agency's course, Fitzgerald appears to have the support of at least one key lawmaker. Sen. Joe Lieberman, I-Conn., chairman of the Homeland Security and Governmental Affairs Committee, which has held two hearings on DCAA failures, expressed confidence that the agency is turning the corner.

"Sen. Lieberman thinks the Defense Contract Audit Agency has long been an agency in need of strong leadership," said committee spokeswoman Leslie Phillips. "The chairman believes that so far Mr. Fitzgerald has been committed to making the tough changes that will restore the DCAA's reputation and make it the gold standard of auditing."

Fitzgerald has attributed some of the lingering problems to the agency's "crushing workload." In fiscal 2008, DCAA conducted more than 30,000 audits covering more than $500 billion in proposed or claimed contractor costs. That figure is expected to be dramatically lower this year, according to auditors and other sources.

The agency has hired 500 new auditors and will add 1,000 more by fiscal 2015, a 37 percent staffing increase. DCAA also is planning to shed several low-priority services and place more emphasis on high-risk contracts.

Some employees are still waiting for the agency to address past complaints. Nearly two years after the first GAO report, no supervisor or manager has been fired or suspended for having a role in the scandal, including those who issued a "gag memo" to a DCAA whistleblower.

Fitzgerald said "bringing resolution to any possible disciplinary action" was a top priority, but he declined to set a timetable or discuss ongoing investigations. "Some of these actions occurred a long time ago. We are working very hard to bring final resolution to these issues and I am optimistic we are close," he said.

To address morale problems, Fitzgerald established an internal review division to tackle complaints from employees and has subsequently beefed up the office's staff to 23 employees, including a senior executive. The director also has taken to the road during the past two months to hold 17 town hall meetings.

"One of our big challenges is that we have to restore the trust between DCAA management and the workforce," he said. "I sense that's not there today. And it's going to take some time to do that."