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S. Hrg. 110–1035 

EXPEDIENCY VERSUS INTEGRITY: DO ASSEMBLYLINE AUDITS AT THE DEFENSE CONTRACT 

AUDIT AGENCY WASTE TAXPAYER DOLLARS? 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 10, 2008 

Available via http://www.gpoaccess.gov/congress/index.html 

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 

BARACK OBAMA, Illinois 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire 

MICHAEL L. ALEXANDER, Staff Director 

TROY H. CRIBB, Counsel 

NORA K. ADKINS, GAO DETAILEE

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

RICHARD A. BEUTEL, Minority Senior 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 MCCaskill ............................................................................................ 24 

WITNESSES 

WEDNESDAY, SEPTEMBER 10, 2008 

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 Team, 

U.S. Government Accountability Office .............................................................. 5 

Diem Thi Le, Senior Auditor, Defense Contract Audit Agency, U.S. Department of Defense .................................................................................................... 7 

Paul Hackler, Supervisory Auditor, Defense Contract Audit Agency, U.S. 

Department of Defense ........................................................................................ 9 

Hon. Gordon S. Heddell, Acting Inspector General, U.S. Department of Defense ...................................................................................................................... 12 

April G. Stephenson, Director, Defense Contract Audit Agency, U.S. Department of Defense .................................................................................................... 14 

ALPHABETICAL LIST OF WITNESSES

Hackler, Paul: 

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

Prepared statement .......................................................................................... 71 

Heddell, Hon. Gordon S.: 

Testimony .......................................................................................................... 12 

Prepared statement .......................................................................................... 79 

Kutz, Gregory D.: 

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

Prepared statement .......................................................................................... 49 

Le, Diem Thi: 

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

Prepared statement .......................................................................................... 67 

Stephenson, April G.: 

Testimony .......................................................................................................... 14 

Prepared statement with an attachment ....................................................... 90 

APPENDIX 

DCAA Memorandum dated August 31, 2007, submitted for the Record by 

Senator McCaskill ................................................................................................ 102 

DCAA Memorandum dated September 12, 2008, submitted for the Record 

by Senator Lieberman ......................................................................................... 104 

Charts submitted by Mr. Kutz ............................................................................... 105 

Responses to post-hearing questions for the Record from: 

Ms. Stephenson ................................................................................................. 107 

(1) 

EXPEDIENCY VERSUS INTEGRITY: 

DO ASSEMBLY-LINE AUDITS AT THE 

DEFENSE CONTRACT AUDIT AGENCY WASTE 

TAXPAYER DOLLARS? 

WEDNESDAY, SEPTEMBER 10, 2008 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:02 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Joseph I. Lieberman, Chairman of the Committee, presiding. 

Present: Senators Lieberman, McCaskill, and Collins. 

OPENING STATEMENT OF CHAIRMAN LIEBERMAN 

Chairman LIEBERMAN. Well, good morning and welcome to our 

hearing. I thank all of the witnesses for being here. 

Today’s hearing will look into the disturbing allegations that the 

Defense Contract Audit Agency (DCAA)—which is one of our government’s most important and, I would say, respected watchdog offices—has over the years ignored standard auditing rules to issue 

clean audits of contractors, despite problems identified by DCAA’s 

own auditors. 

Investigators have found that on repeated occasions DCAA has 

issued audits favorable to contractors that are not supported by 

facts, which has the effect, I fear, of encouraging waste, fraud, and 

abuse of taxpayer money. 

The reports that we are going to hear today tell us that one of 

the causes of these problems may be that DCAA is obsessed with 

the speed of their process rather than the accuracy of the results. 

The reports also raise questions of whether the Defense Contract 

Audit Agency is independent enough to be able to stand up to pressures from both Federal agencies and contractors. 

DCAA’s mission is simply too important for these failures to be 

tolerated. The agency is responsible for all contract audits for the 

Department of Defense. In fiscal year 2007, that equaled $314 billion of the $440 billion the Federal Government spent on contracts 

for goods and services. That is a lot of taxpayer money. DCAA, incidentally, also performs audits for other agencies, such as the Department of Energy and NASA. 

The revelations that are part of the reports that will be discussed 

today and the testimony given by two whistleblowers, in fact, begin 

in the fall of 2005, when a DCAA auditor called the Department 

2 

of Defense (DOD) Inspector General’s hotline to complain that the 

DCAA supervisors were breaking auditing rules to favor certain 

contractors. That call set off a series of investigations that brought 

to light the problems we will focus on today. 

Investigators for the Government Accountability Office (GAO), in 

a report issued in July, said that when auditors at DCAA found 

problems with contractor proposals violating procurement laws and 

auditing standards, too often their supervisors ignored, and sometimes even altered, their underlying work to give the contractors 

favorable audits. That is unacceptable behavior. 

Separate investigations done by the Defense Criminal Investigative Service (DCIS) and the Inspector General (IG) at DOD confirm 

GAO’s findings in general. 

One of our witnesses today—Ms. Thi Le—will describe an audit, 

requested by the Department of Energy, of the Fluor Corporation’s 

accounting system. Fluor provides a variety of management and 

engineering services to Department of Energy valued at almost $1 

billion. 

Accounting system audits, as our witnesses well know, are not 

tied to any one government contract but, rather, evaluate the adequacy of the contractor system’s control environment and overall 

accounting controls and the contractor’s compliance. 

In performing this audit, Ms. Le determined that the accounting 

system of the Fluor Corporation was vulnerable to significant overcharging of the Federal Government. Instead of letting her perform 

additional testing, as she requested, Ms. Le’s supervisors simply 

changed her audit opinion from ‘‘inadequate’’ to ‘‘adequate.’’ 

Given that Fluor holds an additional $431 million in contracts 

with our government—with the Federal Emergency Management 

Agency (FEMA), the Army, the Air Force, and the Employment and 

Training Administration—these poor accounting methods could 

mean tens of millions of dollars of undetected waste in overpayments to Fluor. 

Another witness, Paul Hackler, will describe how Integrated Defense Systems, a subsidiary of Boeing, structured its costs under an 

Air Force contract for satellite launch capability in a way that 

helped Boeing make up for losses in its commercial markets—in direct contradiction of Federal procurement law. 

The auditor alerted his supervisor to the problem and was told 

to leave his findings out of the audit so the project could go forward. The result? The Federal Government seems to have wound 

up picking up the cost of Boeing’s $270 million loss when the company did not sell satellite systems to the private cell phone industry, a development unrelated to the contract that the company had 

with the government. 

In granting contractors these unjustified clean bills of health in 

its audits, DCAA has enabled them to proceed with large-scale 

projects without the additional DCAA scrutiny that would have followed had the contractors received less favorable audits. 

GAO also found that some supervisors in the Western Region office of DCAA created an abusive work environment for those who 

tried to maintain the integrity of their audits. Sometimes, when 

auditors challenged what they believed to be waste and fraud, they 

3 

received not praise for a job well done but downgraded performance 

reviews, transfers, and other forms of reprisal. 

Worst of all to the integrity of the system, GAO found that some 

DCAA managers intimidated auditors who cooperated with the 

GAO and IG investigators. 

Since the GAO report was released in July, at least 18 other 

DCAA auditors have contacted GAO with similar stories of clean 

audits being issued without underlying support. So this is a real 

problem. And I must say that I was unhappy with the DCAA’s initial response to these GAO allegations because it looked to me basically like a circling of the wagons. 

In a letter dated July 11, 2008, DCAA said that it does ‘‘not concur with the totality of GAO’s overall conclusions.’’ I do not understand that as sensible or responsive since those conclusions, as I 

have said, were backed by DCIS and IG investigations, and since, 

as far as I can tell, DCAA has not refuted the specific findings of 

the GAO report. 

To get to the bottom of this troubling story and to see how together we can fix what is wrong with a critically important auditing agency, we have five witnesses today—the two whistleblowers, 

a representative of GAO, the Acting Inspector General of DOD, and 

the Director, finally, of DCAA. 

I am going to call on Senator Collins in a minute, but as my staff 

may have told you, I think we have decided to change the order 

of the witnesses slightly. We will begin with Mr. Kutz to lay out 

the overall GAO findings, then go to Ms. Thi Le and Mr. Hackler, 

and then we will go on to the rest of the table. 

Thank you very much. Senator Collins. 

OPENING STATEMENT OF SENATOR COLLINS 

Senator COLLINS. Thank you, Mr. Chairman. Let me begin by 

thanking you for holding this hearing this morning. I also am not 

surprised to see that we are joined by our auditing expert on this 

Committee, the Senator from Missouri, and I am sure she will add 

a great deal to the hearing this morning as well. 

More than 2 years ago, Senator Lieberman and I asked the GAO 

to undertake a comprehensive assessment of audit work performed 

by the Defense Contract Audit Agency, known as DCAA. The 

DCAA is the principal auditor for contracts at the Department of 

Defense. 

We asked for this investigation in response to allegations of serious mismanagement that had been reported to the GAO, the DOD 

Inspector General, and to this Committee. During the course of its 

review, the GAO uncovered outrageous conduct and flawed audits 

at three offices in DCAA’s Western Region. 

The comprehensive GAO audit requested by the Committee will 

be issued later this fall, but I commend the GAO for releasing an 

interim report detailing the significant shortcomings already observed in DCAA audit practices. 

In the interim report, GAO investigators confirmed that DCAA 

issued audit opinions with inadequate support, that supervisors altered audit opinions with insufficient justification, that some major 

audits were conducted by inexperienced staff without adequate suVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
4 

pervision, and—most troubling of all—that some DOD contractors 

‘‘improperly influenced’’ the audits. 

These findings suggest that the wasteful or even fraudulent use 

of taxpayer dollars has gone undetected and that the government 

may have been overcharged by some contractors to the tune of millions of dollars. 

Thorough, accurate, and tough audits are essential, and DCAA’s 

work must be untainted by pressure or conflicts of interest. Instead, the GAO found ‘‘numerous failures’’ to comply with government auditing standards. That is a serious failing for, as the GAO 

has noted, substandard audits do not provide assurances that billions of dollars in payments to contractors complied with Federal 

regulations, accounting standards, or even contract terms. 

These facts are bad enough. But GAO’s work also reveals that at 

least one major defense contractor reached an advance understanding with DCAA about the nature and scope of an audit, that 

some DCAA employees changed findings at the direction of senior 

managers, and that ‘‘a pattern of frequent management actions 

. . . served to intimidate the auditors and create an abusive environment’’ at two DCAA locations. 

I am also deeply concerned about GAO’s findings that whistleblowers who reported misconduct were subject to intimidation and 

threats from supervisors. Congress relies on courageous whistleblowers to expose wrongdoing so that we can improve and reform 

Federal programs and operations. It is critical that supervisors 

throughout the Federal Government respect the protections that 

our laws provide whistleblowers and act swiftly to remedy the 

problems that they identify. 

As we address the particular problems that the GAO has identified, we must also work to reestablish DCAA as a first-rate, independent audit agency. 

Some current and former employees have identified performance 

metrics keyed to speed and volume as undermining good auditing 

practices in some cases. Now, obviously, productivity is important, 

but whether the subject is executive compensation, mortgage underwriting, or contract auditing, metrics that emphasize time and 

volume over quality or long-run results can invite shortcuts, sloppy 

work, and, ultimately, even program failure. It does little good to 

have internal controls and review processes if employees are gaming or bypassing them in order to meet metrics. 

Of course, inappropriate influences can also come from outside of 

an organization. All of us recall the infamous case of the Air Force 

procurement officer who negotiated a plush job with a defense contractor while at the same time engaged in negotiating a $24 billion 

contract with that company. Ultimately, she pled guilty to criminal 

conflict-of-interest violations. 

The GAO report raises a red flag. It suggests that a few DCAA 

employees may have been more interested in protecting contractors 

and securing future employment than in protecting taxpayers and 

our national security. 

These failures at DCAA illustrate the aptness of a question that 

was raised by a Roman satirist nearly 2,000 years ago, when he 

asked: ‘‘Who shall guard the guardians themselves?’’ We rely on 

the many honest and hard-working employees at DCAA to be the 

5 

1The prepared statement of Mr. Kutz appears in the Appendix on page 49. 

first line of defense. When the audit agency fails, problems cascade 

throughout the system and ultimately can even shortchange our 

troops in the field. Congress must carefully consider the reforms 

needed at the Defense Contract Audit Agency in light of these disclosures. 

