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53–841 PDF 2011

S. Hrg. 111–945 

DEFENSE CONTRACT AUDIT AGENCY: WHO IS 

RESPONSIBLE FOR REFORM? 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

OF THE

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 23, 2009 

Available via the World Wide Web: http://www.fdsys.gov 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 

(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

ROLAND W. BURRIS, Illinois 

MICHAEL F. BENNET, Colorado 

SUSAN M. COLLINS, Maine 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

GEORGE V. VOINOVICH, Ohio 

JOHN ENSIGN, Nevada 

LINDSEY GRAHAM, South Carolina 

ROBERT F. BENNETT, Utah 

MICHAEL L. ALEXANDER, Staff Director 

TROY H. CRIBB, Counsel 

PAULA HAURILESKO, GAO Detailee 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

MOLLY A. WILKINSON, Minority Deputy General Counsel 

ERIC B. CHO, Minority GSA Detailee 

TRINA DRIESSNACK TYRER, Chief Clerk 

PATRICIA R. HOGAN, Publications Clerk and GPO Detailee 

LAURA W. KILBRIDE, Hearing Clerk 

(III) 

C O N T E N T S 

Opening statements: Page 

Senator Lieberman ........................................................................................... 1 

Senator Collins ................................................................................................. 3 

Senator Coburn ................................................................................................. 20 

Senator McCaskill ............................................................................................ 22 

Senator Burris .................................................................................................. 24 

Prepared statements: 

Senator Lieberman ........................................................................................... 31 

Senator Collins ................................................................................................. 34 

WITNESSES 

WEDNESDAY, SEPTEMBER 23, 2009 

Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, accompanied by Gayle L. 

Fischer, Assistant Director, Financial Management and Assurance, U.S. 

Government Accountability Office ...................................................................... 5 

Hon. Gordon S. Heddell, Inspector General, U.S. Department of Defense ......... 7 

Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and Chief 

Financial Officer, U.S. Department of Defense ................................................. 9 

April G. Stephenson, Director, Defense Contract Audit Agency, U.S. Department of Defense .................................................................................................... 11 

ALPHABETICAL LIST OF WITNESSES

Hale, Robert F.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 66 

Heddell, Gordon S., Hon.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 56 

Kutz, Gregory D.: 

Testimony .......................................................................................................... 5 

Prepared statement of Mr. Kutz and Ms. Fisher ........................................... 37 

Stephenson, April G.: 

Testimony .......................................................................................................... 11 

Prepared statement with an attachment ....................................................... 69 

APPENDIX 

Responses to post-hearing questions for the Record from: 

Mr. Kutz ............................................................................................................ 86 

Mr. Heddell ....................................................................................................... 99 

Mr. Hale ............................................................................................................ 107 

Ms. Stephenson ................................................................................................. 114 

GAO report titled ‘‘DCAA Audits: Widespread Problems with Audit Quality 

Require Significant Reform,’’ GAO–09–468, September 23, 2009 .................... 134 

(1) 

1The GAO report referenced by Chairman Lieberman appears in the Appendix on page 134. 

DEFENSE CONTRACT AUDIT AGENCY: WHO IS 

RESPONSIBLE FOR REFORM? 

WEDNESDAY, SEPTEMBER 23, 2009 

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 10:04 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Joseph I. 

Lieberman, Chairman of the Committee, presiding. 

Present: Senators Lieberman, McCaskill, Burris, Collins, and 

Coburn. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. The hearing will come to order. Good 

morning to all who are here. Welcome to this hearing where we are 

going to examine the potential that billions of taxpayer dollars are 

at risk of being wasted because of the inadequate auditing procedures at the Defense Contract Audit Agency (DCAA). 

DCAA has 300 offices and 3,800 auditors throughout the United 

States and the world. Just to give you a sense of the scope of their 

responsibilities, in fiscal year 2008, which is the last one obviously 

for which I have complete data, DCAA did more than 30,000 audits 

covering $501 billion in proposed or claimed contracts. That is a lot 

of audits with a lot of money, and therefore, what it does or does 

not do well is of great consequence to the taxpayers. 

A year ago, our Committee heard from the Government Accountability Office (GAO) and two auditors, whistleblowers, if you will, 

from DCAA about alarming problems in the Western Region of 

DCAA. We heard and then found that there was widespread failure 

in meeting professional auditing standards in that region. Time 

after time, DCAA had issued clean audits of contractors that were 

simply not supported by the underlying audit work. In some cases, 

supervisors had even overturned the audit findings of subordinates 

without a justification for their decisions. 

Because Senator Collins and I were concerned that these problems in the Western Region might be symptoms of a larger systemic breakdown rather than just a regional one, we, joined by 

Senator McCaskill, asked the GAO to do a review across all the regions of DCAA, and today we are going to hear the results of that 

review.1

2 

I am sorry to say that GAO has found similar problems just 

about everywhere DCAA operates. I will just highlight some of the 

findings because I know Mr. Kutz will speak to them in detail. 

Each and every audit that GAO reviewed for this report was out 

of compliance with auditing standards, most with very serious deficiencies. As an example, in one case, a supervisor directed audit 

staff to delete some audit documents, generate others, and copy the 

signature of a prior supervisor onto the new documents and then 

issued a clean audit opinion. This supervisor was later promoted to 

Western Region Quality Assurance Manager, responsible for the 

quality control of thousands of audits. 

One auditor asked supervisors for permission to spend more time 

on an audit of a contractor known to be under criminal investigation for fraud. The auditor ultimately drafted a negative opinion 

that was overturned by supervisors who then, rather than praise 

the auditor’s efforts, lowered his performance appraisal for performing too much testing and exceeding budgeted hours. 

In an audit of one of the Department of Defense’s (DOD) largest 

contractors, the auditor told GAO that he did not perform detailed 

tests ‘‘because the contractor would not appreciate it.’’ 

When auditors reviewed contractor invoices, in many cases, they 

did not look to see if the contractor could offer supporting documentation for the goods or services they were charging the government for. The auditors simply looked at the numbers on the invoices to see if they added up. 

To date, GAO’s two reviews have led DCAA itself to rescind 80 

of its audits, which is, I gather, a rare and, of course, embarrassing 

step for an auditing agency. The recision of 80 audits is, to me, effectively a self-indictment by DCAA for failure to hold audit quality 

above all else. 

Now, this would be bad enough if it was a separate and unique 

critical audit by GAO, but the fact is that this is the fifth major 

report sounding the alarm about DCAA. In addition to the two 

GAO audit reports that I have cited, we have a 2007 Department 

of Defense Inspector General (IG) peer review, a report last fall 

from the Defense Business Council, and a new DOD IG report, all 

showing that an important watchdog agency, DCAA, is badly in 

need of overhaul. 

The fact is, when the people we have charged with the responsibility of auditing themselves receive this many critical audits— 

Washington, we have got a problem—and it is a big problem because of the enormous amount of money being audited that is 

spent—over half-a-trillion dollars in 2008 through the Defense Department. 

In my opinion, DCAA is in need of a complete overhaul. One 

problem may be, as GAO suggests, that DCAA emphasizes speed 

and production of audits over the quality of results. DCAA also appears to be very insular, with little or no infusion of skills from outside the agency. 

I think it is really time for us to make sure that we change this 

environment with specific steps, such as improving audit quality 

control, increasing training of the auditors, and developing a strategy to target resources rather than simply churning out audits that 

are faulty to hit numerical goals. 

3 

So we want to have a very frank discussion today because this 

is very important. A lot of money is on the line, and the discussion 

really is about who is responsible in the end for the operational reform that is necessary at DCAA. 

This auditing agency has a unique role. Because of that role, it 

also needs to have independence. It needs to stand up to pressures 

from both agencies and contractors, and as I believe may be suggested here today, perhaps that independence should be strengthened. Perhaps it is time for us to consider separating DCAA from 

the Department of Defense and, either separately or as part of a 

larger operation, making it an independent auditing agency. 

But what is also needed right now is clearly strong leadership 

from the top ranks of DOD to help DCAA achieve the necessary 

transformation and reforms because this Committee, Senator Collins and I and the Members, do not want to be sitting here a year 

from now discussing another audit which finds similar problems 

once again in DCAA. Let us identify the root causes and implement 

the solutions that Congress must demand and that the taxpayers 

surely deserve. 

Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. 

With the release of today’s GAO report, we once again focus on 

the extensive problems with the quality of audits at the Defense 

Contract Audit Agency and with the management of this watchdog 

agency. 

The DCAA is the Defense Department’s principal contract auditor. It completes more than 30,000 reviews and audits per year 

that cover hundreds of billions of dollars in Federal contracts. A 

well-functioning DCAA is thus vital to our government’s responsibility to be careful stewards of taxpayer funds. DCAA plays a necessary role in ensuring the accountability and transparency of Federal contracts. 

Unfortunately, the GAO report contains a haunting refrain of 

disturbing past reports. It cites, for example, and perhaps most 

troubling, a lack of independence from undue influence on audit 

outcomes by contractors, program managers, and even some senior 

managers at DCAA. It cites poor or inadequate audit quality and 

gross mismanagement of government resources. And it cites ineffective audit practices that allow contractors to overbill the government in some cases for millions of dollars. 

The Department of Defense and other Federal agencies rely on 

DCAA to help detect waste, fraud, and abuse. It is, therefore, completely unacceptable for this Federal policing agency to continue to 

have such significant performance problems. 