I commend the GAO once again for its diligence and thoroughness in studying this problem, and I look forward to the completion 

later this fall of the comprehensive audit that the Chairman and 

I initiated 2 years ago. 

The GAO, as the Chairman has indicated, coordinated its work 

with the Defense Department Inspector General and the Defense 

Criminal Investigation Service. I expect these investigators to also 

vigorously pursue their work in the event that criminal conduct is 

exposed in their independent investigations. 

Finally, let me just conclude by thanking the Chairman for this 

latest example of his leadership and our shared interest in probing 

defects in our Federal acquisition process as a prelude to additional 

legislative reforms. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you very much, Senator Collins, 

for that excellent statement and also for the work that we have 

done together. 

Thanks, Senator McCaskill, for being here and for the support 

that you and your staff have given this particular investigation and 

the preparation of this hearing. 

Mr. Kutz, I would like to start with you. For the record, you are 

the Managing Director, Forensic Audits and Special Investigations 

of the GAO, and I note that you are accompanied by the Assistant 

Director, Gayle Fischer. Please proceed with your testimony. 

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 TEAM, 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. 

Today’s testimony highlights the results of our investigation of 

allegations we received in 2006. The bottom line of my testimony 

today is that these allegations were accurate. Specifically, DCAA’s 

work for 14 audits that we investigated did not meet professional 

standards. 

My testimony has two parts: First, I will discuss the problems 

that we identified; and, second, I will discuss key causes of these 

problems. 

First, our investigation covered 14 audits at two locations and a 

series of forward pricing audits at a third location. For these audits, we identified four key themes. These themes were lack of 

independence, changing audit opinions, inadequate supervision of 

staff, and an abusive work environment. 

6 

1The first chart referenced by Mr. Kutz appears in the Appendix on page 105. 

2The second chart referenced by Mr. Kutz appears in the Appendix on page 106. 

With respect to independence, we found that pressure from contractors and DOD buying commands appeared to improperly influence audits. For example, this pressure resulted in dropped findings and the issuance of reports before supervisors had reviewed 

the work. In one case, DCAA agreed with a contractor in advance 

to set up a process that ensured a favorable result. 

We also found what appeared to be a systematic whitewashing 

of findings from draft audit reports. For 11 audits, initial auditor 

opinions of ‘‘inadequate’’ or ‘‘inadequate in part’’ were changed to 

‘‘adequate’’ or what we refer to as a ‘‘clean opinion.’’ In many of 

these cases, supervisors provided no basis for these changes. 

For example, as the posterboard on my right shows, one auditor 

found six significant deficiencies and drafted an inadequate opinion 

report in June 2005.1 As you can see, by September, this supervisor 

had changed the draft to an ‘‘adequate’’ opinion. This opinion allowed the contractor to bill DOD and receive payments with no 

government review. 

We also found a lack of adequate staff supervision. For example, 

again on the posterboard shown on my right, you see a memo 

where an auditor writes, ‘‘We are not holding this contractor, with 

a history of questioned costs, poor internal controls, and shoddy 

practices, to a high standard by downgrading what are clearly significant deficiencies.’’ 2

We found a number of memos just like this one documenting disagreements between staff and management. These memos reflect 

the lack of timely supervision. In a normal, healthy audit, issues 

like this are worked out on a daily basis, and there is no need for 

a memo like this at the end of the audit. 

These disagreements help explain the fourth key theme: An abusive work environment at two locations. We found evidence of 

verbal warnings, involuntary reassignments, and threats of disciplinary action against auditors because they would not drop audit 

findings or draft favorable reports. Auditors were also scared to 

speak to GAO’s staff for fear of retaliation. 

Let me move on to my second point: Two key causes for these 

problems. 

First, auditors told us that the limited number of hours budgeted 

for their audits resulted in a disincentive to identify and report 

contractor problems. According to DCAA, their 3,500 auditors annually perform about 35,000 audits. Given these numbers, the 

focus on production rather than impact is not surprising. 

Second, for DCAA to be most effective, as was mentioned earlier, 

they must be independent. However, in addition to the improper influence by contractors, we found pressure from within DOD for 

auditors to facilitate the process rather than protect the interests 

of taxpayers. 

In conclusion, I cannot tell you today whether these 14 audits are 

isolated instances or the tip of the iceberg. Additional evidence indicates problems not only here in the United States but also in 

Iraq. What I can tell you today is that, with hundreds of billions 

7 

1The prepared statement of Ms. Le appears in the Appendix on page 67. 

of dollars at stake, taxpayers need a contract audit agency that is 

looking out for their interests. 

Mr. Chairman, this ends my statement. Ms. Fischer and I look 

forward to your questions. 

Chairman LIEBERMAN. Thanks, Mr. Kutz. I must say that was 

devastating. And just as a point of fact, I am going to ask you: How 

did you choose those 14 contracts to audit? 

Mr. KUTZ. They were the ones the allegations were specifically 

related to. That is why this is an investigation. 

Chairman LIEBERMAN. Understood. And now you are doing a 

broader audit. 

Mr. KUTZ. A broader look, correct. 

Chairman LIEBERMAN. A somewhat more random, but—— 

Mr. KUTZ. Yes, much more DCAA-wide. 

Chairman LIEBERMAN. OK. Thank you. We will have questions 

for you. 

The next two witnesses are the whistleblowers who have acted 

with professionalism and, I would say, courage. I appreciate very 

much what you have done and your willingness to be here today. 

First we are going to call on Diem Thi Le, Senior Auditor, Defense 

Contract Audit Agency. Ms. Le, good morning. Thanks for coming, 

and we welcome your testimony now. 

TESTIMONY OF DIEM THI LE,1 SENIOR AUDITOR, DEFENSE 

CONTRACT AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE 

Ms. LE. Thank you. Good morning, Chairman Lieberman and 

Members of the Committee. I first would like to thank you for the 

opportunity to take part in this hearing. My name is Diem Thi Le, 

and I have been with the DCAA for 19 years. For 17 years I have 

been a senior auditor. I am also a licensed CPA in the State of 

California. 

Nineteen years ago, I left the private sector to join DCAA because I wanted to be a part of an organization that was committed 

to excellence in support of the national interest and protecting taxpayers’ money. However, in recent years, because of the emphasis 

on performance metrics, DCAA has changed from putting an emphasis on excellence to an emphasis on performance metrics, and 

that is one of the reasons why I am here today. 

My testimony includes four parts: First, what triggered my calling the hotline; second, how the hotline personnel mishandled my 

case; third, the harassment I have suffered; and, last, the systemic 

problems at DCAA. 

In September 2005, I was performing an accounting system audit 

at the corporate office of a contractor. This is the GAO Case No. 

6. I found that the contractor’s accounting system was inadequate 

in part and, as a result, the contractor was misallocating and 

mischarging costs to the government. Originally, my supervisor 

concurred with my audit findings, but later on she told me that my 

branch manager did not agree with my findings. After my requests 

to meet with the branch manager to explain my audit findings 

were denied, I elevated the unreconciled difference of opinion to the 

next level of management. But I was told that I, as the performing 

8 

auditor, had no say in the final audit opinion. My supervisor then 

deleted the audit findings from my working papers and used those 

changed working papers as her working papers to support the 

change in the audit opinion from an inadequate system to an adequate system without performing any additional work. 

As a result, the contractor was not required to propose or implement any corrective actions to eliminate the system deficiencies 

that would result in mischarging and misallocating costs to the 

government. 

Subsequently, I found out that my branch manager had been 

changing other auditors’ opinions of ‘‘inadequate’’ system to ‘‘adequate’’ system. 

Because an ‘‘adequate’’ system would result in less audit risk and 

fewer audit hours by having a contractor’s system deemed ‘‘adequate,’’ my branch manager was trying to increase the productivity 

rate, which measures the audit hours incurred versus the dollar examined, and the productivity rate is one of the factors on which my 

branch manager’s annual performance is rated. 

Mr. Chairman and Members of the Committee, in recent years, 

because of the emphasis on performance metrics, we auditors have 

been pressured by management to perform our audits within a certain number of hours. But this was the first time that I discovered 

my management changed the auditors’ opinions of an ‘‘inadequate’’ 

system. I confided this troubling discovery with some of my colleagues. All of them told me that I had no choice but to call the 

DOD IG hotline, so I did in November 2005. 

I would have never imagined that I would submit an allegation 

against my management. Equally the same, I would have never 

imagined that the hotline people would refer my compliant back to 

my agency so that my agency could perform an investigation of my 

complaint. 

Subsequent to my first meeting with the IG investigator, it was 

confirmed by him that my referral was, in fact, sent back to DCAA 

headquarters, and that referral included specific personal identifying information, such as my name and my phone number. As a 

result, I believe that my identity as a whistleblower was not adequately protected, and I have suffered reprisal from DCAA management. 

Following are just some of the significant incidents of harassment and retaliations directed at me. 

At the November 2005 Staff Conference, the regional audit manager stated to us, the auditors, that if we did not like our management’s audit opinion, we should find another job. 

In October 2006, I found out that I was the only auditor with an 

‘‘Outstanding’’ rating who did not get a performance award. 

In April 2007, after the Office of Special Counsel (OSC) investigator contacted the DCAA regional management to inform them of 

my whistleblower complaint, I was told to see a psychiatrist. 

In August 2007, I was given a memorandum instructing me that 

I was not allowed to provide any documentation generated by a 

government computer to any investigative unit, including the OSC. 

Failure to do so would result into disciplinary action. 

In October 2007, I was then advised to read 18 U.S.C. Section 

641, Theft of Government Property. I was told by my supervisor 

9 

1The prepared statement of Mr. Hackler appears in the Appendix on page 71. 

that the unauthorized distribution of agency documents would result in a theft charge, and it does not matter if it is to respond to 

a hotline or OSC complaint. 

And last, but not least, since the IG investigation started, I have 

been downgraded from an ‘‘Outstanding’’ auditor to a ‘‘Fully Successful’’ auditor, and my promotion points have been reduced from 

78 to 53 out of 120 maximum. 

The last part of my testimony is the systemic problems at DCAA. 

It is my opinion and my observation that DCAA management has 

become so metric driven that our audit quality and independence 

have suffered. Audits are no longer dictated by the audit risks but, 

rather, by the established guidelines of audit hours and audit due 

dates. The pressure for us to complete our audits within a certain 

time frame is so intense that it would often prevent us, the auditors, from following our instincts in questioning contractor costs, 

reporting system deficiencies, and evaluating suspected irregular 

conducts. In the end, contractors are getting away with murder because they know we are so metric driven. 

Also, because of the emphasis on the performance metrics, DCAA 

has created layers of personnel who do nothing but monitor the 

metrics. As a result, the goal is not to protect the government’s interest and to save taxpayers’ money but to answer to management’s questions related to performance metrics. 

Mr. Chairman and Members of the Committee, again I would 

like to thank you for the opportunity to be here. It is my hope that 

by participating in this hearing, it will help bring changes at 

DCAA. It is also my hope that those changes will allow us truly 

to perform our audits in accordance with the generally accepted 

government auditing standards in order to protect the government’s interest and to save the taxpayers’ money. 

This concludes my testimony, and I look forward to your questions. Thank you. 

Chairman LIEBERMAN. Ms. Le, thank you very much. That was 

an act of public service, and I appreciate it greatly. 

Our next witness, another whistleblower, we call on you with 

thanks and respect, Paul Hackler, Supervisory Auditor, Defense 

Contract Audit Agency. 

Mr. Hackler, where do you live now? 

Mr. HACKLER. I live in California. 

Chairman LIEBERMAN. You both came from California? 

Ms. LE. Yes. 

Chairman LIEBERMAN. Please proceed with your testimony. 

TESTIMONY OF PAUL HACKLER,1 SUPERVISORY AUDITOR, 

DEFENSE CONTRACT AUDIT AGENCY, U.S. DEPARTMENT OF 

DEFENSE 

Mr. HACKLER. Mr. Chairman, Ranking Member Collins, and 

Members of the Committee, thank you for the opportunity to speak 

to you today about DCAA’s Expendable Launch Capability (ELC) 

Buy III proposal audits. I am a GS–13 supervisory auditor and a 

certified public accountant in California with 25 years of DCAA exVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
10 

perience. I am going to be speaking about lot costing today and 

how it related to the ELC proposals. 