With more than a little frustration, I note that we are here almost 1 year to the day since the Committee’s last hearing on this 

very same topic, DCAA’s poor performance. During the 2008 hearing, I raised significant concerns, as did the Chairman, about the 

mismanagement of DCAA, and yet here we are again. 

Three particularly troubling areas still need to be addressed. 

First, the GAO report highlights the ongoing lack of rigor and independence of DCAA audits due to coercion by a few errant contracVerDate Nov 24 2008 13:37 Apr 18, 2011 Jkt 053841 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 P:\DOCS\53841.TXT SAFFAIRS PsN: PAT
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tors, program managers, and on occasion, even by DCAA management. Auditors cannot be constrained from doing their jobs. They 

must be able to work in an environment where they are encouraged to conduct their oversight in a fair, unbiased, and principled 

manner—indeed, not just encouraged, required to conduct their audits in that manner. 

Now, I want to make clear that there are many principled, dedicated, and competent auditors at DCAA who endeavor to conduct 

themselves with the highest possible ethical and professional 

standards. The management and the culture at DCAA must support their efforts, not undermine them. 

Second, I am baffled by the complete lack of a sense of urgency 

in terms of addressing and resolving these problems. As the Chairman has indicated, there have been repeated reports indicating 

these flaws. Recent reviews of DCAA’s reform efforts do not assure 

me that significant progress has been made over the past year. 

While DCAA has taken some steps toward improvement, it has 

been too little. 

To date, DCAA, as the Chairman has indicated, has rescinded 

some poor quality audits and issued guidance to improve the quality. The agency also plans to hire 700 additional auditors to augment its workforce. But if all we do is add more people, that is not 

going to solve the fundamental failings of this agency. Indeed, the 

consequences of not requiring high-quality audits and of mismanagement may only multiply with these additional resources. 

Just throwing more people at the problem is not going to solve it. 

Less than a month ago, the DOD Inspector General completed an 

investigation that found evidence of this kind of mismanagement. 

It cited time pressure, uncompensated overtime, unauthorized 

changes to audit results, and other unprofessional behavior that 

had created a work environment not conducive to performing quality audits. What will it take to finally see progress? DCAA’s inability to remedy its mismanagement, despite numerous hearings, investigations, and report after report, is truly an epic failure by the 

agency and the Department. 

Third, the GAO report raises significant questions regarding the 

need for structural reforms, such as the Chairman has mentioned 

and I brought up last year. How can it be that DCAA auditors 

spent more than 530 hours auditing a billing system that did not 

exist? How can it be that they repeatedly change audit findings to 

make the results acceptable to some contractors? 

To make matters worse, I am told that some supervisors responsible for deficient audits were given performance ratings ranging 

from ‘‘exceeds fully successful’’ to ‘‘outstanding.’’ Again, how can 

this be? Where is the accountability? 

Now, let me end by saying why this is so important. When an 

audit agency fails, the fallout can cascade throughout the system 

and ultimately shortchange our troops in the field. For this reason 

alone, Congress must carefully consider whether fundamental restructuring as well as internal reforms are needed at DCAA in 

light of these disclosures. 

Reestablishing DCAA as a first-rate audit agency is critical, and 

I will say that to date, I have been very disappointed at the lack 

of leadership at DCAA itself and at the Office of the Comptroller, 

5 

1The prepared statement of Mr. Kutz and Ms. Fischer appears in the Appendix on page 37. 

which is responsible for overseeing and supporting DCAA. Action 

must be taken swiftly to help this agency regain its credibility and 

restore its oversight mission. Once its performance and image have 

been repaired, it can once again assume its vital role of ensuring 

the best value for the American taxpayer on all defense contracts. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Senator Collins. 

Before I call on Mr. Kutz, I want to say that I mentioned, Senator McCaskill, that you had joined us in the request for this report 

by GAO, and I appreciate that, and it leads me to moving slightly 

behind you and acknowledging the work of your Counsel, Peg Gustafson, who as you know has been nominated by the President to 

be the Inspector General of the Small Business Administration. I 

want to thank her for the hard work she has done on the matter 

before us today and so many other issues, and we look forward to 

working with you as you move on into the IG community. Your 

nomination is pending before our Committee now. We will give it 

a rigorous and dispassionate review, of course, and hope to discharge your nomination by unanimous consent as soon as possible. 

Good luck. 

Senator MCCASKILL. Mr. Chairman, can we slow that down any? 

[Laughter.] 

I am having buyer’s remorse—— 

Chairman LIEBERMAN. I understand. 

Senator MCCASKILL [continuing]. About losing Ms. Gustafson. 

[Laughter.] 

Chairman LIEBERMAN. We have a conflict of interest here, but we 

will help you resolve it. 

Mr. Kutz, you are here for the second day in a row. God only 

knows what may bring us together tomorrow—— [Laughter.] 

But I thank you for your continuing high level of work, which 

greatly benefits Congress and ultimately the people of our country. 

I would note that you are here with Gayle Fischer, who is an Assistant Director at GAO who will be available to answer questions. 

For the record, Mr. Kutz is before us as Managing Director of the 

Forensic Audits and Special Investigations Team of GAO. Thanks 

for your work, and we welcome your testimony now. 

TESTIMONY OF GREGORY D. KUTZ,1 MANAGING DIRECTOR, 

FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, ACCOMPANIED BY 

GAYLE L. FISCHER, ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. KUTZ. Mr. Chairman and Members of the Committee, thank 

you for the opportunity to discuss the Defense Contract Audit 

Agency. Last year, I testified that 14 audits at three California locations did not meet professional standards. Today’s testimony 

highlights our broader review of the DCAA quality control system. 

My testimony has two parts. First, I will discuss our findings, 

and second, I will discuss our recommendations. 

6 

First, 65 of the 69 engagements that we reviewed did not meet 

professional standards. Key issues relate to lack of independence, 

insufficient testing, and inadequate planning and supervision. Examples of these problems include, first, an accounting system report drafted with eight significant deficiencies. One year after contractor objections to this draft report, an adequate or clean opinion 

was issued with no deficiencies. We found little evidence to support 

these changes. 

Second, an adequate opinion issued on a billing system with insufficient testing. As you mentioned, in this case, Mr. Chairman, 

an auditor told us that testing was limited because the contractor 

would not appreciate it. 

Third, an adequate opinion issued for a billing system based on 

a test of only four vouchers, all from the same day. 

And finally, as Senator Collins mentioned, 530 hours spent auditing a billing system that did not exist. 

Further evidence of problems at DCAA is the recision of 80 audit 

reports. I expect that the recision of 80 audit reports is unprecedented in both the Federal Government and the private sector. The 

evidence supporting our conclusion of widespread audit quality 

problems is irrefutable. 

So why did these problems happen? Let me give you a few of the 

examples. First, we found a production-focused culture resulting in 

part from flawed metrics. These metrics focused on getting audits 

done on time and within budget. Taking time to find and address 

issues was discouraged. This resulted in some audits of accounting 

and billing systems being issued within 2 to 3 weeks of the entrance conference. No wonder we saw opinions of contractor systems being issued based upon a conversation with the contractor 

and a quick look at a few transactions. 

Further evidence of the need to cut corners is the 22,000 reports 

issued in 2008 by DCAA’s 3,600 auditors. That is 60 reports issued 

every day of the year, including weekends and holidays. There is 

also evidence of pressure caused by the fear of DCAA being 

outsourced. In other words, DCAA’s metrics were intended to show 

that they could do their work faster and cheaper than public accounting firms. 

Let me move on to human capital. Last year, the original whistleblower, Thi Le, testified before this Committee on her experience 

at DCAA. Ms. Le’s testimony is one of the most memorable of my 

experience. If this GS–12 auditor and the dozens of others that we 

have spoken to are representative of DCAA’s employees, then the 

quality of audit staff is not the issue. Instead, what you have are 

thousands of good auditors trapped in a broken system. 

Let me move on to steps that can be taken to improve DCAA’s 

operations. First, let me commend this Committee for your oversight on this matter. The hearing you held last year and your consistent oversight have made a difference. DOD is taking these matters very seriously. Positive steps have been taken and are underway to address most of these issues. My only recommendation to 

you is to continue your oversight. 

We made 15 recommendations to the Secretary of Defense. The 

intent of these recommendations was to strengthen DCAA’s independence and effectiveness. DOD agreed with 13 of these recVerDate Nov 24 2008 13:37 Apr 18, 2011 Jkt 053841 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 P:\DOCS\53841.TXT SAFFAIRS PsN: PAT
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1The prepared statement of Mr. Heddell appears in the Appendix on page 56. 

ommendations. We also provided three matters for the Congress to 

consider, as you had requested. 

The first of these relates to providing DCAA with the protections 

and authorities granted to Inspectors General. Legislation would be 

needed to implement this matter. This change could strengthen 

leadership, independence, and transparency through external reporting of DCAA results to the Congress. 

The other two matters relate to organizational placement. Most 

of the effectiveness issues can be addressed within the current organization placement. However, elevating DCAA to a separate 

DOD component or outside of DOD as an independent audit agency 

are matters for longer-term consideration. We believe that organizational placement changes should not be considered until current 

reform efforts are complete. 

In conclusion, the 14 audits that we reported on last year were 

not isolated cases but, in fact, proved to be the tip of the iceberg. 

We commend DOD for their recent actions. However, it is important to remember that if not for a tip from a courageous GS–12 

auditor, Congress would still believe that everything at DCAA was 

fine. We look forward to working with this Committee and DOD to 

help DCAA achieve its full potential. 