Lot costing is an accounting concept where certain products are 

more efficiently made in batches rather than one by one. If, for instance, the government goes to a contractor and says, ‘‘I would like 

to buy 100 tanks,’’ and the contractor says, ‘‘OK, but I make tanks 

in lots of 1,000, and it takes 15 years to build them. Although I 

know I can make a tank today for $1 million, I think it is going 

to take $5 million to build that last tank in my lot 15 years from 

now. So what I am going to do is charge you the average over those 

15 years, and I am going to charge you $3 million today instead 

of the $1 million I know I can make it for.’’ That is how lot costing 

works. 

The 2005 and 2006 ELC proposal audits I supervised contained 

a 15-year lot costing scenario just like the one I described to you 

that allowed Boeing to recover $270 million in past losses it incurred for aggressively pursuing a commercial satellite market. 

The government realized this and restructured the program so that 

Boeing could be reimbursed for launch capability on a day-to-day 

basis, but the cost of building the launch vehicle, the rocket, would 

remain a fixed-price contract. 

Boeing projected that the cost per launch would decrease substantially in the future, and so when they restructured the contract, the government needed to compensate them for the higher 

up-front costs. Actually, enormous up-front costs resulted only from 

Boeing’s decision to gear up for a commercial market that never existed, and DCAA was directed to play along with this outrageous 

government bailout. 

My testimony will focus on the inherent problems with lot costing, DCAA upper management’s directed audit opinion, and reprisals for resisting that opinion. 

Boeing initially anticipated the emerging cell phone market 

would deploy satellites to route cell phone traffic. Shortly after Boeing geared up for this, cell phone providers switched to land-based 

towers. The cell phone satellite market went from 75 percent of 

projected sales to zero almost overnight. And Boeing announced an 

$835 million loss because of it. 

Since Boeing was losing more than $100 million per launch, the 

government decided to restructure the contract by reimbursing 

Boeing directly for launch capability, basically on a month-tomonth basis. Before this, Boeing was only paid for launch capability when the launch actually took place. However, we were directed by the Pentagon officials that prices for the remaining 11 

fixed-price launches already in place were to remain in place, no 

losses were to be recovered, and all applicable government regulations were to be adhered to. 

In reviewing the 2005 proposal, my team determined that there 

were serious procurement regulation violations and issued an audit 

opinion that would not let the Air Force go forward. Two of the significant deficiencies were Boeing’s use of a 15-year lot costing scenario and the lack of subcontractor cost or pricing data to verify 

the subcontract prices included in that proposal. 

The Air Force went to Washington and said, ‘‘We would like to 

get a waiver for the violations related to lot costing. But the waiver 

11 

was unpopular in Washington because of Boeing’s recent Procurement Integrity Act violations, alluded to by Senator Collins earlier. 

They were, however, provided a waiver for the subcontractor cost 

or pricing data. 

Boeing then resubmitted its proposal still using the 15-year lot 

costing scenario, and the primary problem with that 15-year lot 

costing scenario is it rolls the losses attributed to Boeing’s pursuit 

of the commercial market forward for recovery from the government. 

The applicable regulations prohibit recovering prior losses and 

charging the government for costs that do not benefit our contracts. 

However, as directed, we issued an audit opinion that overlooked 

serious regulation violations, and the Air Force awarded Boeing the 

contract allowing recovery of $270 million of past losses. It also increased the price of existing contracts. 

While my testimony today focuses on DCAA’s indiscretions, the 

Air Force may have gone well beyond DCAA with this bailout by 

not holding Boeing to previously negotiated launch prices. I would 

be happy to answer questions on that also if it is necessary. 

Boeing initially anticipated and prepared for a commercial market that would have launched over 100 missions by now and 300 

missions by 2020. Only one commercial mission has ever been 

launched, and no more will be launched. There is nothing on the 

launch manifest schedule. 

Some of the losses that Boeing incurred pursuing the commercial 

market were overbuilding a plant that could produce 40 rockets per 

year, while Boeing has only averaged one launch per year. They 

bought excess inventory. They had a specially constructed vessel 

that does nothing but transport the Delta IV rocket to the launch 

pad once a year. 

All of the auditors involved in Boeing’s lot costing methodology 

and the audit that I supervised objected to the use of lot costing. 

Since then, Boeing partnered with Lockheed to make these products, and their outside auditors directed them to discontinue lot 

costing. 

Despite our documented objections, upper management instructed us to issue an audit opinion that failed to report numerous 

violations, and the Air Force awarded Boeing $270 million of past 

losses. 

The opinion in that report was so unthinkable that the audit 

staff documented our disagreement in the audit file. That is the 

first time in my career that has ever happened. 

For 25 years, I have jealously protected the American taxpayers’ 

interests, but during the course of the two ELC proposal audits I 

supervised, I was harassed and denied a promotional opportunity. 

Lately, I have seen this scenario over and over again because of the 

emphasis on performance metrics and customer satisfaction while 

audit findings have taken a back seat to expediency and personal 

ambition. DCAA is broken. 

Thank you for the time and thank you for this opportunity to 

bring these matters to your attention. I would be happy to answer 

any questions. 

12 

1The prepared statement of Mr. Heddell appears in the Appendix on page 79. 

Chairman LIEBERMAN. Thanks very much, Mr. Hackler, for your 

personal testimony and for your direct conclusions. When you say 

‘‘customer satisfaction,’’ who is the customer? 

Mr. HACKLER. In this case, that would be the Air Force. 

Chairman LIEBERMAN. Not the taxpayer—— 

Mr. HACKLER. No. 

Chairman LIEBERMAN [continuing]. Who you have been trying to 

protect all these years. We will get back to you with more questions. Thank you. 

Next we will call on the Hon. Gordon Heddell, Acting Inspector 

General of the Department of Defense. Thanks for being here. 

TESTIMONY OF HON. GORDON S. HEDDELL,1 ACTING 

INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE 

Mr. HEDDELL. Mr. Chairman and distinguished Members of this 

Committee, thank you for the opportunity to appear before you this 

morning. As you know, I am the Acting Inspector General of the 

Department of Defense. I have also had the honor of serving as the 

Inspector General of the Department of Labor for almost 8 years. 

And prior to Senate confirmation, I had a 28-year career with the 

U.S. Secret Service. 

As Acting Inspector General, I have examined our past actions 

and am reviewing our ongoing efforts to ensure that we are aggressive when investigating allegations of the nature that are being 

discussed at this hearing. I understand the importance of keeping 

the Secretary of Defense and other senior departmental officials apprised of significant issues that come to my attention. 

Contractor oversight, which includes the efforts of DCAA, is one 

of the Federal Government’s best and first lines of defense against 

waste, fraud, and abuse of taxpayer funds. I am dedicated to working with DCAA to ensure that their internal controls are in place 

and functioning effectively. My responsibilities as Inspector General providing oversight of the largest Department in the Federal 

Government, particularly during this time of war, could not be 

more important. 

I know that there are concerns regarding the length of time that 

it took to refer allegations received by the hotline to the DCAA. 

The short answer is that, in the wake of Hurricane Katrina and 

subsequent Hurricane Rita, the DOD hotline was assigned the responsibility to be the hurricane relief fraud hotline for the entire 

Federal Government. And so from September 2005 until March 

2006, the Department of Defense hotline received almost 10,000 

hurricane-related allegations, and during that time period the hotline focused only on those allegations that involved life, death, or 

safety issues, and allegations against senior officials. Therefore, referral of the allegation to DCAA took longer than our normal 

standards. 

In February 2006, the DOD IG Defense Criminal Investigative 

Service (DCIS) received the same allegations. Shortly thereafter, 

DCAA suspended its own inquiry based on the initiation of an investigation by the DCIS. 

13 

In June 2006, the U.S. Government Accountability Office informed DCIS that it was conducting its own investigation of DCAA. 

GAO indicated that, in addition to receiving the same hotline complaint, it received reports of DCAA misconduct in other offices and 

regions located throughout the United States. GAO and DCIS coordinated certain investigative activities regarding these allegations of misconduct. 

In support of the DCIS investigation, my office of Audit Policy 

and Oversight reviewed DCAA audits that were identified in the 

original hotline complaint. In January 2007, we issued a memorandum to DCAA detailing the results of our review of 10 DCAA 

audits. This memorandum contained the following conclusions— 

and all ten, by the way, we found to be deficient. 

On nine of these audit assignments, the supervisors either 

changed, or directed to be changed, an auditor’s draft audit conclusions without adequate documentation. 

The working papers of seven assignments did not adequately 

support the final audit report opinions. And on the three remaining 

audit assignments, the supervisory auditor should have directed 

the auditor to perform additional audit procedures prior to issuing 

the final report. 

In addition, DCAA should rescind three reports because the reports were not supported by the working papers. 

The director of DCAA’s Western Region, in a memorandum dated 

July 2007, expressed strong disagreement with the overall results 

of our review and refused to rescind any reports, although he acknowledged, saying ‘‘working papers could have been improved.’’ 

The DCIS investigation indicated that the emphasis by DCAA on 

a metrics-driven system of conducting systems audits within predetermined milestones and deadlines created an environment 

where the pressure to meet goals affected the outcome of the audit. 

In contrast, the field auditors stated that, in prior years, auditors 

were routinely praised and rewarded commensurate with the 

amount of money they questioned and how much money the government saved or recovered as a direct result of their audit activities. 

In June 2008, DCIS presented the results of its investigation to 

the U.S. Attorney’s Office in Santa Ana, California. The U.S. Attorney declined criminal prosecution. 

Subsequently, in August 2008, DCIS prepared a Fraud Vulnerability Report that documented investigative findings. That report 

was provided to DOD Comptroller Tina Jonas and DCAA Director 

April Stephenson. 

GAO issued their report in July 2008, and it was titled, as you 

know, ‘‘Allegations That Certain Audits at Three Locations Did Not 

Meet Professional Standards Were Substantiated.’’ The findings in 

the GAO report are consistent with the findings contained in our 

January 2007 memorandum. 

With regard to ongoing and future work, after publication of the 

GAO report, additional hotline complaints have been received concerning misconduct allegations by senior managers in the same 

California DCAA offices. These allegations are being assessed. 

On August 4, 2008, we announced a follow-up review focusing on 

audit work deficiencies and the abusive work environment that was 

14 

1The prepared statement of Ms. Stephenson with an attachment appears in the Appendix on 

page 90. 

identified by the GAO. As part of this review, we are performing 

an assessment of the completed and planned actions taken by 

DCAA in response to the GAO report and the allegations concerning supervisor misconduct. We have also scheduled another External Peer Review of DCAA to begin in January 2009. In so doing, 

we will consider the results of the follow-up review, and we also 

consider the previous GAO review, the one they just completed, our 

prior DCAA Peer Reviews, and the DCAA Internal Quality Assurance Reviews. This review will cover audits performed by all five 

DCAA regions and the Field Detachment. 

Oversight of Department of Defense contractors is essential in 

the fight against waste, fraud, and abuse. We remain committed to 

supporting DCAA to ensure that their internal oversight mechanisms are in place and working effectively. 

I thank you for your time, and I am ready to answer any questions that you may have. 

Chairman LIEBERMAN. Thank you, Mr. Heddell. Excellent report 

of your activities, and you are validating the problems we have 

seen. 

The final witness is April Stephenson, Director of the Defense 

Contract Audit Agency. Obviously, these are very serious charges, 

and I must say all the more troubling because the Defense Contract Audit Agency has over the years been held up as one of the 

best of the Federal Government’s taxpayer watchdog agencies. So 

I hope you will respond with the seriousness of the moment. 

Ms. Stephenson, it is all yours. 

TESTIMONY OF APRIL G. STEPHENSON,1 DIRECTOR, DEFENSE 

CONTRACT AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE 

Ms. STEPHENSON. Thank you, Mr. Chairman and Members of the 

Committee. Thank you for the opportunity to be here before you 

today. I am pleased to be here. 

I will briefly describe the actions taken by DCAA as a result of 

the GAO report. A more detailed account is provided in the statement that I have submitted for the record. 

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

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

and that we are committed to taking the necessary steps to review 

and correct the issues cited in the report. We fully support any review of our procedures, and we are taking immediate action to correct the problems. 

Before I proceed with the rest of my testimony, let me tell you 

a little bit about myself. I have 21 years with DCAA, and I have 

held a number of positions. I started out as an auditor trainee. I 

was an auditor, a supervisor, a branch manager. I have been a deputy regional director, a regional director, and deputy director of the 

Agency. I became Director 7 months ago. 

Mr. Chairman, DCAA’s mission is to perform audits of contractors and to provide results to contracting officials responsible for 

the negotiation, administration, and settlement of contracts, and I 

15 

would like to think we do it well. But I recognize we have a lot of 

improvements to make. 

To accomplish it, the Agency employs some 4,000 people and has 

79 field offices across the country and overseas. In 2007 alone, 

DCAA performed 33,801 audits covering $391 billion of proposed or 

claimed contractor costs. These audits have taken issue with $14.2 

billion in questioned costs—these are areas where we recommended 

reductions in what was proposed or billed—and another $4.6 billion 

in unsupported costs. These are costs in which the contractor did 

not provide sufficient information to render an opinion. 

Of those 79 field offices, three offices were covered by the GAO’s 

investigation. These three performed a combined total of 4,786 audits over the 5-year period covered by the GAO. 

For my testimony today, we categorized the GAO’s findings into 

three general areas: Deficient working papers and audit work; lack 

of independence; and management abuses of employees and impediments to the GAO investigation. 

With regard to deficient working papers and audit work, the 

GAO concluded that the working papers did not adequately support 

the final conclusion and opinion for any of the 13 cases it investigated; that, in some of the cases, auditors did not perform sufficient work to support their conclusions; and that their supervisors 

did not instruct or allow them to perform additional work. We 

agree. 

We agree that the audit work should have been better documented in the working papers, and in some cases, supervisors 

should have assessed the need to perform additional audit work 

prior to issuing the audit report. Changing draft findings without 

adequate explanation, documentation, and review is not acceptable, 

and does not follow the auditing standards that DCAA strives to 

uphold. 

So why did this happen? 

In our discussions with the management team, we learned that 

they did want to include inadequately supported findings in audit 

reports, but did feel pressured to issue reports by due dates. Thus, 

they removed the findings rather than assessing the need to perform additional work. This is not acceptable. 

Regardless of the due date, audit work must be completed prior 

to the issuance of any audit report or, in the case of an external 

constraint, clearly state why the audit work could not be performed 

by the due date. 

Regarding lack of independence, the GAO concluded that, in 

three audits, the contractor or the DOD contracting community improperly influenced the audit scope, conclusions, and opinions. The 

root cause of this conclusion was DCAA’s participation in Integrated Product Teams (IPTs). IPTs, as you may know, were established in the mid-1990s as a way to expedite the assessment of contractor bid proposals and to resolve outstanding issues. 

In the specific example cited by the GAO, the IPT was established to expedite the resolution of a labor estimating system problem at a major contractor. As the contractor developed the revised 

procedures, the IPT, including the auditor, provided feedback. The 

DCAA field office manager informed the IPT that DCAA would 

audit the final estimates and provide feedback on the drafts. 

16 

After several rounds of reviews, the contractor provided the final 

procedure for audit. DCAA notified the contractor that it planned 

to test a sample of estimates over a prospective 4-month period although the auditor did not specifically state which estimates would 

be selected. The GAO concluded that the DCAA’s participation in 

the Integrated Product Teams was a violation of the independence 

requirements under the auditing standards. The GAO also objected 

to the auditor providing the time period. 

As a result of the GAO’s concerns, we have ceased DCAA participation in all Integrated Product teams. Although audit services will 

be provided during an IPT when requested by the contracting officer, DCAA is no longer a member of an IPT. We will no longer provide feedback during an IPT. DCAA will audit only final contractor-approved submissions and will have no involvement in draft 

submissions. 

Regarding management abuses and impediments to the GAO, 

the GAO concluded that a pattern of frequent management actions 

served to intimidate some auditors and created an abusive environment at two of the three locations it investigated. Rest assured, inappropriate management actions will not be tolerated, and disciplinary action will be taken as necessary. 

However, since the GAO did not provide specific information on 

which personnel action could be taken, we asked that the DOD Inspector General investigate this matter. A draft report is due in 

January 2009. 

Mr. Chairman, my submitted testimony contains a list of the actions DCAA has completed to date and actions we plan to take. For 

the interest of my testimony today, I will discuss some of those actions having to do with the Agency’s structure, culture, and processes. 

We are performing a top-to-bottom staffing assessment, including 

an assessment of the staffing of our quality assurance function, to 

determine whether we have the appropriate staffing at all levels of 

the organizational structure. 

We are assessing whether additional staffing will be needed, including auditors, supervisors, and managers. And we will continue 

to work with the Department on how best to address future staffing needs. 

Prior to the issuance of the GAO report, we recognized that the 

span of control of supervisors to auditors needed to be lowered, especially in those areas that had a significant number of auditor 

trainees. 

In June 2008, I lowered the number of auditors controlled by 

each supervisor to provide for additional oversight. 

I also approved additional field offices to lower the span of control for the field office manager. Three additional offices were approved earlier in the year; three more offices were approved after 

the issuance of the GAO report. 

DCAA has also realigned the quality assurance function so that 

now reports directly to the Deputy Director. This change will bring 

additional daily oversight at a very high level in the organization 

and demonstrates our emphasis on quality audits. 

With regard to culture, we have undertaken an assessment, 

which we hope to complete by the end of this month, to determine 

17 

whether the agency is using the appropriate metrics and benchmarks, and whether those metrics are driving the right behavior. 

This assessment includes focus groups, including auditors, at all 

levels to provide feedback. 

In the meantime, we have emphasized through various venues 

the need to perform quality audits, and that other factors, such as 

metrics, budgets, due dates, or external pressures, should in no 

way compromise audit quality. For example, August was declared 

‘‘Audit Quality Month.’’ Each location held a stand-down day to discuss audit quality and to resolve impediments to audit quality. 

We plan to conduct an agency-wide survey to identify additional 

cultural issues. 

As mentioned earlier, we have ceased participation in Integrated 

Product Teams to avoid the appearance of a lack of independence. 

Finally, to address process improvements, we have increased the 

number of management levels to resolve disagreements from two to 

four. This raises the issue to the level of a senior executive, if needed, and provides greater objectivity to the resolution process. 

Based on our own quality assurance reviews, in February 2008, 

we changed the signature authority for internal control audits from 

the supervisory auditor to the field office manager. We have now 

required managers to sign all reports, regardless of findings, which 

should improve audit quality. 

We expanded our next round of quality assurance reviews, which 

started this month, to include additional offices and additional assignments. 

We initiated an internal assessment of audit work at other locations to identify additional areas of improvement. 

In addition, we have asked the DOD Inspector General to review 

the actions we have taken on the specific 13 cases cited by the 

GAO, in addition to assessing the issues involving the management 

environment. 

For all 13 cases, we have either completed additional audit work 

or have assignments in process to mitigate the risk with the assignments the GAO determined did not comply with the auditing 

standards. 

In closing, Mr. Chairman, Members of the Committee, I want to 

again underscore the seriousness with which DCAA is taking these 

actions. DCAA is committed to ensuring that the agency is above 

reproach. 

I thank the Committee for the opportunity to come before you, 

and I look forward to your questions. 

Chairman LIEBERMAN. Thanks, Ms. Stephenson, for the seriousness of your response. 

We will go now to questions. Let’s have 8-minute rounds since 

there are only three of us here at this point. 

Mr. Kutz, let me go to you here and ask you to answer the question that, in a way, Ms. Stephenson raised, which is: Why did this 

happen? I have heard some reference to the performance metrics, 

which presumably put time pressure on auditors. But just to repeat, this is an audit agency with a pretty good reputation over the 

years, and yet you have documented, and Mr. Heddell’s group and 

the others have documented, some really outrageous breaches of 

normal auditing standards. 

18 

Was it just the performance metrics? Or was something else happening here? 

Mr. KUTZ. Well, as she mentioned, there were independence 

issues with several of these. Whether it be in fact or appearance 

or both, we found independence was an issue with at least three 

of these audits. 

Chairman LIEBERMAN. OK. So define that a little more. What do 

we mean by independence issues? 

Mr. KUTZ. Well, the case that she mentioned was with a contractor where there was an up-front agreement that if a certain 

process was followed, they would get a favorable result. And DCAA 

was commenting on what it was auditing at the end throughout the 

process, and yet they gave an opinion on the final product. And 

what she is saying now is they are going to back away from that 

and really provide audit of the final product which will assess the 

system. 

In that particular case, the system could not produce reliable estimates, yet they gave an ‘‘inadequate in part’’ opinion, I think, on 

that one. 

Chairman LIEBERMAN. So was that because they were subject to 

undue pressure from the contractor? 

Mr. KUTZ. I am not sure if it was pressure. Just the way the 

process was set up in that particular case. 

Chairman LIEBERMAN. And they went along with it. 

Mr. KUTZ. And they went along with it, yes. 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ. And they have been doing it for years, as she mentioned. So that would be an example of the independence problem. 

In other cases, there was pressure from contractors to have certain things happen, and reports were issued by supervisors that 

had not reviewed working papers. She mentioned that there is 

pressure for deadlines, and I think the reality is there is pressure 

from contractors and the commands to help facilitate the process 

rather than look out for the taxpayers, as these two witnesses to 

my right have described. So independence was one of the issues. 

You mentioned production. I think there is a difference between 

production and productivity. There was a big focus on production 

here, and I think productivity is—— 

Chairman LIEBERMAN. In other words, the number of audits that 

would be—— 

Mr. KUTZ. The number of audits and how many days were to be 

spent on them rather than making sure that if there were significant complex issues that there was plenty of time spent to resolve 

them and issue the right report. If it was September and there 

were issues, they would get a report out the door rather than resolve those issues. I think she addressed that also in her opening 

statement in the way that they thought about this. So that was another issue. 

I think the other one in some of the locations was there was—— 

Chairman LIEBERMAN. Let me stop you there and just ask if you 

have reached a judgment yet or you are going to wait until your 

final report to reach judgment on whether these performance 

metrics drive, time pressures, or whether the DCAA is underVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
19 

staffed? In other words, one reason they may be under time pressure is that they do not have enough personnel. 

Mr. KUTZ. Well, it raises a serious question when you are issuing 

tens of thousands of audits with 3,500 auditors. 

Chairman LIEBERMAN. Yes. 

Mr. KUTZ. Either you are not doing the right audits and you are 

doing a lot of audits that do not have a lot of significance, or you 

do not have enough staff. We have not taken a complete look at 

that. I agree with you, Senator, that is something that needs to be 

looked at—— 

Chairman LIEBERMAN. OK. Look further, then. 

Mr. KUTZ [continuing]. Because the dollars have gone up and the 

number of staff has stayed flat or gone down. That raises questions. 

Chairman LIEBERMAN. Go on with what you were saying. 

Mr. KUTZ. Well, the other one was inexperienced staff were not 

being supervised on a daily basis. I think that was an issue, and, 

again, I think they were stretched thin. It could get back to what 

you just described. But inexperienced staff that came up with findings and supervisors that did not have time necessarily to review 

them on a day-to-day basis. So you get to the end of the audit, and 

a bunch of issues have been raised. You do not have time to fully 

vet them, so you just issue the report. The supervisor says, ‘‘Well, 

those are not really good findings. I am going to delete them, and 

I am just going to issue a clean opinion at the end of the day.’’ 

So those are some of the kinds of things that I believe—— 

Chairman LIEBERMAN. OK. That is helpful. You do not want to 

reach a prejudgment where there are such amounts of money involved here, of why changes were made to the benefit of the contractors. I am just looking at that point of view. Was there any indication of supervisors who were currying favor with the contractors in hopes of going through the revolving door to go to work with 

the contractors? Is there any evidence of self-serving here in the 

‘‘inadequate’’ audits that you found? 

Mr. KUTZ. I think it is a high risk. We did not see it specifically. 

Chairman LIEBERMAN. It is a high risk that it may be going on? 

Mr. KUTZ. Yes, it is a high risk because all the opinions changed 

in the same direction, in favor of the contractor. We had 11 opinions of the 14 that improved for the contractor. If some of those had 

gotten worse, I would not be quite as suspicious. They all got better 

at the end of the day. We did not see any specific evidence of 

bribes, kickbacks, things like that. 

Chairman LIEBERMAN. Right. 

Mr. KUTZ. But that does not mean it is not happening. I just do 

not have any evidence that it is. But I think it does tie clearly to 

the production focus and the inability to take enough time to fully 

vet those findings. And it is easier to wash them away than to deal 

with them. 