Mr. Chairman, this ends my statement, and I look forward to 

your questions. 

Chairman LIEBERMAN. Well done. Thank you very much. 

Next, we are going to hear from the Hon. Gordon Heddell, who 

is the Inspector General for the Department of Defense. 

TESTIMONY OF HON. GORDON S. HEDDELL,1 INSPECTOR 

GENERAL, U.S. DEPARTMENT OF DEFENSE 

Mr. HEDDELL. Chairman Lieberman, Ranking Member Collins, 

and distinguished Members of this Committee, thank you for the 

opportunity to be here today to discuss continuing oversight by my 

office of audits conducted by the Defense Contract Audit Agency. 

The Department of Defense Office of the Inspector General has 

the responsibility to verify that audits by all DOD audit agencies, 

including DCAA, comply with stringent standards. At the hearing 

last year before this Committee, we discussed serious problems 

with DCAA, to include weaknesses in its quality assurance programs, audits that failed to comply with generally accepted government auditing standards, and allegations of an abusive work environment. We have been monitoring DCAA’s efforts to correct the 

deficiencies identified in our May 2007 peer review and in a report 

issued in July 2008 by the Government Accountability Office. 

On August 31 of this year, we issued a report following up on the 

deficiencies identified by GAO. We found that a flawed audit could 

have allowed a contractor to recover millions of dollars in unallowable costs on a major aerospace program. We found audits performed by trainee auditors at one location that did not comply with 

standards. We found audit opinions that were not sufficiently supported. And we found audit findings that were dropped without 

sufficient justification. Additionally, employee concerns with time 

pressures, uncompensated overtime, changes to audits, and unproVerDate Nov 24 2008 13:37 Apr 18, 2011 Jkt 053841 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 P:\DOCS\53841.TXT SAFFAIRS PsN: PAT
8 

fessional behavior created a work environment not conducive to 

producing quality audits. 

We made several recommendations to DCAA, including that it 

rescind an additional five audit reports and notify contracting officials not to place reliance on the reports’ conclusions. Our report 

also recommended that DCAA take appropriate corrective action 

regarding the performance of the two supervisors associated with 

the majority of cases reviewed by my office and GAO. DCAA reported that those individuals will retake supervisory courses and 

receive additional training. We expect DCAA to monitor their performance very carefully. 

We issued a report on September 11 of this year regarding improper conduct by a DCAA manager. This senior official investigation supported a GAO finding that a former regional audit manager 

was not free from external impairments to independence. Her direction resulted in a flawed audit that could have allowed a contractor to recover $271 million in unallowable costs. Additionally, 

we concluded that the individual failed to adhere to established 

leadership standards and fell short of the type of leadership skills 

expected from senior leaders. The report was provided to the Director of DCAA for appropriate action. 

Based on the most recent GAO review of DCAA, together with 

the deficiencies identified in our May 2007 peer review, I notified 

DCAA that our adequate opinion on its system of quality controls 

would expire as of August 26 of this year. Further, that DCAA 

should qualify its audits with a statement noting an exception to 

compliance with the quality control and assurance standard. 

On August 5 of this year, we announced the peer review for the 

period ending September 30, 2009. This review will assess whether 

DCAA’s quality control system provides reasonable assurances of 

compliance with standards. We will also follow up on DCAA corrective actions in response to prior GAO and DOD IG recommendations, including the findings in our May 2007 and December 2003 

peer review reports. 

On September 1 of this year, DCAA requested that GAO approve 

delaying the announced peer review by at least 2 years so that it 

could continue internal improvements. The DOD Inspector General 

has a statutory responsibility to provide continuous audit oversight, and should the peer review be postponed, we will undertake 

a number of targeted reviews of DCAA high-risk areas. 

Our oversight is essential to helping DCAA identify audit deficiencies and to take corrective actions. However, implementing 

change and creating a quality workforce requires a commitment by 

management. It is essential that DCAA’s senior management address fundamental issues, to include recruiting, training, and cultivating skilled personnel, and most importantly, developing highly 

skilled and motivated leaders. Equally important is the engagement, involvement, and support of senior DOD management. Absent any of these factors, DCAA will fail to achieve the cultural 

transition necessary for success. 

This concludes my statement. I welcome your questions. 

Chairman LIEBERMAN. Thank you very much. 

Next, we will hear from the Hon. Robert Hale, Under Secretary 

of Defense, Comptroller, and Chief Financial Officer of the DepartVerDate Nov 24 2008 13:37 Apr 18, 2011 Jkt 053841 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 P:\DOCS\53841.TXT SAFFAIRS PsN: PAT
9 

1The prepared statement of Mr. Hale appears in the Appendix on page 66. 

ment of Defense, to whom, if I have this straight, the DCAA reports, correct, Mr. Hale? 

Mr. HALE. Yes. 

Chairman LIEBERMAN. Thanks for being here. 

TESTIMONY OF HON. ROBERT F. HALE,1 UNDER SECRETARY 

OF DEFENSE (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF DEFENSE 

Mr. HALE. Mr. Chairman, Members of the Committee, thank you 

for the opportunity to share some observations about the Defense 

Contract Audit Agency. I will focus on the concerns raised by the 

recent audits of DCAA, particularly by the GAO audit. 

As Members of the Committee are aware, the Department has 

submitted a lengthy response to GAO’s recommendations. We acknowledge the seriousness of GAO’s findings as well as those of the 

IG and others and concur with their recommendations with very 

few exceptions. I will mention a couple below. 

Based on my own review of DCAA and the GAO recommendations, as well as the IG, I believe that DCAA, with assistance from 

me and others in the Department of Defense, needs to focus on 

three major issues. First, maybe foremost, improving the quality of 

audits, especially the audits of contractor business systems. Second, assessing the number and types of audits performed by DCAA 

and whether all audits currently required by acquisition laws and 

regulations are appropriate. I am worried about 24,000 audits a 

year, as the GAO pointed out. We have to be sure we do all that 

are needed, but we also need to look at that number. And finally, 

assessing improvements in the process for resolving DCAA audit 

results to ensure that audit findings are fully considered during 

contracting officer deliberations. 

DCAA has already begun to focus on these major issues and on 

others. As GAO said, a number of steps have been taken, and in 

her testimony, the DCAA Director, April Stephenson, will describe 

some of the actions that have already been completed and those 

that are underway. 

It is important to note that the audit assignments covered by 

GAO and the IG were completed 3 to 5 years ago, and all of the 

audits that we are talking about cover items completed 3 to 5 years 

ago, and that a series of corrective actions was undertaken beginning in late 2008, not long after the hearing that you held last 

year. The Committee has to understand that it may take several 

years—it took us several years to get into this problem—for the full 

benefit of these actions to be realized. 

In addition, I would like Members of the Committee to know that 

the Office of the Under Secretary of Defense, Comptroller, my office, has taken some steps to improve oversight of DCAA operations. First, I have assigned a senior member of my staff to assist 

on oversight efforts. This provides me some personal eyes and ears 

to keep track of what is going on. 

Second, last March, I established a DCAA Oversight Committee 

to provide my office with advice and recommendations concerning 

the oversight of DCAA. The committee is made up of the Auditors 

10 

General of the Army, Navy, and Air Force—all three of them personally agreed to participate—and these individuals provide me 

with some heavyweight audit experience that is simply not present 

on my staff, which is focused on financial management and the 

budgetary responsibilities. 

Also on this oversight committee is—and I think we need to pay 

careful attention to—the Director of Defense Procurement and Acquisition Policy (DPAP). He is the key customer for DCAA, and we 

want to keep them in mind as we work to improve the agency’s 

performance. The DOD Deputy General Counsel for Acquisition 

and Technology is also a member. 

This senior group will assess DCAA’s activities—they have already begun to do so—and the actions taken to correct problems, 

and they have provided me advice. I have met with them several 

times personally and will continue to do so. 

We have also taken steps in the Department of Defense to increase the resources available to DCAA. During fiscal years 2009 

and 2010, we will add 500 new auditors, and we will consider additional auditor positions beyond fiscal year 2010. I will be monitoring the DCAA budget carefully, and that is something I can do 

during our fall program and budget review. 

We believe that by taking aggressive action, improving oversight, 

and increasing resources, we can resolve the significant issues 

posed by the GAO report, as well as the report by the IG, and we 

will monitor that progress, and I will personally, to determine if 

further actions need to be taken. 

While we generally agree with GAO, there are two areas where 

we take exception or disagree with their findings. First, GAO suggested that Congress consider providing DCAA with independence 

similar to that of the Department’s Inspector General. There are 

some aspects of that suggestion that may make sense. For example, 

we are looking at increased subpoena authority for DCAA. But we 

disagree with the number of the implications of that recommendation. 

For example, we do not believe the DCAA Director should be a 

presidential appointment with Senate confirmation. It will inject, 

in my view, an inappropriate element of politics into what should 

be a technical audit agency and inevitably will create long periods 

of delay—it is just inevitable in our system—when there would be 

no Director in charge. 

Likewise, we oppose fixed terms for the DCAA Director and mandatory public reporting, as the IG is required to do. It is an additional burden on an agency that is already struggling to meet its 

many mission demands. 

While we do not support IG-like independence for most aspects 

of it, we are taking steps to strengthen DCAA’s independence internally in a number of ways, but I will mention one in particular, by 

assessing improvements to the process used by contracting officials 

to resolve DCAA audit findings. When there is disagreement, we 

need a process that allows DCAA to elevate that disagreement if 

it cannot be resolved at the staff level, and we have put that in 

place with the Director of Procurement and Acquisition Policy and 

appeals to both the Under Secretary of Acquistion, Technology, and 

11 

1The prepared statement of Ms. Stephenson appears in the Appendix on page 69. 