Chairman LIEBERMAN. How about the other kind of pressure, a 

different kind of pressure—which Mr. Hackler really referred to— 

which is the satisfaction of the customer, the customer in the case 

you mentioned being the Air Force, either because the Air Force 

itself was in a buddy system with the contractor or because the Air 

Force just wanted to get the job done and did not want it held up 

20 

by some audit? Did you find evidence of any inappropriate pressure 

by the Air Force on the auditing supervisors? 

Mr. KUTZ. Yes, I think we did see evidence of that. And, again, 

you have a situation where the Department of Defense partners, in 

effect, with these contractors. Sometimes it looks like DCAA gets 

swept into that partnership. But they are the auditors. The auditors cannot really be the partners in this whole situation. 

So I believe there was some of that, and it raises a bigger issue 

from an independence standpoint where DCAA is within the organization or whether there should be more independence of DCAA 

organizationally. She talked about other issues, but I think organizationally, they need to assess whether they are placed in the proper place in the government. 

Chairman LIEBERMAN. Am I right that right now they are under 

the Comptroller of DOD? 

Mr. KUTZ. They are under the Comptroller, yes. 

Chairman LIEBERMAN. So I hope that one of the other things 

that you will take a look at and speak to us in your final report 

is whether a move out of that line reporting to more independence 

would help the Agency. 

Mr. Hackler, do you have anything you want to add to this question, this perplexing question about why the supervisors acted 

badly here? 

Mr. HACKLER. In my situation, it was personal ambition. I should 

note that all of the individuals involved with every audit that was 

looked at by the GAO are either retired or have been promoted. In 

my situation, the directed audit opinion that I had to issue because 

of a directed stance, the person has been elevated to the Senior Executive Service (SES) level. 

Chairman LIEBERMAN. Yes. So the ambition was within the agency. 

Mr. HACKLER. Yes. 

Chairman LIEBERMAN. And the thought was that if you did not 

cause waves with critical audits, you would be more likely to rise? 

Mr. HACKLER. It is a common theme. It helps you with your 

metrics. 

Chairman LIEBERMAN. Yes. 

Mr. HACKLER. Everyone looks good. 

Chairman LIEBERMAN. Yes. Ms. Le, do you want to add anything? 

Ms. LE. In my opinion, I think there are two fronts. The first one 

is that I think it is because of DCAA’s desire to be a partner with 

the procurement offices, and in that partnership we want to have 

customer satisfaction. 

Chairman LIEBERMAN. Right. 

Ms. LE. And that is the pressure. So that is up front. 

Chairman LIEBERMAN. And, again, who is the customer there? 

Ms. LE. The procurement offices or the officers. 

Chairman LIEBERMAN. OK. 

Ms. LE. And the second part of that is the personal ambition and 

promotion within the agency, because the agency is so metric-driven that anybody who would meet the metric will be promoted. And 

like Mr. Hackler has stated, the people involved in the investigation, they have been promoted. 

21 

Chairman LIEBERMAN. OK. I thank you. I will come back to this 

issue, and maybe my colleagues will ask Ms. Stephenson about 

why the supervisors who were criticized by GAO and the other investigations have either been promoted or retired and not disciplined. If my colleagues will allow me, let me ask you that question just to wind this up because you spoke with real seriousness 

about the Agency’s response to these allegations, and I appreciate 

that. But here you have a situation where it seems to me that exactly the opposite message is being sent to the people who were 

criticized by GAO. 

Ms. STEPHENSON. I understand that, sir, and I understand the 

way that this appears. Most of the promotions, except for one, happened prior to the GAO report. There were no indications in those 

promotions that they did not follow the merit promotion principles. 

There was one who was promoted after the GAO report was issued, 

a couple of days later. That particular promotion was reviewed 

through the General Counsel’s office to determine whether it followed merit promotion principles. In that particular case, it did. 

Chairman LIEBERMAN. You mean it was reviewed after the GAO 

report? 

Ms. STEPHENSON. Yes. However, on that particular promotion, I 

would like to explain the person has not been put in their position, 

and we recognize that there may be some additional findings that 

will come out of the IG report that is due in January. And if there 

are indeed additional actions that come out of that GAO report, we 

will take the actions at that time. 

Chairman LIEBERMAN. So that person has been promoted but not 

placed in the position? 

Ms. STEPHENSON. That is correct. 

Chairman LIEBERMAN. And not given additional pay? 

Ms. STEPHENSON. No, they have not. 

Chairman LIEBERMAN. OK. 

Ms. STEPHENSON. Now, I would say that we have been advised 

by counsel that because the IG is performing a review of the management abuses and is looking into the actions of these employees 

that were taken, we needed to cease on any disciplinary actions 

that we took on those employees in case there are additional actions that need to be taken, and we would take them all at once 

because you cannot discipline twice for the same action. So we have 

been put in a holding pattern, and we are grateful to the IG for 

taking on this action for us to bring objectivity to the process 

versus us looking at ourselves, having the IG look at ourselves. 

And I am committed that if there are actions that the IG finds 

need to be taken, we will take those actions. 

Chairman LIEBERMAN. OK. I appreciate that very much, and to 

say the obvious, this Committee would like to be kept informed on 

a very timely basis of what you are doing with regard to those supervisors. 

Ms. STEPHENSON. Absolutely, sir. 

Chairman LIEBERMAN. Thank you. Senator Collins. 

Senator COLLINS. Thank you. 

Mr. Kutz, the DCAA has some 300 field offices, and we have 

talked about the very disturbing findings that GAO has documented in three of those offices. But you are, at the Chairman’s 

22 

and my request, in the midst of doing a broader assessment of 

DCAA. Thus far—and I realize your assessment is still underway— 

are you seeing the same kinds of troubling problems that we have 

talked about this morning in other regions of the country in other 

field offices? 

Mr. KUTZ. I would say in some cases, yes; other cases, not necessarily. The abusive work environment one, for example, we have 

not seen—although we were doing it more like a peer review, we 

had specific allegations with respect to the 14 audits that we 

looked at to this point. So it does not mean it is not going on, but 

that does not appear to be as big of an issue. 

The overall theme, some of the independence issues I talked 

about, the lack of sufficiency of work, and a little bit of the changing of opinions, appears to be out there also. Ms. Fischer may want 

to add a little more. She is leading that broader look. 

Senator COLLINS. Ms. Fischer. 

Ms. FISCHER. That is correct. We found the same types of problems with regard to support for the audit opinions and the dropping of some findings in the work we have looked at across the various DCAA regions. 

Senator COLLINS. And the independence issue, which to me is the 

most troubling, are you seeing that? 

Ms. FISCHER. We have seen some aspects of that with regard to 

the effect of the metrics process where they would maybe do less 

work than they should. That is one of the impairments to independence if you do not allow enough time for the audit. We have 

seen a hesitancy to disclose, maybe in a report, that there is an ongoing fraud investigation. We have some questions about the low 

number of fraud referrals coming out of some of the work across 

the offices, that kind of thing. 

Senator COLLINS. We will be looking forward to the results of 

that more comprehensive review because I think a fundamental 

issue that has been raised this morning is whether DCAA has sufficient insulation and independence within the Department of Defense. This whole debate reminds me very much of when some of 

the major accounting firms became too close with their corporate 

clients and lost their independence and objectivity a few years back 

when the corporate accounting scandals broke. And it seems to me 

that what we are hearing over and over again is that DCAA sees 

as its customer not the American taxpayer but the program manager or the procurement officer or in some cases perhaps even the 

defense contractor. 

So I think it is premature for us to reach a conclusion on that, 

but that is an issue that I think we should take a look at of whether or not it is a mistake to have DCAA within the Department of 

Defense. Maybe it needs to be pulled out to be more independent 

of the program manager, the procurement officers, and even the 

contractors themselves. And that is something that I would like 

GAO to take a look at as you come back to us with your recommendations. 

Ms. FISCHER. Yes, we are taking a broader look at that whole environmental picture. 

Senator COLLINS. Mr. Heddell, I found your testimony troubling 

and surprising this morning on a couple of counts. First of all, the 

23 

IG’s office completed a review of DCAA in May 2007, and it basically said that the quality and the compliance with established 

policies, procedures, and applicable auditing standards were adequate. And yet at the same time, other DOD IG personnel were involved in assisting the GAO with an investigation of these 14 audits that we have discussed today. 

How could DOD IG conclude in its report dated May 1, 2007, 

that DCAA passed the review and that its procedures were satisfactory, when at the same time your office knew of these questionable audits on the West Coast offices? 

Mr. HEDDELL. Well, I think that is a very important question, 

Senator Collins, and I will try to give you what I hope will be a 

satisfactory answer. 

We are talking about two different things that were occurring 

here. The hotline investigation, which was initiated as a result of 

a November 13, 2005, complaint, which identified 10 audits in two 

specific offices in southern California—Huntington Beach and 

Santa Ana—and that initiation was a criminal investigation entirely. 

The external peer review that you are referring to, which was reported on May 1, 2007, was a broad review, had a totally different 

scope and totally different approach—one being more of an audit, 

the other being a criminal investigation. And the time periods that 

were covered are different. The hotline investigation looked at 10 

audits that were conducted between 2002 and 2005. The external 

peer review that we reported on in May 2007 looked at fiscal year 

2006. So you also had two different time periods. 

In addition, in the criminal investigation we were focused on supervisors, managers, and auditors in a very limited geographic 

area, as I indicated. In the external peer review, we were looking 

at five DCAA regions coast to coast, as well as their field detachment that looks at classified information. So one was very broad. 

The other was very narrow and very focused. 

Now, the reality is that criminal investigators were using the assistance of auditors, and it was through their assistance that we 

were able to identify and say that all 10 of those audits out in 

Santa Ana and Huntington Beach were deficient. And the auditors 

were conducting their peer review with the general knowledge of 

what had been discovered and was known out in southern California. So there was a general knowledge, but the results are different because it is two different focuses. Again, the focus out in 

southern California was on whether or not the opinions were correct and whether the working papers were supported. The focus in 

the peer review was whether there were significant deficiencies 

that were enough to indicate that material deficiencies adversely 

affected the overall system of quality in DCAA. 

The professional and collective opinions of the audit staff that 

conducted that peer review that they reported on in May 2007 had 

the opinion, when everything was said and done, that, in fact, the 

structure in place at DCAA during fiscal year 2006 was such as to 

be acceptable according to government auditing standards. 

Now, if I could just add one other quick thing, the fact of the 

matter is even though I think that it is reasonable to say you could 

have two different results, I believe that in our look at this thing, 

24 

we were a little off on this because I think that the Office of Inspector General unfortunately failed to get its arms around the 

broader issue here. So it is a matter of an organization being focused audit-wise, being focused criminal-investigation-wise, but the 

broader organization did not pull it together. I am not saying there 

would have been a difference, but I think it was a weakness within 

the Office of Inspector General. 

Senator COLLINS. Thank you. In my next round, I want to get 

back to the handling of the complaint and the 3-month delay in referring it and your comments about Hurricane Katrina. Obviously, 

the DOD IG was involved in the fraud investigations given that the 

Army Corps of Engineers had a number of the contracts for the 

blue tarps, for water, and for ice. But I am alarmed at what you 

said today, but I will get into that in a second round. 

Thank you. 

Chairman LIEBERMAN. Thank you, Senator Collins. 

Thanks, Senator McCaskill, for being here and for the support 

that you and your staff have given this particular investigation and 

the preparation of this hearing. 

Senator MCCASKILL. Thank you, Mr. Chairman. And for purposes of managing my time, will we have more than one other additional round? Because I obviously could be here for hours, and I 

wanted to take a couple of minutes to put something in the record 

before I began. But I will not waste that time if—— 

Chairman LIEBERMAN. My expectation was that we would have 

at least one more round. If you want more time than that, I may 

just leave you here. [Laughter.] 

Senator MCCASKILL. That would be great. Check back in tomorrow. 

Chairman LIEBERMAN. And require the continued presence of the 

witnesses. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. OK. Thank you, Mr. Chairman, very much. 

Back in 1986, when I was a young attorney, I remember hearing 

about $400 hammers and $600 toilet seats. And like most Americans at the time, I thought, how in the world does that happen at 

the Pentagon? 

Now, after spending a great deal of my professional life as an 

auditor, I understand why it could happen at the Pentagon. I have 

had some sleepless nights after I read this GAO report, not because 

what was in the report was so incredibly unbelievable—that is 

true—but more the response of the foundational organizations 

within the Department of Defense and government oversight that 

have failed. 