Logistics (AT&L) and the Comptroller if DCAA does not feel that 

the first set of appeals has resolved the issues. 

Second, GAO suggested that Congress require DCAA to report to 

the Deputy Secretary of Defense. DOD strongly disagrees with this 

recommendation. The Deputy Secretary is the Chief Management 

Officer of one of the world’s largest organizations. He backs up the 

Secretary in the wartime chain of command. Direct oversight of an 

individual Defense Department agency would, I believe, add unreasonably to his current responsibilities. 

I think DCAA should remain within the Department, and at 

least until these issues are resolved, I believe it should continue to 

report to my office. I feel personally responsible for helping to fix 

the problems that have occurred. 

In sum, Mr. Chairman, we acknowledge that GAO has raised 

some serious issues. We believe that we have begun taking appropriate steps—and I think that is important—to resolve these 

issues, and I will personally monitor the situation to determine if 

additional steps are needed. 

Let me close with what I believe is an important and critical context, and I ask the Committee’s help. DCAA provides valuable services to the Department of Defense and other government organizations. You have all said that. I agree. I have spoken personally to 

the Director of Defense Procurement and Acquisition Policy, one of 

DCAA’s key customers. He informed me that DCAA products are 

necessary and critical to the acquisition process. The Commission 

on Wartime Contracting has made similar comments. 

As we strive to resolve the issues raised by GAO and others, I 

am worried about morale at the agency. We have to be careful not 

to undermine the unique value of DCAA to DOD and other organizations. Let us be careful not to throw out the baby with the 

bathwater here. 

Mr. Chairman, thank you again for providing this opportunity for 

me to comment on GAO’s findings. I am convinced that working together with this Committee and the senior leadership of the Department and, of course, DCAA, we can ensure that the work of 

DCAA will continue to support the Department and the security of 

the United States. 

When the other witnesses have completed their statements, I 

would be glad to answer your questions. 

Chairman LIEBERMAN. Thank you, Mr. Hale. 

And finally, April G. Stephenson, Director of the Defense Contract Audit Agency. 

TESTIMONY OF APRIL G. STEPHENSON,1 DIRECTOR, DEFENSE 

CONTRACT AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE 

Ms. STEPHENSON. Mr. Chairman, Members of the Committee, 

thank you for the opportunity to appear before you today. I am 

pleased to be here. 

As requested, I will describe the actions taken as a result of the 

recent oversight reviews of DCAA. Please be assured, we take all 

findings that have taken place on DCAA from any source very seriously. 

12 

We have worked diligently since late 2008 to accomplish a number of actions to improve the quality of the audit services and to 

improve the working environment for our employees. As shown in 

the appendix of my submitted testimony, we have completed over 

50 specific improvement actions. We are not done, and we have 

various long-term actions in process. 

For the purposes of my testimony today, Mr. Chairman, we have 

categorized the issues into four general areas: Insufficient testing, 

ineffective quality assurance program, lack of independence, and 

management abuses. 

The GAO identified noncompliances with the audit standards of 

nearly all the assignments it has reviewed. This is primarily due 

to an insufficient number of transactions tested, particularly in assignments of business systems where the contractor’s system was 

deemed to be adequate. 

Contractor internal control systems involve hundreds of control 

points. Auditors assess the risks of the control points on government contracts and establish the level of testing on that risk. At 

times, auditors assess the risk at low and sampled few transactions, and at other times the risk was high and sampled more 

transactions. In some instances, the number of transactions we reviewed, we have no defense for. It was unacceptable. In others, it 

was a judgment call, and we are in the process of revamping this 

process. 

As I said, we recognize these concerns with the business systems 

and initiated a project in 2009 to reassess the entire process for 

performing audits of business systems and the types of opinions to 

be provided. This will continue into early 2010. We are consulting 

with the GAO and the IG as we proceed with this project. 

The GAO concluded that DCAA’s quality assurance program was 

deficient. We recognize that improvements are required, not only 

with the structure of the quality assurance organization, but also 

the manner in which the reviews were performed. In August 2008, 

we centralized the quality assurance function to headquarters. We 

then proceeded with more than double the reviews we performed 

in the past. We no longer provide a rating of pass-fail depending 

on the number of deficient assignments. Offices that are determined to have at least one assignment in noncompliance with the 

auditing standards are required to provide a meaningful corrective 

action plan, which is monitored at the headquarters level. 

The GAO concluded that DCAA’s independence was impaired. 

This was primarily due to providing input on draft corrections to 

internal control policies and procedures and then auditing the final 

policies and procedures. It is not uncommon for contractors with 

system deficiencies to seek input from the auditors while they are 

developing corrections to the systems. In many instances, providing 

feedback throughout the process expedites the correction of the deficiencies. 

The GAO has concluded that this feedback impairs the auditors’ 

objectivity as they audit information they have provided feedback 

for prior to implementation. We have corrected these issues. Auditors no longer provide feedback to contractors on draft corrections 

to systems, and we will no longer remove deficiencies from reports 

when the deficiencies are corrected during the audit. 

13 

In July 2008, the GAO concluded that DCAA had an abusive 

work environment. The IG was engaged to investigate this matter, 

and as Mr. Heddell mentioned, they finished their review in August 2009. Although they did not go as far as to say we had an 

abusive work environment, it concluded that we had a work environment that was not conducive to producing quality audits. Auditors felt pressure to work uncompensated overtime, and in another 

office, several employees said that they heard people yelling in the 

office and raising their voices. We believe these issues have been 

adequately addressed, and the IG concurs. 

The DOD IG did not identify any attempts by DCAA to impede 

the GAO investigation other than the letter that was written in 

August 2007 to one of our senior auditors, which I know this Committee is familiar with. As we discussed at the hearing last September, the letter was prepared by one of the Defense Legal Services attorneys that reports to DCAA. The letter was rescinded the 

day after the hearing last year. 

To provide employees an opportunity to report instances of perceived management abuse without fear of retaliation, we launched 

an anonymous Web site in September 2008. The Web site is treated 

as a hotline, and allegations are either investigated by DCAA’s internal ombudsman team, which we established in late 2008, or referred to the DOD IG for investigation. 

Mr. Chairman, as a result of these oversight reviews, we have 

taken a number of actions. I would like to highlight some of the 

actions I have not previously discussed in a very brief form. 

We completed a bottom-up staffing assessment to determine 

whether we had the appropriate staffing at all levels of the organization. We have received funding under the Defense Acquisition 

Workforce Development Fund, as Mr. Hale mentioned. We added 

25 new field audit offices, increasing from 79 offices in August 2008 

to 104 offices in August 2009, to provide greater training to employees as well as to ensure appropriate oversight of audit quality. 

The performance measure process was completely revamped. We 

eliminated 18 prior measures and added eight new measures to 

focus on audit quality. Focus groups were held in 2009 and feedback was favorable that most employees reported they did not feel 

pressure to meet the performance measures on individual assignments. Auditors did feel pressure to meet additional budget hours 

and did not feel they could request an extension. So as a result, we 

removed the requirement to meet budget hours from performance 

standards and inserted new language on the requirement to complete audits in accordance with the auditing standards. 

We hired the Center for Defense Management Reform at the 

Naval Postgraduate School to assist with cultural transformation 

across the agency. We instituted a revised process for determining 

the audit requirements for 2010. Audit priorities were established 

based on the audits required under laws and regulations, and the 

field offices developed the audit hours that were necessary, taking 

into consideration the risk of the contractors, the skill level of the 

audit staff, and the additional hours required to comply with the 

auditing standards. This process is consistent with the GAO’s recommendation of performing a risk-based approach rather than production line auditing. 

14 

We engaged the Army Force Management Support Agency to 

evaluate DCAA’s process for planning 2010 audit needs as well as 

our staffing requirements. We provided training to all employees on 

quality audits and the work environment. 

In closing, Mr. Chairman, I want to underscore that DCAA is 

committed to ensuring the agency is above reproach, that our audits are performed in accordance with auditing standards, and that 

its culture promotes the kind of vigilance and quality that protects 

the interests of the American taxpayers. 

Mr. Chairman, thank you again for the opportunity to address 

the Committee. I would be pleased to take your questions. 

Chairman LIEBERMAN. Thank you, Ms. Stephenson. We will now 

go to 7-minute rounds. 

Mr. Kutz, let me begin with you just to draw out a little more 

a couple of the points that were in your findings than you had the 

time to do in your opening statement. One of the findings was, and 

I paraphrase it, you found a lack of independence in DCAA. So I 

wanted to ask you, a lack of independence from whom, the contractors, the Department of Defense, perhaps supervisors? What is the 

problem? 

Mr. KUTZ. It would be more along the lines of the contractors, 

I would say, with respect to the example I mentioned in the opening statement, that they did not do additional work because the 

contractor would not appreciate it. That is a disturbing finding, I 

think, that someone would actually believe that was important. 

That would be like us auditing an Executive Branch agency for 

you, and if they said, we would prefer that you do not look at the 

transactions, we would walk away. I mean, that is not the way 

things should work. 

Chairman LIEBERMAN. So they were too cozy or whatever, intimidated in some sense by some of the contractors, is what you are 

saying. So they were not performing the independent audits that 

we presume auditors will perform. 

Mr. KUTZ. That, and there were also certain other issues with respect to data requests maybe that were made, not filled, and then 

the audit was completed even though the data was not received at 

the end of the day. So things like that—— 

Chairman LIEBERMAN. Without the auditor insisting on it. 

Mr. KUTZ. Or making it a scope restriction and saying, we just 

did not have enough evidence to conclude on the system or whatever was being audited. So those are the kinds of things. And 

again, I believe it was seven—Ms. Fischer, is that correct? 

Ms. FISCHER. Right. 

Mr. KUTZ. Seven of the audits. So how widespread it is, I do not 

know, but seven of the 69. So there is enough there that it is a bit 

of a concern. 

Chairman LIEBERMAN. Senator Collins cited, and you did, too, 

this case of the auditor spending more than 500 hours auditing a 

billing system that did not exist. How does that happen? 

Mr. KUTZ. Well, it was not the contractor in this case. It was a 

grantee, and grantees do not bill. They do drawdowns on lines of 

credit. So that was the issue there. And there was actually a single 

audit done that would have covered the actual drawdown system. 

15 

So the audit was not necessary in the first place. So it really was 

not the contractor. It was a grantee. 

Chairman LIEBERMAN. So an audit was done. In other words, it 

is not that somebody cheated on their worksheets to describe what 

they were doing. It is that 500 hours were spent—— 

Mr. KUTZ. That were not necessary. 

Chairman LIEBERMAN [continuing]. That were not necessary. 

Mr. KUTZ. Correct. That is what that is. Yes. And I think that 

they agree, and they are not going to do that one in the future. 

Chairman LIEBERMAN. When there is such a collapse, if you will, 

or so many shortcomings in an audit, or any organization, obviously, there is a lot of blame to go around. But I was very interested in your comment. Again, you are drawing from selective 

cases—you could not review every one of the auditors. I paraphrased from what you said. Your conclusion from the auditors you 

did interview is that there are thousands of good auditors trapped 

in a broken system, and some of the recommendations you have 

made are clearly systemic. But then some of the responses that I 

have heard today go more to the individual auditors, training opportunities and the like. 

So I am going to ask you first to comment on that, and then ask 

the other witnesses. Is it both, or is it really the system? If it is 

the system, are you talking about the fact that they are trying to 

do too many audits? 

Mr. KUTZ. Yes, I really am, and I think Mr. Hale touched on it 

in his opening statement. I agree with him 100 percent. 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ. You are trying to do 22,000, or he mentioned 24,000, 

or whether it is 30,000 audits—— 

Chairman LIEBERMAN. Right. 

Mr. KUTZ [continuing]. With 3,600 people. That is not possible. 

Chairman LIEBERMAN. You just cannot do those audits. That is 

22,000 to 30,000 a year. 

Mr. KUTZ. Right. You are going to do drive-by audits in some 

cases, where you go by and ask a few questions, look at a couple 

transactions—— 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ [continuing]. And issue an opinion, and you are setting 

up the people in that particular case to fail. You have not given 

them the proper resourcing. Now, I cannot believe there are 22,000 

audits that are necessary. That gets into the risk-based approach 

that we talk about with respect to—and I think Mr. Hale hit it on 

the head—are those audits necessary? Are there things that can be 

done either by redefining audits or looking at what is actually generating the audits from the Federal Acquisition Regulation (FAR) 

or whatever the case may be? If you do not deal with that issue, 

I do not think you will ever fix this. 

Chairman LIEBERMAN. That is a very powerful point. Let me go 

back to whether it is a problem with the auditors or it is a problem 

of the system. That is part of the indictment of the system that we 

just talked about, that perhaps they are trying to do too much and 

therefore they are doing a lot badly. But let me ask this direct 

question. Is the leadership inadequate? I know it is awkward, not 

16 

just for Ms. Stephenson, but anybody, but the supervisors generally—— 

Mr. KUTZ. Well, I think it is an insular culture. I think we talked 

about that. 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ. And that is why I think one of our recommendations 

to bring in some outside expertise to take a fresh look at this is 

useful, someone to come in and say, OK, how are we doing these 

audits? How are we deciding which ones to do? Are they all mandated? Do we have to go back to the source and figure out how we 

get down? 

Because, again, I think, if you learn to do an audit where a couple of transactions is enough to opine on a system, that does not 

mean you are not a good auditor. It means you were not taught 

how to do an audit correctly. I mean, if I had been brought in as 

an entry-level auditor at DCAA and I learned that is the way you 

do audits, then I would think it was OK. That does not necessarily 

mean I am a bad auditor. It means I really grew up in a system 

where I learned that was the way you do audits because we have 

10 audits to do in the next 2 months and the only way to get them 

done is to do them quickly. 

Chairman LIEBERMAN. Mr. Hale, let me ask you to comment on 

this a bit. I know you are relatively new on the job. I appreciate 

the steps you have taken. When you said you assigned somebody 

on your staff to oversee your liaison with DCAA, is that going to 

be their primary responsibility? 

Mr. HALE. It is probably about half-time. She is doing some other 

things for me—— 

Chairman LIEBERMAN. Yes. 

Mr. HALE [continuing]. But I will have her devote enough of her 

time to see this through. I told you, I am committed to fixing this. 

Chairman LIEBERMAN. Right. 

Mr. HALE. Yes, it happened on a previous watch, but nonetheless, it is my responsibility now, and I need those eyes and ears 

as we go forward. 

Chairman LIEBERMAN. Right. 

Mr. HALE. There are still a number of issues that need to be resolved. I think we all understand that. 

Chairman LIEBERMAN. Have you, since you have been there, met 

regularly with Ms. Stephenson? 

Mr. HALE. Yes. I see her almost weekly at my staff meetings, and 

we have had a number of one-on-one discussions, and Ms. Stephenson and I are e-mail buddies. 

Chairman LIEBERMAN. Yes. 

Mr. HALE. We have had a lot of exchanges. 

Chairman LIEBERMAN. So do you agree, just to draw you out 

from your testimony, that one of the most significant problems here 

is that DCAA is trying to do too much and therefore it is doing a 

lot of it badly? 

Mr. HALE. You have a tough tradeoff to make. I am concerned 

about that. We need to look at it. On the other hand, I do not want 

to start not doing audits—— 

Chairman LIEBERMAN. Yes. 

17 

Mr. HALE [continuing]. That could be productive for the government. 

Chairman LIEBERMAN. Right. 

Mr. HALE. So there is a tradeoff. Incidentally, just to clarify the 

numbers, the 30,000 is the total number of engagements. I thought 

it was 24,000 under Generally Accepted Government Auditing 

Standards (GAGAS). Maybe it is 22,000—well, just to clarify the 

numbers. 

Ms. STEPHENSON. It is merely a difference of the number of assignments that we do and the number of reports issued. There are 

some assignments that incorporate into a single report, so it is not 

necessarily one-for-one. The number of reports are around 20,000. 

Mr. HALE. So I have talked to Ms. Stephenson about the numbers. I have talked to Shay Assad, who is the Director of Defense 

Procurement and Acquisition Policy. He is the customer. 

Chairman LIEBERMAN. Right. 

Mr. HALE. We need to keep them in mind here. 

Chairman LIEBERMAN. Sure. 

Mr. HALE. I am concerned the pendulum has swung too far. We 

were not paying enough attention to quality. I do not want to swing 

back and ignore the customer or we will not meet DOD’s, the government’s, and the taxpayers’ needs. So there is a balance to be 

struck. So we have talked to both of them. We need to review the 

numbers. 

Chairman LIEBERMAN. Do you know if you have the statutory 

latitude to selectively audit so you reduce the numbers—— 

Mr. HALE. I am going to need to get the lawyers involved. 

Chairman LIEBERMAN. Mr. Kutz, do you know? 

Mr. HALE. They may not. Some of it may be the FAR. Some of 

it may be laws. 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ. I would defer to DOD. We did not do an in-depth look 

at that. 

Chairman LIEBERMAN. My time is up. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

Ms. Stephenson, I want to read to you your opening testimony 

before our Committee last year on September 10, 2008. You said, 

‘‘Mr. Chairman, I want to assure you and all the members of this 

Committee that DCAA is taking the GAO’s findings very seriously.’’ 

This year, at the beginning of your testimony, you said, ‘‘Please be 

assured that we have taken the GAO’s findings very seriously.’’ In 

other words, almost the exact same words. But from what I can 

see, very little has changed during the past year. 

I am particularly concerned to learn from my staff that one of 

the executive-level managers from the Western Region who was responsible for the problematic audit has actually since been promoted to the Senior Executive Service. 

So what has really changed since you came before us a year ago 

and assured us that you were taking GAO’s audits very seriously? 

It is not sufficient for you to come back a year later and just repeat 

those same words. I had such hope when I heard that from you last 

year because I knew you were a career employee with a lot of experience who had worked her way up in the agency and only several 

18 

months before our hearing last year had become head of DCAA. 

But words are not enough. We need to see real progress. 

Ms. STEPHENSON. I agree, Senator, and it is a very fair question 

to ask, and I will say, over the last year, we have made significant 

progress. And let me answer your question in a couple of ways. 

First, the Senior Executive was promoted in October 2007. It was 

not after the hearing, it was a year before the hearing, just to clarify that. 

Second, the number of actions we have taken have ranged from— 

we completely changed the way in which we conduct the performance measures. Feedback from employees has been favorable on 

that. We removed the requirement for employees to meet budget 

hours, which was one of the primary barriers that people felt. That 

was removed actually from the performance standards. Language 

about quality assurance has been inserted in all standards at all 

levels within the organization. 