There are so many failures that are wrapped up in this hearing, 

it is hard to know where to begin. And I have to disagree with you, 

Inspector General, about peer review. I fundamentally understand 

what peer review is. There is a dramatic failure of peer review in 

this instance. Peer review is all about seeing if the systems are 

adequate in terms of working papers supporting findings. What an 

auditor must do is find the facts supported by working papers. It 

is just that simple. 

25 

And if we have instances—I do not care if they are in southern 

California or in a small town somewhere in the Midwest. If we 

have instances within an auditing agency where someone is ignoring working papers and changing findings, a peer review ought to 

find it, and a peer review ought to call it out. That is what they 

are there for. That is the only reason a peer review is there, to examine the fundamental strengths of the auditing processes. They 

are not there to cast judgment on individual findings or individual 

scopes or individual priorities that an agency may set. 

And so I certainly respect your record as an Inspector General 

at Labor, and I know you have walked into a hornet’s nest. And 

I am hoping that in the time I spend here, eventually we will get 

to a point in a hearing where I feel really good about the DOD IG. 

I am a long way from there right now. 

I want to commend the auditors. You are heroes. You did not go 

into this line of work for the money, and you certainly did not go 

into it for the glamour. This is hard stuff. It is complicated. It is 

so complicated that it is very hard for Congress to have longer than 

a 5-minute attention span, which is one of the reasons why we 

have continually had the astronomical numbers of waste, fraud, 

and abuse at DOD and the Pentagon because it is hard. And as you 

can see by the attendance at this hearing today, it is not glamorous 

on this side either. 

So I want to really commend you, as a 17-year auditor, as two 

people who realize that the absolute foundation of what made you 

feel good about coming to work was shaken because you were not 

coming for the money and you were not coming for the glamour. 

You were coming because you fundamentally believed that when 

you found problems, they were going to be exposed. 

Now, the response to the audit was wrong. The fact that people 

who are responsible for this have been promoted or have retired is 

ridiculous on its face. It is ridiculous on its face that anyone who 

was involved in this has been promoted. And nobody in America 

gets it, how you can promote somebody who was involved in this. 

And we are going to try to get to the bottom of it before this is all 

over. 

I appreciate you, Ms. Stephenson, for coming to my office and 

spending the time with me that you have. And I have a specific 

question about that before I finish. 

I think at the root of this problem is a phony baloney performance metric. We need to get to the bottom of the Office of Management and Budget (OMB) and these performance metrics, and this 

is something I would like to talk to you about, Mr. Chairman. 

When you have performance metrics, there are pages here—and I 

have read every word—about how great DCAA is doing. And do 

you know there is one paragraph about how much money they 

saved? 

This was all about making sure that somebody looked good up 

the line in terms of how many hours they were spending on an 

audit and, second, about pleasing the contracting people at the active military. That is all this was about. And, by the way, this says 

they are doing great at pleasing their client, which is, in fact, the 

people who enter into contracts in the Air Force, the Army, and all 

those places; that they are showing that they are cheaper than outVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
26 

side auditors so nobody needs to worry about getting privatized; 

and that they are doing a lot of audits in a few amount of hours. 

Now, by the way, multi-billion-dollar contracts are where it 

should take a lot of time. This is hard. Most of us do not even understand all the intricacies of these contracts. Congratulations that 

you do. You have given the best explanation of lot pricing I have 

ever heard, and I am on the Armed Services Committee. 

So, this is really fundamentally broken. The culture is broken, 

the performance metrics are broken, and the oversight is broken. 

And we have got to get it fixed. We have enough money, if we 

scrape the surface, to bail out all the Fannie Mae’s and Freddie 

Mac’s in the world if we would just get serious about this. 

Let me start, if I can, with the most difficult question I have to 

ask today. Ms. Stephenson, I hate to put you on the spot, but this 

is your job. You and I met in my office, and I have been impressed 

at your willingness to acknowledge that your response to the audit 

was inadequate, that there is a serious and substantial problem 

here, and you pledged to me that you wanted to work with me and 

my staff to do the best job you could getting it fixed. 

I have heard troubling rumors since our meeting that you have 

been instructed by Tina Jonas not to talk to me or meet with me 

again. Is that true? 

Ms. STEPHENSON. No, ma’am. It is not true. My understanding 

is that we met with the staffers on August 20, and that we have 

been providing weekly updates on the actions that we have taken. 

I, at no time, was instructed by Tina Jonas not to meet with you. 

I was told in various instances that we would meet with the staffers. I apologize, ma’am, if you wanted me to come back to you. 

Senator MCCASKILL. No. I was told by people—I mean, you can 

imagine how my phone is ringing off the hook. And we received information that Tina Jonas instructed people around DCAA, including you, that they should not have contact with my office. And I 

wanted to find out if that rumor was true or false. 

Ms. STEPHENSON. That rumor is not true, ma’am. 

Senator MCCASKILL. OK, great. That is the best news I have 

heard all day. 

Let me ask you, because my time is almost up on this round, Inspector General Heddell, have you done any investigation as to the 

people under your supervision who exposed the whistleblowers? Do 

you know who those people were that exposed Ms. Le? 

Mr. HEDDELL. Well, it is not—the answer to that is it is not as 

simple at that. If I could take a minute, I would be more than 

happy to try to address that. 

Senator MCCASKILL. OK. 

Mr. HEDDELL. With regard to your earlier remarks, Senator 

McCaskill, I do not think you and I really disagree. I appreciate 

your remarks, in fact. 

First of all, I would like to say thank you to Ms. Thi Le because, 

frankly, being a law enforcement professional for most of my life, 

we depend on people who will come forward—— 

Senator MCCASKILL. That is exactly right. 

Mr. HEDDELL [continuing]. And who will talk to us. And she did. 

And there is a lot more that I could say that is very positive about 

what she has done for us. 

27 

Let me explain what happened in this situation, however, and it 

probably is a situation that needs to be fixed. But here is the case. 

There was a 3-month delay in handling that hotline complaint. 

It came in on November 13, 2005. It was not handled until February 8, 2006. As I indicated in my statement, the Department of 

Defense OIG hotline became the fraud hotline for the entire Federal Government between September 2005 and March 2006. During 

that time we took in almost 10,000 Katrina and Rita hurricane-related allegations. In addition to that, we took in our regular allegations, which were about 8,000, so tremendously overtaxed. And 

there was a priority system in place that said that we would only— 

that we would for the most part address life-threatening issues and 

senior official issues. And that is why the delay. 

Now, routine hotline referrals that we get—and I emphasize the 

term ‘‘routine’’—the way that they are handled is they come in, and 

as long as they are routine, they are referred to a DOD agency, in 

this case DCAA. The Department of Defense has a hotline program, and they have very formal instructions under DOD Instruction 7050.01, and those instructions say that when hotline referrals 

come in, they are required to have a process in place whereby they 

independently review and report on the nature of the hotline. And 

it goes on to say that maximum emphasis must be given to protect 

the identity and the confidentiality of the person who calls in or 

provides the information. 

Now, in this particular case, the hotline referral came in and was 

treated routinely, and, of course, with regard to all the major issues 

that were occurring at that time—and I could go down the list— 

that particular hotline complaint was treated as a routine matter 

and, like all routine matters, it went to the agency involved, with 

the exception—we have three exceptions: If it involves a senior official, if it involves reprisal, or if it involves criminal activity. And 

that particular hotline complaint was judged not to have any of 

those three attached to it at that point in time. But it also was 

judged to be routine, and, therefore, it was referred to DCAA. 

Now, I will tell you, I think we misstepped on that one because, 

in my opinion, anytime something comes in that involves DCAA, as 

important an organization as it is—and when you think about what 

it does—I think we should have taken that. I think we should have 

kept it—we, the Office of the Inspectator General (OIG)—and we 

should have worked it ourselves. 

Fortunately, within 30 days of referring it to DCAA, we realized 

and we were able to get back on track with that thing, and we took 

it back. 

Senator MCCASKILL. But it was only because Ms. Thi Le complained to Criminal Investigations. 

Mr. HEDDELL. Yes, ma’am. 

Senator MCCASKILL. If she had not done anything more, nothing 

may have happened. 

Mr. HEDDELL. I do not deny that is probably what would have 

happened—nothing—at least for a while. 

But here is the thing. What I outlined for you is the system for 

handling routine complaints because there are thousands of them 

that do come in. Unfortunately, in this particular case, it was referred to DCAA. 

28 

Now, the complaint itself did not specifically identify any one 

person, but having said that, I can tell you as a trained investigation, I think I could have looked at that, and I think I could have 

figured it out. We made a mistake on that. And I feel badly because, as I said, we rely on people like Ms. Thi Le to help us out. 

I think the system could be improved there. 

Senator MCCASKILL. Thank you for acknowledging the mistake. 

Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thank you, Senator McCaskill. We will 

now do a second round of 8 minutes. 

Ms. Stephenson, in terms of the response, we talked about what 

has happened to the supervisors who were criticized, but let me go 

now to the actual audits. According to the GAO report, since being 

briefed on the results of that report, you have rescinded three of 

the audits and performed three other new audits that resulted ‘‘inadequate in part’’ opinions. But that still leaves more than half of 

the questionable audits untouched. 

Is DCAA itself re-examining those audits? 

Ms. STEPHENSON. Oh, absolutely, sir. For all 13 cases, we have 

analyzed what the issues were with those cases, whether they be 

an estimating system, whether they be a billing system, where additional testing needed to be done. But all 13 have had additional 

audits either in process or completed. Most are in process as of this 

time. 

Chairman LIEBERMAN. So you have rescinded three, issued ‘‘inadequate in part’’ opinions on three. So on the remaining seven you 

are in review of those now? 

Ms. STEPHENSON. It is actually more than that, sir. There were 

13 cases, and for some of them there are two to three additional 

audits that we are doing because the issues that may have been 

called into place may have been in various areas and not just one 

audit, although the audit that the GAO looked at was one audit. 

So we expanded it where we needed to, to ensure that we had the 

appropriate coverage. 

Chairman LIEBERMAN. So, bottom line, none of the audits that 

are in question and found wanting are being left sitting as they 

were? 

Ms. STEPHENSON. No. In fact, contracting officers have been notified of the GAO’s findings on those reports, and they have been 

told not to rely on the results in those reports. And they have been 

given the timeline for the additional audits that will be performed. 

We did not want a contracting officer that was holding those reports to be acting on the findings. 

Chairman LIEBERMAN. Let me go to Mr. Heddell for a question, 

but it raises an issue I want to come back to you on. Mr. Hackler’s 

testimony alleges a very costly flaw in a contract with Integrated 

Defense Systems, a Boeing subsidiary, for satellite launch capabilities. And as you know, his allegations have now been substantiated 

by GAO. 

I wanted to ask you what your office is doing to follow up on the 

audit and if there is any recourse—and this is where I will ask Ms. 

Stephenson to join you in answering—for the taxpayers for what 

sounds to me like an unjustified payment of $270 million of taxpayer money. 

29 

Mr. HEDDELL. The answer to, I think, the core of your question 

there is, with regard to the Inspector General, we have two initiatives ongoing at this point, Mr. Chairman. One is an investigative 

initiative relative to senior officials. 

Chairman LIEBERMAN. Right. 

Mr. HEDDELL. Another one is an audit initiative to take a look 

at what happened, to try and identify the problem. At least in my 

opinion, the more important question that you are asking, I think, 

is what is happening here, and why is this happening. 

I think for one thing—and this is an opinion—I think there is— 

appropriately, there is a lot of emphasis on what are called generally accepted government auditing standards. I think those are 

extremely important. I am not an auditor. My professional background is more in the leadership and management area. But I 

think the issue is more about leadership than it is about auditing 

standards. And I think that is where—— 

Chairman LIEBERMAN. Leadership right to the top. 

Mr. HEDDELL. Leadership to the top. 

Chairman LIEBERMAN. To Ms. Stephenson in this case. 

Mr. HEDDELL. Well, it is not just Director Stephenson. I am talking about a much broader subject. The Department of Defense, its 

budget has doubled in recent years, as you know better than I do. 

And the number of procurements has skyrocketed. The number of 

life-threatening issues that the Department deals with—and you 

are not talking millions anymore. We are talking billions. 

Chairman LIEBERMAN. Sure. 