We completely changed the way in which we review contractor 

documents. No longer do we look at drafts. We only look at a final 

product. We have removed any fixed cycle times on assignments. 

It is now based on the amount of time that is necessary to perform 

a full and complete audit. We have reiterated to our workforce the 

necessary number of transactions that must be reviewed in order 

to express an opinion, and if there is an impairment, such as a 

time constraint from a contracting officer, to have an appropriate 

disclaimer in a report. 

I have numerous actions in which I could go through to describe 

what has changed, but I will explain what employees tell me as I 

visit the offices. They tell me that there has been more positive 

change made in DCAA in the last year than there had been in the 

prior 10 years. They explain that we have put a workforce environment in place with our anonymous Web site where they feel they 

can come forward and discuss and disclose allegations of poor management or an abusive work environment. 

I feel that although we have a number of changes yet to be done, 

we have made significant progress in this past year. 

Senator COLLINS. Ms. Stephenson, I want to clarify the issue you 

raised about the manager because you said that the promotion occurred in October 2007. But in fact, it was a probationary period, 

I am told, that extended for a year. So the information was available to you, and yet this woman’s probationary period passed and, 

in fact, she was made permanent in October 2008. 

Ms. STEPHENSON. That is correct. 

Senator COLLINS. It is a bit misleading for you to say that she 

was promoted prior to your having knowledge of these issues. 

Ms. STEPHENSON. It is the difference between promotion—— 

Senator COLLINS. That is a big difference. She could have failed 

the probationary period. It could have been rescinded. So you had 

that information. 

Ms. STEPHENSON. But I did consult with attorneys. We did not 

have enough information to reduce her appraisal below ‘‘achieved.’’ 

Senator COLLINS. There is something wrong with the performance system then. I do not want to spend all our time on one employee. 

Ms. STEPHENSON. I understand. 

19 

Senator COLLINS. I want to go to Mr. Kutz and ask a broader 

question. You found clear violations of DCAA policy and procedures 

representing serious departure from what is called the Yellow Book 

standards. To your knowledge, were any of the management personnel who were involved in these problematic audits disciplined or 

retrained or counseled? Was action taken? 

Mr. KUTZ. Probably on the training front, yes. Counseling, I am 

not sure. Any serious consequences, none I am aware of. 

Senator COLLINS. Thank you. 

Ms. Fischer, you testified last year that some of the DCAA auditors were scared to talk to you and were nervous about being seen 

with GAO and telling you what was really going on. Have you seen 

an improvement in that area or is this still a problem? 

Ms. FISCHER. I guess I would have to put it in the context of the 

continuing hotlines we are getting—— 

Senator COLLINS. Yes. 

Ms. FISCHER [continuing]. In our office. Some of the people that 

have come to us have also gone to DCAA’s internal hotline through 

the Web site, and I would say there is a greater comfort level coming forward in the agency now than there was before. I think the 

management of the hotline is working pretty well, at least in the 

cases we have looked at, and they have shared that information 

with us. 

Senator COLLINS. Thank you. 

Mr. Hale, my time is almost gone, but let me just make a comment to you. You expressed your concern about the morale of the 

people working at DCAA, and in a sense, you were cautioning us 

about tipping the balance too far. You said, ‘‘I am concerned about 

morale at the agency.’’ Well, I guess I would say to you, what effect 

do you think that it has on morale when managers who are responsible for problematic audits get promoted? When there is pressure 

to weaken audit findings? When report after report indicates that 

there is undue pressure for production at the expense of quality? 

It seems to me that those problems have a far more devastating 

impact on the morale of the auditors than our investigations or 

other reports that are trying to get this agency back on track. Ultimately, you are the person to whom DCAA reports, and I think you 

need to take personal responsibility to get this agency back on 

track. 

Mr. HALE. Senator, I think I may not have been clear enough. 

What I was looking for is a statement from the Committee, which 

you have done, that DCAA performs valued services. I also want 

them to hear that from me. I have said it, and you have said it, 

too. That is what I was driving at, not that we should not solve the 

problems that have been identified here or continue to look at 

them. I am sorry if I was unclear. 

I do worry that the drumbeat of criticism needs to be balanced 

by the fact, as the GAO has pointed out, that there are a lot of good 

people at DCAA trying to do good things, and I want them to continue to hear that. 

And I do take this personally. Again, it did occur before I had 

this job, but it is my job to fix it. I am here today to tell you I will 

do my best, and I have devoted a fair amount of my personal time 

20 

in the midst of a fairly chaotic budget environment and two wars 

to try to make this better. 

Senator COLLINS. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

I had the same reaction Senator Collins expressed in her last 

question, so I appreciate your response. And I will say that, perhaps it is because employees of DCAA know the Committee is on 

the case, in fact, the calls from employees to our office have gone 

up over the last year, not down. So I am encouraged to hear that 

though the calls have continued, they seem to reflect some improvement, at least as GAO is getting those calls on its hotline. 

Thanks, Senator Collins. 

Senator Coburn is next. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman, and thank you for 

having this hearing. I think it is really important. 

I read a summary of the GAO report last night and, quite frankly, got sick. There is a culture that is absolutely unacceptable in 

your agency, Ms. Stephenson, and it still exists. It is not about 

doing auditing. It is about getting the work done and looking like 

you are doing the auditing. 

You have been Director since 2008, correct? 

Ms. STEPHENSON. Correct, sir. 

Senator COBURN. Do you have any auditing experience outside of 

this agency? 

Ms. STEPHENSON. No. I have been with DCAA since college. 

Senator COBURN. There was a firm called Arthur Anderson. It no 

longer exists because it failed greatly in its ability to do independent audits. If we cannot trust auditors, we cannot trust anybody. Personally, I can put forward about $50 billion of waste a year in the Pentagon—$50 billion. And now I really understand why— 

we have a system that we call an audit that is not an audit. I 

mean, that is essentially what the GAO report is saying. We probably would not see much difference without your organization 

there. And although there may have been some changes brought 

forward, the fact that there was a recision of 80 audit reports and 

65 to 69 were not professionally conducted audits, did not meet the 

Federal Accounting Standards Advisory Board (FASAB) accounting 

standards for auditing, to me says we have to start over. 

Mr. Kutz, what would be the effect of ending or phasing out the 

direct bill program at the Pentagon? 

Mr. KUTZ. I do not know. 

Senator COBURN. Do you have any comments on that? Ms. Fischer. 

Ms. FISCHER. Well, either DCAA or the Defense Finance and Accounting Service would need to review vouchers prior to payment, 

or maybe the contracting officers. DCAA has assumed this responsibility for the contracting officers, and the certifying officers in the 

Defense Finance and Accounting Service rely on that work in making payments. 

Senator COBURN. But if we have an agency that is not actually 

performing its function, what control, what safeguards do we have? 

21 

Ms. FISCHER. You do not. 

Senator COBURN. We do not, and that is exactly it. The question 

that comes down to me is, the people responsible, I cannot understand why they are still there. I do not understand that. I do not 

understand why the management of this agency has not been totally changed and why people with real experience, with real audit 

experience in the real world, have not been brought in to create a 

culture of true auditing, which means you verify to make sure 

when you claim an audit that it is accurate, and you do the amount 

of testing that is necessary to make that verification. Otherwise, 

you give a qualified opinion, and we do not see that. 

Mr. Chairman, I will not spend all my time on questions. I am 

a little bit too upset to go where I really want to go. But I think 

our Committee, with Senator McCaskill and her experience, should 

look at this thing from the ground up. And I do not doubt that 

some efforts have been made to improve things, but, in fact, Ms. 

Stephenson’s experience coming up, starting as an auditor trainee 

and now leading this agency, tells me that there is a culture that 

is outside of what we would expect of auditing, and it is different 

than the culture anywhere else in this country in terms of when 

you get a certified audit. 

I have been audited as a businessman. It is tough. As a publicly 

traded company, you had better be able to justify what you are saying. The auditors, you pay them, but you want that unqualified 

opinion when they finish, and you had better be able to prove what 

you are doing is accurate, and I do not think we are anywhere close 

to having the confidence that is the case. And this is our biggest 

agency. It is a half-a-trillion dollars a year. And we know the waste 

that is out there. I mean, in our Subcommittee on Federal Financial Management, Senator Carper and I have documented the 

waste, and now I understand why it is there. There is not a check 

on what is going out. 

So I am highly disappointed. I thank the GAO for their insight, 

but I think we ought to stay on this. And I will tell you, morale 

will improve. It will not go down. It will improve when people are 

doing what they are supposed to be doing, getting rewarded for 

doing what they are supposed to be doing rather than checking the 

boxes in a culture that says we will look out for the contractors 

more than we will look out for the American people, and I think 

that is the culture that exists there today. Thank you. 

Chairman LIEBERMAN. Thanks, Senator Coburn. 

I agree with you. Incidentally, the calls that we get from auditors 

in DCAA are exactly along that line. Just help us to make this 

place better. We know we have an important job to do. We feel like 

we are not able to do it now. 

I do not want to jump ahead, but the Committee, just to respond 

to Senator Coburn, is going to stay on this because it is very important. I would say that the number of Members of Congress who 

know that DCAA exists is small, but its responsibilities are enormous. Its impact on taxpayer spending is enormous. Its impact, as 

Senator Collins said in her earlier statement, on the well-being and 

security of our troops is enormous. 

So we are going to stay on it. In the short-run, I think we are 

going to really focus on you, Mr. Hale, because this group reports 

22 

1The case study referenced by Senator McCaskill appears in the Appendix on page 158. 

to you. You are new there. You do not have responsibility, if you 

will, for how it got to where it is, but you do have a responsibility 

now to fix it, and we are going to figure out a way to stay in touch 

on a regular basis and ask you to report to us, and maybe we will 

come back periodically for hearings on how we are progressing. 

Thanks, Senator Coburn. Senator McCaskill, again, thank you. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Thank you. I used to be a prosecutor before 

I was an auditor, and in the criminal law, we have ordinances, 

then we have misdemeanors, then we have felonies, and then we 

have capital crimes, and criminal conduct ranges from one end to 

the other. In the world of auditing, what has been committed here 

is a capital crime. There can be no greater indictment of an auditing agency than this GAO report. 

Now, how do we begin to get value out of this audit agency after 

it has had this kind of indictment? I want to make sure I put in 

the record just one of the case studies because, unfortunately, I 

know from experience, most people do not read these.1 This is an 

audit that was done with one of the five largest DOD contractors 

working in Iraq, initiated in November 2003. 

In September 2005, after nearly 2 years of audit work, the DCAA 

provided draft findings and recommendations to the contractor that 

included eight significant deficiencies. The contractor objected, saying the auditors did not really understand. The auditors did not get 

the new policies and procedures that were being developed for the 

fast track in Iraq. 

Following those objections, various supervisory auditors directed 

the auditors to revise and delete some work papers, generate new 

work papers, and in one case copy the signature of a prior supervisor onto new work papers, making it appear that the prior supervisor had approved those work papers. 

On August 31, 2006, after dropping five significant deficiencies 

and downgrading three significant deficiencies for improvement, 

DCAA reported adequate opinion on the contractor’s accounting 

system. The interim audit supervisor, who instructed the lead auditor to copy and paste the prior supervisor’s name onto the risk assessment and work papers, was subsequently promoted to the 

Western Region’s Quality Assurance Manager, where he served as 

quality control check over thousands of audits, including some that 

the GAO reported on last year. 

In April 2007, the Special Inspector General for Iraq Reconstruction (SIGIR) reported that despite being paid $3 million to complete the renovation of a building in Iraq, the contractor’s work led 

to plumbing failures and electrical fires in a building occupied by 

the Iraqi Civil Defense Directorate. 

Now, I have one simple question. Has that interim audit supervisor been fired? 

Ms. STEPHENSON. No, ma’am. 

Senator MCCASKILL. And, in fact, has that interim audit supervisor who told that auditor to commit fraud by copying and pasting 

a supervisor’s signature to work papers even been demoted? 

23 

Ms. STEPHENSON. On the work paper copying, that was an issue 

where they had copied work papers from one assignment to another. It was not deliberate to copy the signature. It happened 

when they copied papers. 

Senator MCCASKILL. Mr. Kutz, was there, in fact, a copying and 

pasting of an auditor’s signature on a report that auditor supervisor had never even seen? 

Ms. FISCHER. Senator McCaskill, yes, that did occur because the 

prior supervisor had moved on, and it occurred on a number of 

work papers, even work papers that were created after the signature date. 

Senator MCCASKILL. Mr. Hale, I have to tell you, when we had 

the scandal at Walter Reed, I admired Secretary Gates so much because he went to the very top and found accountability. When we 

had the problems at the Air Force, I admired Secretary Gates, and 

I really was beginning to believe that we had in the military now 

someone who understood that when you have a scandal, you must 

have accountability. 

Let me say for the record that no one has been demoted over this 

capital offense. No one has lost his job. And I will tell you, to add 

insult to injury, I do not think the GS–12 auditor even got a letter 

of commendation. In fact, I do not think she has even been promoted. 

Ms. STEPHENSON. She has been. 

Senator MCCASKILL. Well, it is a lateral move. She is training. 

This is not somebody who has been heralded by the agency as a 

hero. I mean, there has been no recognition. She has not been 

called to the Pentagon to be thanked for what she did. And if it 

was not for her, we would not be here. And the people who did this 

are still there. The culture is still there. 

Listen, I know, Ms. Stephenson, you are new, and I know you are 

trying, but we have to come to grips with the fact that people who 

work there work there forever, and their sense of outrage is not 

significant for the American taxpayer and the American military 

right now. 

And honestly, with all due respect, Mr. Heddell, you were not 

there, but how in the world does a peer review happen with a clean 

opinion in 2006 at this audit agency? Who are the people who did 

that peer review? Who said this agency was OK in 2006? Clearly, 

it was not. 

And it is not the quantity of the audits, it is the quality that 

matters. If they do not have quality, they are nothing. It is hard 

enough to get people to read one that is good. The ones that are 

horrible, I mean, who is going to read a DCAA audit right now 

without joking, without laughing about it? 

I honestly have to tell you, Mr. Hale, that you have to go back 

to the Pentagon and you have to tell them this is not good enough. 

If somebody is not fired over this, I do not think anybody should 

ever take this agency seriously again. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator McCaskill. Senator 

Burris. 

24 

OPENING STATEMENT OF SENATOR BURRIS 

Senator BURRIS. Thank you, Mr. Chairman. I want to echo my 

colleague, Senator McCaskill. My experience as a Federal bank examiner, as a State comptroller, and on the board of directors leaves 

me to wonder whether or not the Defense Department should not 

have to do what we did in private industry. Senator Coburn made 

mention of what is happening. 

Do you all remember the law that passed here called SarbanesOxley, detailing what you do with cost controls? I understand that 

the controls at DCAA were just not very effective at all, but the 

controls in auditing are what really run it. And if the auditor is not 

doing his or her job, there is no reliability. You are the first and 

the last line of defense to determine what is happening to taxpayers’ money. I know you do not want to hear a lecture, but from 

what I have read and the testimony I have heard, it really leaves 

a lot to be desired. 

Mr. Hale, I know Sarbanes-Oxley does not apply to the Federal 

Government, but have you all tried to use those standards, which 

cause businesses to have to spend millions of dollars in order to 

make sure that their financial reporting is correct? Why would it 

not be the same thing for the taxpayers’ money with the Defense 

Department? 

Mr. HALE. Well, as you say, that particular law does not apply 

to the Federal Government—— 

Senator BURRIS. Sure. 

Mr. HALE [continuing]. But there are extensive standards—you 

can verify that with GAO—that govern both auditing and internal 

controls and management. I am not going to sit here and tell you 

that we do the greatest job in abiding by all of them, but we are 

mindful of them and working on them. 

Senator BURRIS. Ms. Stephenson, I read in my notes that the 

DCAA also does auditing outside of the Pentagon. So if you do not 

have enough staff—you just hired 700 new people—how are you 

doing outside audits of other agencies? 

Ms. STEPHENSON. We perform audits for 34 other civilian agencies on a reimbursable basis. However, we do put the priorities on 

efforts such as the war and other Department initiatives. We have 

deferred a significant number of audits that we were required to 

do under law and regulation since the beginning of the war. So we 

have quite a large backlog, especially of the annual audits of the 

cost-reimbursable contracts. So because we do not have what we 

need, we defer. It is not as though we try to get them all done in 

one year. We recognize that we cannot do that. 

Senator BURRIS. Now, Mr. Hale, do you, as the Comptroller of 

the Defense Department, authorize the payment of bills? Is that 

your responsibility? 

Mr. HALE. We set the policy for it. The actual authorization is 

done at lower levels in the organization. I do not personally do it. 

Senator BURRIS. Well, it comes under your jurisdiction? 

Mr. HALE. Yes. 

Senator BURRIS. Do you also prepare the financial statement for 

the Defense Department as the Comptroller? 

Mr. HALE. Yes. 

25 

Senator BURRIS. Is there any type of certification of that financial statement, which would come about as a result of what they 

are spending with outside contractors, that the auditors are reporting to you for the accuracy of that statement? 

Mr. HALE. Well, there is an overall audit, and we do not have 

auditable financial statements in the Department of Defense. There 

are also a number of reviews at various levels in the Department 

and outside the Department, by the IG, GAO, and others, of particular aspects of those statements. I do not know if that answers 

your question, but overall, the Department’s financial statements 

are not auditable. 

Senator BURRIS. Mr. Chairman, there is a deep concern here because I remember when I was President of the National Association of State Auditors, Comptrollers, and Treasurers, we came to 

Washington to try to get the Federal Government to really begin 

to set up a structure that would allow more accountability to the 

taxpayers, and what the compromise was—we tried to create an 

Auditor General who would take over the auditing of the Federal 

Government’s financial statements, and the current Comptroller 

General of the United States would become the Auditor General, 

and then this person would have the same status as the Comptroller General has now, but he would oversee the financial statements of the Executive Branch. 

The compromise was this. They set a Comptroller up in the Office of Management and Budget (OMB), which is the fourth-level 

person in OMB, and then they put comptrollers in each one of the 

agencies. That is the reason why I was questioning Mr. Hale. His 

position was created as a result of that action that State governments took to bring them in line pretty much with what States 

were doing. And so they did not quite complete it because they said 

that they are too big to operate. I think there is no such thing, but 

we had to compromise in that regard. 

I would certainly like to follow up with that action because the 

whole accounting system of the Federal Government really needs 

to be changed. What you see happening in the Defense Department 

is just a microcosm of what is happening in other agencies, probably because what they allege to us is that it is their size. 