Mr. HEDDELL. And the fact of the matter is that leadership is, 

in my opinion, the real issue. And who is important? Only the taxpayer can be viewed as the customer. 

Chairman LIEBERMAN. Yes, that is the customer. 

Mr. HEDDELL. So I think our focus has to be on how do we lead 

better. For instance, I know that DCAA has an internal audit peer 

review that they do themselves, but I think the focus is more on 

audit than it is on management. 

Chairman LIEBERMAN. Let me interrupt you, with apologies, because my time is running. Is there anything that the government 

could do to recover money improperly spent as a result of these inadequate audits? 

Mr. HEDDELL. Well, yes, sir. The government through audits that 

we conduct recovers millions of dollars every year. In fact, a lot of 

the semiannual reports of the Inspectors General, which, by the 

way, come out at the end of this month, will show the amount of 

monetary recoveries they have made over the past 6 months. 

Chairman LIEBERMAN. So are you pursuing any monetary recoveries in any of these cases, including—— 

Mr. HEDDELL. Yes, sir. 

Chairman LIEBERMAN [continuing]. The one Mr. Hackler referred 

to. 

Mr. HEDDELL. Well, I cannot speak to that one because we are 

not finished yet, sir. 

Chairman LIEBERMAN. OK. 

Mr. HEDDELL. But I can say that in some of the others, yes. 

Ms. STEPHENSON. Sir, can I speak to that? 

Chairman LIEBERMAN. Please do. 

30 

Ms. STEPHENSON. As far as the recovery? 

Chairman LIEBERMAN. Yes. 

Ms. STEPHENSON. That is one of the 13 cases, and that is an instance where we do have a recovery mechanism under the Cost Accounting Standards. Under the Cost Accounting Standards, if a 

contractor is found to be noncompliant, you can retroactively go 

back to when that contractor started that practice and request 

recoupment from the contractor. That is a public law. We are in the 

process of performing audits under the Cost Accounting Standards 

on those particular issues and those accounting practices to determine whether that contractor is indeed compliant or not. So I believe that is a remedy which we could have. 

Chairman LIEBERMAN. Good. 

Ms. STEPHENSON. Second, if I could clarify that situation as well, 

and I certainly appreciate Mr. Hackler and Ms. Le being here 

today, especially Mr. Hackler in talking about the issues with the 

Evolved Expendable Launch Vehicle (EELV) program. I know that 

has taken a lot of courage for them to come forward, and I do want 

to thank them. 

Chairman LIEBERMAN. I want to ask you something about that 

while you are at it. 

Ms. STEPHENSON. Sure. 

Chairman LIEBERMAN. Will you promise that you will do everything you can to make sure that Mr. Hackler and Ms. Le are not 

in any way harassed or punished as a result of their whistleblowing? 

Ms. STEPHENSON. You have my personal commitment on that, 

sir, because I know it did take a lot of courage for them to come 

forward, to continue coming forward, and to not let loose of their 

convictions as to the issues and the concerns they have about their 

agency. 

Chairman LIEBERMAN. Yes, I agree. They are heroes, as Senator 

McCaskill said, and both of them feel that they have suffered as 

a result of blowing the whistle. So we are going to count on you 

to make sure, as the Director of the DCAA, that any harassment 

stops. 

Ms. STEPHENSON. Absolutely, sir. 

Chairman LIEBERMAN. Go ahead with your answer. 

Ms. STEPHENSON. I just wanted to clarify. On the EELV program, which was a very complex program for all involved, including 

us, as technical as we are with auditors, there was a certain 

amount of the cost that was put forward as being questionable. 

There was another part of the cost on which we were not able to 

render an opinion because of the way in which the contractor’s accounting records were maintained. And I know that was a point of 

disagreement as to whether that additional amount that stemmed 

from the way in which the costs were accumulated under portions 

of the contract prior to it having to comply with the Federal Acquisition Regulations and the accounting standards. And I realize that 

was a point of contention, and it did get raised up several levels 

to management within the region where they made a decision they 

did not feel that there was enough information in the accounting 

records of the contractor, given the way in which they had put the 

records together, in order to express a clear opinion that this was 

31 

questionable. Rather, they set the costs aside in the report and 

stated that this was an area that appeared to be allocable to the 

government. We did it as what is called a ‘‘qualification’’ under the 

auditing standards, which is when you do not have enough information to express an opinion. We also asked the Air Force in that 

report not to conclude negotiations until it had assessed this situation. 

As I said, I completely understand Mr. Hackler’s concern with 

this and the need to have completely questioned all of it as opposed 

to saying, well, for part of it we just may not have had the type 

of information necessary in order to express that opinion. And I 

think that is something we are going to look at closely as we go 

forward as to how aggressive we are in situations where there is 

a lack of information. Perhaps that could have been handled better. 

What I can give you is the commitment here today is we will 

complete those audits under the Cost Accounting Standards, and 

we will continue to work with the organizations—it would be the 

Defense Contract Management Agency and the Air Force—that if 

we feel recoupment is necessary, we will work with those organizations and work toward that recoupment. 

Chairman LIEBERMAN. Good. Thank you for that. My time is up. 

Senator Collins. 

Senator COLLINS. Thank you. 

Mr. Heddell, you answered a lot of my remaining questions when 

the Senator from Missouri was talking to you earlier, but I want 

to clarify one point which is still unclear to me. 

When the complaint came in from Ms. Thi Le, did the IG mistakenly forward back to DCAA her personal information or identifying 

information? Or was it just a case that anyone could figure it out 

because of the contract and the nature of the complaint? 

Mr. HEDDELL. The complaint that came in on November 13, 

2005, came in with the name of a person who is not sitting at this 

table, or at least not with the name that was put on the complaint. 

So the complaint came in with a name that is not sitting here 

today. But the complaint did list potential witnesses, and Ms. Thi 

Le was listed as a potential witness, among others. And the complaint was deliberately—and I do not mean maliciously, but ‘‘routinely’’—forwarded on February, 8, 2008, to the DCAA. 

Now, to the best of my knowledge, the DCAA management handled that complaint properly. I do not know that they divulged her 

name, but I do know this: That if you read the complaint, it would 

have been pretty easy to figure out who probably made the complaint. 

So it was the system. It was followed. But, unfortunately, that 

complaint was treated routinely, and that is why I said in my opinion it should not have been routine. 

Senator COLLINS. I was just going to say, that is a problem in 

and of itself, as you have conceded. 

Ms. Stephenson, I want to talk to you about DCAA’s cooperation 

with investigators, whether it is from GAO, the Defense Criminal 

Investigative Service, or the IG’s office. In the case of Thi Le, 

DCAA issued an extremely broad and restrictive memo—you could 

look at it as a gag memo—that directed her not to provide documents to the GAO or anyone else. And the memo also cautioned 

32 

that if she did provide documents, she could be punished and even 

lose her job. In fact, Ms. Thi Le testified today that she was threatened that she could be prosecuted, that it could be criminal theft. 

What are the rules that DCAA has now on cooperating with outside investigators as far as access to documents? 

Ms. STEPHENSON. Let me answer this in a couple of ways, if I 

may, if I can first explain the letter that was issued in August 

2007. I could say the tonal quality of that letter should have been 

improved. However, the intent of that letter was to protect the documents that were contractor proprietary documents. And it is within DOD policy and DCAA policy that we have to protect those documents. I do not think we had a clear understanding within our 

General Counsel’s office at that time what those documents were 

going to be used for, and we used a blanket statement that is given 

when people are preparing cases and perhaps providing documents 

to third-party attorneys. 

I am not saying that was right, but that is what the intent of 

that letter was to do, to protect the contractor proprietary documents. 

However, at no time was there any restriction in Ms. Le giving 

the list of documents that the Office of Special Counsel or any 

other investigative agency would want. In fact, she did, and we did 

turn those documents over to the Office of Special Counsel. And we 

would continue to do that. It is my understanding that the Office 

of Special Counsel has the documents which they need. So at no 

time are we saying that they cannot give the documents that can 

be requested by the Office of Special Counsel. We did indeed turn 

those over. 

However, in looking at this in hindsight, in looking at what was 

going on at that time, we may not have fully realized the intent 

of what Ms. Le was wanting with those documents and that it was 

solely for an investigative organization and not for personal use. 

And so I look back on that and say we could have handled this better. And we have changed our policy for the cooperation with investigative organizations which—— 

Senator COLLINS. Let me stop you for a moment to clarify a couple of points. The General Counsel’s office knew that there was an 

ongoing investigation. Correct? 

Ms. STEPHENSON. It is my understanding, yes. 

Senator COLLINS. So this is not a case of protecting proprietary 

information from a corporate competitor or from an employee who 

is going to misuse it for personal purposes. This was a restriction 

that was imposed that prevented Ms. Le from cooperating with 

government investigators. How can that be proper under any circumstances? And how could the General Counsel’s office have possibly thought it was related to protecting proprietary information? 

Ms. STEPHENSON. Ma’am, in hindsight we could have handled 

that better. We should have—— 

Senator COLLINS. Well, I am finding this troubling, especially 

since when you were giving your explanation, Ms. Le was shaking 

her head. So I want to go to her now. 

How did you interpret the memo that you received, which was 

signed by your supervisor but was, in fact, drafted by a DCAA atVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
33 

1The memorandum for Diem Thi Le appears in the Appendix on page 102. 

torney telling you not to distribute or share any of these documents? What was your interpretation? 1

Ms. LE. My interpretation was that if I did that, I would be prosecuted and lose my job. But let me take this opportunity to clear 

up some issues here. 

I think Ms. Stephenson was misinformed. What triggered that 

memorandum was that I was asking my supervisor to allow me 

some time to respond to the OSC investigator in the investigation 

of my whistleblower complaint. I asked for some time to prepare. 

Then the next day, my supervisor gave me a memorandum saying 

that I cannot provide any documentation generated by a government computer, and I asked her specifically, and she told me including internal e-mails between me and my supervisor and my job 

performance evaluations, in which I do not think there is any contractor proprietary data right there, to any investigative unit, including the OSC. 

So, clearly, at least my management at my office understood that 

I was not about to give away any contractor proprietary data to 

outsiders, but to respond to the OSC investigation. 

Senator COLLINS. Office of Special Counsel. 

Ms. LE. Yes. 

Senator COLLINS. Mr. Kutz, what is your view on this? Did you 

have a difficult time getting access to documents were part of this 

investigation? 

Mr. KUTZ. I will let Ms. Fischer answer that, but I think overall 

we got some cooperation. There were some people, though, as I 

mentioned in my opening statement, that were scared to meet with 

us and actually met with us off site because they did not want people at DCAA to know that they were talking to GAO. But I will 

let Ms. Fischer answer that in more detail. 

Senator COLLINS. Ms. Fischer. 

Ms. FISCHER. Yes, Mr. Kutz is correct. We did end up meeting 

with about three auditors off site. Some auditors were afraid to 

talk to us, the younger junior auditors. One trainee was just about 

in tears when she got in the conference room to meet with us, and 

we just let her go. 

We actually phoned some auditors that we were told were willing 

to talk to us before we went out in person for interviews, and they 

suggested very strongly that we needed to do our interviews in confidence, that the auditors would be afraid to talk to us if their supervisors or managers were sitting there in the room. And that is 

why we handled the interviews in a confidential manner. But they 

were told not to give us any working papers or bring anything into 

the room, that everything had to go through their management. 

And as a result, their management would know what they wanted 

to give us to explain the audit issues, and they were afraid to do 

that. But we feel we saw enough documentation through the working papers we reviewed to support what we were concluding in our 

investigative report. 

In Ms. Le’s case, of course, we never got that gag order memo 

because she could not share it with us. 

34 

Senator COLLINS. Thank you. Let me just wrap this up because 

my time has expired. I would like to have Mr. Heddell, just as an 

experienced IG, comment on this issue, and then, Ms. Stephenson, 

I am going to ask you for a commitment to issue a clarifying memo 

or some sort of direction making very clear that when the investigation is from another Federal entity—— 

Ms. STEPHENSON. Yes, ma’am. 

Senator COLLINS [continuing]. This is entirely different. 

Ms. STEPHENSON. Absolutely, ma’am, and that was unacceptable. 

And as I say, in hindsight that was unacceptable. I did not realize 

until Ms. Le just said right now that it was appraisals and other 

information that would not have contained contractor proprietary 

data. She should have been allowed to turn that over, no questions 

asked. I sincerely apologize to her that she was put in that situation. 