Of course, I have also a concern about personnel in terms of 

skills. Ms. Stephenson, in terms of the new hires, are you able to 

hire skilled auditors or certified public accountants? Just who are 

they, and where are you finding these people that you are hiring? 

Ms. STEPHENSON. The people that we are hiring are generally 

entry-level. Under the Defense Acquisition Workforce Development 

Fund, which is the funding that we have for this, it is entry-level 

interns that are funded for the hiring. So these are entry-level individuals. There are no other auditors that perform the functions 

that we perform. 

Senator BURRIS. What are their skills and qualifications—— 

Ms. STEPHENSON. We are contract—— 

Senator BURRIS [continuing]. A bachelor’s degree in accounting? 

Ms. STEPHENSON. Right. It is a degree in accounting, but we are 

contract auditors, and there are no other contract auditors, and so 

we have a very unique technical niche in the auditing arena. But 

26 

specifically, under the Acquisition Workforce Development Fund, 

that is limited to interns and that is what we have hired. 

Senator BURRIS. We might have a problem with their skills. Who 

is training these individuals for skills and responsibilities and how 

long is their training period? GAO, did you all get into any of that, 

in terms of the skills of those new hires? 

Mr. KUTZ. Not the new hires, but as we mentioned, we believe 

overall that the audit staff are good auditors, and as I mentioned 

in my opening statement, I think they were in a bad system at this 

point. And one of the things that the Department is trying to do 

is take actions to make a better system for them, better training, 

better scoping of audits, and possibly reducing the number of audits they are required to do so they can do more in-depth kind of 

work that you would expect a normal system-type audit to do. 

Senator BURRIS. So there is some concern about the work flow 

and the volume of work and the necessity of particular items being 

audited with these contractors? 

Mr. KUTZ. Right. We believe that it is difficult to imagine 22,000 

or 30,000 audits being done a year by 3,600 people. I know they 

are trying to hire 700 more auditors, but I still think that denominator is a problem. 

Senator BURRIS. Thank you, Mr. Chairman. My time has expired, 

and I might not be here for the second round, but I would certainly 

like to follow up with this because I would like to talk more about 

the circumstances of the overall system that we tried to get established in the Federal Government. 

Chairman LIEBERMAN. Thanks, Senator Burris. 

You bring a very helpful background and history about this State 

effect on the Auditing Comptroller system of the Federal Government. It is very interesting. 

Mr. Kutz and Ms. Fischer have made some suggestions for 

longer-term consideration that I think the Committee really needs 

to take seriously, which is whether the placement of DCAA within 

the Department is the correct place. Should it be separated from 

the Comptroller? Is there a better place for it to be? Should the 

Deputy Secretary handle DCAA? I know Mr. Hale has said that he 

thinks not. 

But the larger question, which really comes off of the history that 

Senator Burris refers to, is whether, as you suggest, we ought to 

take a look at creating a totally independent auditing agency for 

the Federal Government overall, maybe to go back to that idea of 

an Auditor General. That is something I think I would like to come 

back to. 

We are not going to do a second round. I think we have made 

the point here that this Committee has lost its patience, really, and 

there is too much on the line to not see the kind of aggressive action, decisive action, that Members of the Committee have asked 

for. 

Mr. Hale, I am going to ask you to give us a monthly report. It 

can be a letter, and our staff will work with you on the details of 

it. And then we will probably want to come back and do some more 

specific public hearings on this and other related questions. 

As soon as you are able, it would be of interest to me, anyway, 

to get your reaction to Mr. Kutz’s and Ms. Fischer’s recommendaVerDate Nov 24 2008 13:37 Apr 18, 2011 Jkt 053841 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 P:\DOCS\53841.TXT SAFFAIRS PsN: PAT
27 

tion that part of the problem here is the auditors are trying to do 

too much and they are doing a lot of it badly—in other words, 

DCAA should go to risk-based auditing. I would be interested in 

hearing whether you need statutory changes to do that. We understand, as you said, and you were right, that when you do that, you 

are running the risk that you are not going to audit a contract and 

you really will look back and say, oh, we should have audited that. 

But anyway, I want to have a more detailed evaluation of that. 

Senator COBURN. Mr. Chairman, would you yield? 

Chairman LIEBERMAN. Senator Coburn, and then we will go to 

Senator McCaskill. 

Senator COBURN. If you create the expectation that you are going 

to get a real audit and you do not know when you are going to get 

the real audit, you will change multitudes of behavior. What needs 

to happen is the suppliers and contractors of the Defense Department need to be very worried about when they come into an audit, 

that, in fact, it is going to be thorough, aggressive, and accurate. 

And if you create that expectation, then you will not have to audit 

everybody every year. But they will not know when they are going 

to get audited, and that is how auditing works best, with the expectation that they are going to uncover our problems. 

So quality, as Senator McCaskill said. It is not quantity. It is 

quality and then creating an expectation in the rest of the contractor community that you better have it right. Otherwise, we are 

going to expose it. 

Senator BURRIS. Mr. Chairman, just one quick point—— 

Chairman LIEBERMAN. Yes, go ahead, and then we will go to 

Senator McCaskill. 

Senator BURRIS. Sorry. Thank you. As Senator Coburn mentioned, when I was a bank examiner, surprise, that is what we did. 

The banks did not know when we were coming. 

Chairman LIEBERMAN. Yes. 

Senator BURRIS. So what Senator Coburn said is exactly what we 

did when I was with the Federal Government. The banks always 

had to be ready because they did not know when the examiners 

were coming in. 

Chairman LIEBERMAN. Yes. To some extent, the Internal Revenue Service depends on this kind of psychology with the auditing. 

They cannot audit every tax return in the country, but because everybody worries that they may be audited, presumably, it encourages more honesty. 

Senator McCaskill. 

Senator MCCASKILL. I am almost disappointed we do not have a 

second round so I could be calm during the second round. 

Chairman LIEBERMAN. I prefer to remember you as angry. 

[Laughter.] 

Senator MCCASKILL. Well, just a couple of things I think we need 

to make sure we have on the record. One is that I know that you 

may find this shocking, but there are hundreds and hundreds of 

auditors around the country that are not doing every audit that 

has been statutorily mandated because you know what legislators 

always do? Legislators always say, audit it in the legislation, and 

they never give the resources to audit it. So auditors are constantly 

struggling with mandated statutory audits that they do not do. 

28 

That is why the risk assessment system was born. That is why we 

have the single audit, the different levels of programs that are audited because of risk and the amount of money that is flowing. And 

clearly in a contingency, in a situation like the case study I talked 

about, that is where you have the most risk. And I just really do 

not get this reluctance. 

And I think that leads to the second point, Mr. Chairman. I 

think we need to really stay focused on how insular this agency 

truly is. I have to tell you the truth, Ms. Stephenson, the notion 

that you just testified that there are no other contract auditors out 

there, there are. There are hundreds of auditors that have the 

same government auditing standard background, that have done 

the same kind of scope and work on their audits, that have the 

same kind of supervisory check. I mean, auditing, yes, there are 

different kinds and different expertise, but what you have always 

done in that agency is lateral and promotion. You have never 

brought in anybody from the outside, whether it is on a peer review 

or whether it is on deciding whether or not people get promoted. 

It has always been a birth-to-death organization, and it is dying because of it. 

I was going to calmly go through those points in questions if we 

had had a second round. I have a number of questions for the 

record, and I will just let both the Chairman and the Ranking 

Member know that if there is any of this follow-up work that the 

Subcommittee can do—as you can see, I am fairly agitated and involved in this particular subject matter—in terms of follow-up 

hearings, we are happy to do that on the Subcommittee if that is 

your pleasure and prerogative. Obviously, we leave it to your decision as to what work you would like us to do on the Subcommittee. 

Chairman LIEBERMAN. No, I think that is a great idea. You are 

agitated, but you are also experienced, and that is a good combination. Senator Collins. 

Senator COLLINS. Thank you, Mr. Chairman. 

I think it is important for our witnesses to know why we feel so 

strongly and why there is such a sense of outrage among all of us 

who are here today. The first reason is that we are talking about 

contracts that are worth hundreds of billions of dollars. So what we 

have on the line here is an enormous investment by the taxpayers. 

Second, ultimately, we are talking about services and goods in 

the case of DOD that are going to support our troops in harm’s 

way. Senator McCaskill’s example of the Iraq contractor is replicated over and over again. So if we do not have good audits that 

are catching overbilling, shoddy work, the failure to deliver on a 

contract, contractors who are ripping off the Federal Government, 

the people who are being shortchanged in many cases are the men 

and women who are risking their lives every day for us, and that 

is why this matters so much. 

And third and finally, the frustration you are hearing today is 

that it appears that virtually nothing has changed since we held 

our hearing last year, and that is completely unacceptable. 

So I join the Chairman in his commitment to keep on top of this. 

It is exactly the kind of shoddy work that devalues the very good 

work that is done by the majority of the hard working employees 

29 

at DCAA whose work I do value and acknowledged in my opening 

statement. 

We have to get this right. We cannot be here next September 

with yet another GAO report that tells us little has changed. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Collins. 

I think the time for incremental responses is over. Training programs are good, but this organization really needs bold change, and 

we are counting on you, Mr. Hale. Bringing that about is another 

one of the bonuses that comes with your accepting this position. 

The record of this hearing will stay open for 15 days for additional questions or statements to be filed for the record. 

I thank everybody. The hearing is adjourned. 

[Whereupon, at 11:38 a.m., the Committee was adjourned.] 

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