Senator COLLINS. Thank you. Very briefly, Mr. Heddell. 

Mr. HEDDELL. Yes, ma’am. Very briefly, there are three controlling points of authority here, I think, from an IG’s point of view, 

the first being the Trade Secrets Act, which does not prohibit whistleblowers or people who want to provide information from providing it to the Office of Special Counsel, as long as it is properly 

marked. And the second thing is the Whistleblower Act. It prohibits reprisal against anyone who provides information to the Office of Special Counsel. The third being the Department of Defense 

policy itself, it does not prohibit the release of contractor proprietary information to the Office of Special Counsel. 

And the only other thing that I would add, having read that 

memo, I think the threatening tone of that memo goes beyond the 

simple caution that might have been required here. And I think 

clearly it could have been interpreted as an attempt to intimidate. 

Senator COLLINS. Thank you. Thank you, Mr. Chairman. 

Chairman LIEBERMAN. Thanks, Senator Collins. Am I correct in 

assuming you do not have any more questions? 

Senator COLLINS. Correct. 

Chairman LIEBERMAN. So I am going to stay a while, but, Senator McCaskill, you are free to go on, honestly, as long as you 

want. You bring a lot to this. 

So I would just like to say, before I turn it over to Senator 

McCaskill, thank you to the witnesses. This is exactly the kind of 

oversight that this Committee was created a long time ago to do, 

to protect taxpayer money. But I would say that we could not do 

this kind of hearing without, first, the guts of Ms. Le and Mr. 

Hackler, and then the very good professional work of Mr. Kutz, Ms. 

Fischer, Mr. Heddell, and now the response of Ms. Stephenson, because ultimately we are not here to play ‘‘gotcha.’’ We are here to 

fix what is wrong. So we are going to stay with this and ask for 

regular reports from you. We have a final report coming from GAO 

sometime later this fall or early winter. And we are open to as 

much as you can do to correct the problem we have found in DCAA 

administratively and to consider also legislative fixes that may be 

necessary, including the possibility of separating DCAA from the 

Comptroller at DOD. 

I would also say, just by way of the normal announcement, that 

we are going to keep the hearing record open for 15 days for MemVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
35 

bers of the Committee to submit additional questions to you, if they 

have them, or for you to add to the record yourselves. But I thank 

you very much. 

Senator McCaskill, it is all yours. Thank you. 

Senator MCCASKILL [presiding]. Thank you, Mr. Chairman. I appreciate the opportunity. 

I have three major areas I want to cover before we conclude 

today. One is the most important area, I think, and that is, whistleblower protection. The second is performance metrics and how 

debilitating they have been to oversight within DCAA. And third 

is the most important issue, I believe, going forward, and that is, 

accountability for what has happened and what happens in the future to people who have been involved in this sordid, unbelievable 

story of failure in terms of an auditing agency. 

Let me start with whistleblower protection. First of all, Ms. Stephenson, there are many things that you have done since I read 

the GAO report that I admire, and I will be honest with you. It is 

not going to surprise me if you are a fall guy here. It is not going 

to shock me if you are the one that is removed and no one else is. 

That would be wildly inappropriate, but I am beyond being surprised at this point. And part of me thinks you did have some management failures. You should not have responded to the GAO 

audit, as we have discussed, the way you did. For any auditor looking at that GAO report, I mean, we are talking about serious sirens, bells, and whistles all going off at the same time. If I had gotten a report like that of my audit agency and I was in charge, I 

guarantee you my response would have been much different than 

yours was. And you and I talked about that, and you have acknowledged that. 

And I thought we were turning the corner in part of your testimony today until you actually had the nerve to say that the gag 

order had something to do with proprietary information. Let me 

read you the first paragraph of the memo that Ms. Thi Le received. 

‘‘On August 28, 2007, you sent an electronic message to me concerning certain agency documents in connection with an auditing 

assignment you previously performed work on. You stated your 

purpose for searching these materials was to assist you in preparing a complaint to the Office of Special Counsel.’’ 

So in the lead of the memo, Ms. Stephenson, there is acknowledgment by this supervisor that the reason Ms. Thi Le wanted this 

information had nothing to do with protecting Boeing, Lockheed, or 

any of these guys. It had everything to do with protecting the integrity of the agency she worked for. 

Now, here is the most amazing part of this gag memo: ‘‘You may 

not access such agency documents for any private purpose, including the pursuit of any complaints or other proceedings in any 

form.’’ 

Now, this is textbook whistleblower abuse within the most important audit agency in government when it comes to the massive 

amount of spending in the Department of Defense and our active 

military. 

Now, my question to you is: First, who drafted this ridiculous 

memo of August 31, 2007? Who drafted the language? Do you 

know? 

36 

Ms. STEPHENSON. My understanding is it was an attorney in our 

General Counsel’s office. I am not sure specifically which attorney. 

But it was an attorney in our General Counsel’s office. 

Senator MCCASKILL. OK. I want to find out if they have retired 

or been promoted. 

Ms. STEPHENSON. I will get back to you on that, ma’am. 

Senator MCCASKILL. Most importantly, I would like to know if 

disciplinary action has been taken against him. As a lawyer in the 

Department of Defense, if he actually had the nerve to threaten 

someone for responding to a complaint, he really has abused his 

law license. 

Ms. STEPHENSON. It was wholly inappropriate, in the context of 

the investigation of the Office of Special Counsel, to in any way inhibit an employee from providing documents, interviews, or in 

other ways interacting with those investigators. Wholly inappropriate, ma’am. 

Senator MCCASKILL. I would like to know who drafted the memo, 

who reviewed the memo before it went to Sharon Kawamoto, who 

signed it; how far up in the counsel’s office did it go; because if this 

was approved by the lawyers in the DOD counsel’s office, knowing 

what she wanted the documents for, then we have a really ‘‘rotten 

in Denmark’’ situation. 

Ms. STEPHENSON. Ma’am, I do not believe it went outside the 

agency. I will indeed confirm on that, but I do not want to implicate—— 

Senator MCCASKILL. No, I just want to know everyone who knew 

about the content of this memo—— 

Ms. STEPHENSON. I will definitely get that information for you. 

Senator MCCASKILL. And where is Sharon Kawamoto right now? 

Ms. STEPHENSON. She is, I believe, a supervisor in the Santa Ana 

branch office. 

Senator MCCASKILL. Has she been promoted since she signed 

this memo? 

Ms. STEPHENSON. She is the individual who is awaiting the promotion. 

Senator MCCASKILL. OK. And I have to understand this notion 

that she could get promoted. Explain to me what is it in the byzantine personnel policy that allows you to threaten someone who is 

trying to expose abuse in an audit agency and she cannot get promoted, but somehow the rules say you have to promote this 

woman, after we know she is a supervisor who participated in the 

problem? 

Ms. STEPHENSON. Ma’am, I do not think that Ms. Kawamoto was 

the one who wanted to issue that memo. It went out under her signature based on the input from the General Counsel’s office to the 

employee because she was indeed the employee’s supervisor. I do 

not think she played any part in preparing that memo. 

Senator MCCASKILL. OK. 

Ms. STEPHENSON. I will definitely confirm. My understanding is 

that was prepared by the General Counsel’s office. It merely went 

out under her signature. I will get that confirmed, though. 

Senator MCCASKILL. Would it be a ridiculous notion for accountability that we would, in fact, require the person who owns the lanVerDate Nov 24 2008 14:44 May 13, 2010 Jkt 045573 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 P:\DOCS\45573.TXT SAFFAIRS PsN: PAT
37 

1The memorandum for Diem Thi Le appears in the Appendix on page 102. 

guage to sign the language within DCAA, which is all about accountability? 

Ms. STEPHENSON. I will certainly look into that. You raise an absolutely good question as to whether that should have been signed 

by the General Counsel versus the supervisor. 

Senator MCCASKILL. Yes. I mean, if this poor woman, if she is 

blameless here and she was told to sign her name to this, the only 

purpose you do that is to hide the person who is responsible for it. 

And DCAA is supposed to be about transparency and accountability. So it seems to me if somebody is going to sign a memo to 

a whistleblower that basically says, ‘‘You are in big trouble if you 

say anything to anybody,’’ which is what this memo said——it basically said ‘‘Sit down and shut up, or you are in trouble.’’ 

Whoever is responsible for that language—there needs to be a 

change at DCAA, and I will take this up with Tina Jonas and Secretary Gates if I have to—they need to own the language. They 

should not hide behind the skirts of a line supervisor. And we will 

figure out who it is, and I will make sure that they are not allowed 

to hide behind the skirts. 

Let me say for the record, for any auditor in government that 

wants to be protected as a whistleblower, please call my office. We 

will make sure that you are protected. It is a felony in Missouri for 

one of my auditors to expose a whistleblower. My auditors could 

have gone to prison if they exposed a government whistleblower in 

the agency I ran. And to say that Ms. Thi Le got exposed as a 

whistleblower because it was a routine complaint, as you have 

said—and I appreciate your testimony in that regard that this was 

anything but routine, that somebody is changing audit findings 

without any factual basis, to do so at the premier audit agency in 

the Department of Defense should set off sirens. And the fact that 

it was considered routine by people who were answering that hotline showed that it is a very cold, frigid hotline. We need to change 

it to the ‘‘cold-line,’’ not the hotline. I understand Hurricane 

Katrina was in process, and I understand the responsibilities there. 

But I have to impress upon you, Inspector General, that if we are 

getting these kinds of complaints and they are being characterized 

as ‘‘routine,’’ that is part of the culture that is a problem; the massive abuse of an audit agency in terms of government dollars is 

really a problem. 

We will enter this memo into the record of the hearing so it is 

part of the public record, the memo that Ms. Thi Le received that 

basically told her to be quiet or consider herself in peril.1

Have you taken any specific actions, Inspector General to protect 

the identity of whistleblowers in light of this incident? 

Mr. HEDDELL. Well, I have certainly addressed the issue of how 

we handle hotline complaints, Senator McCaskill. Again, being an 

Inspector General for 8 years, I can tell you there are not many 

things that are more important to an Inspector General than protecting the rights of whistleblowers, and that is first and foremost, 

and it has been for the extent of my career as an Inspector General. It always will be the most important thing that I deal with 

38 

when it comes to taking care of the people who provide important 

information to us. 

Senator MCCASKILL. Well, I hope that you make a demonstrable 

effort that is documented and that you explain to the people who 

are working in connection with the hotline that the identity of a 

whistleblower is a sacred thing because once this happened, I hope 

today will be a cleanser for the other auditors at DCAA—I will tell 

you by the phone calls I am getting, there is a great deal of fear 

in your agency right now. I do think this is the tip of the iceberg. 

I do think the GAO comprehensive audit work is going to find that 

there were kinds of pressures that were being put on auditors 

across the country in terms of these performance metrics. 

Let me move into the performance metrics. I am curious about 

who decides what these performance metrics are. Can you speak to 

that, Ms. Stephenson? Who decided that an important performance 

metric was cost per direct audit hour goal? 

Ms. STEPHENSON. That was a decision by the Executive Steering 

Committee of DCAA, which is comprised of the Director, the Deputy Director, the Regional Directors, and our Assistant Directors at 

headquarters. It is about 12 to 13 people. Some of those metrics 

have been in place for many years. Many were put in place in the 

mid-1990s with the National Performance Review, with a significant reduction in DCAA staff. 

To put it bluntly, cheaper, faster, better. 

Some of those metrics, if not all of them, we are revisiting. We 

are in 2008. I do not know if those metrics are good metrics today. 

They may have been metrics that were good in the mid-1990s to 

demonstrate that DCAA was performing efficient audits, meeting 

productivity goals cheaper than other organizations. 

Times have changed. We need to ensure that our goals are focusing in on the quality audits and on the questioned cost. We have 

attempted to turn the corner on this. We do have a team in process 

right now, and I will be honest, we are relying heavily on feedback 

from our field auditors. They are the individuals that are having 

these metrics put on them. I was a field auditor. I was a field supervisor and manager. I know what the scorecard is all about, and 

I will tell you, I had lots of red on my scorecard because I would 

not compromise audit quality. 

Senator MCCASKILL. Well, how did you get promoted? 

Ms. STEPHENSON. Because I had good explanations, I had good 

findings. I explained why I may have missed a metric. And in 

many instances, it was because we had a multi-billion-dollar item 

we were questioning and it needed more time, or it may have been 

we had an inadequate accounting system that needed more time. 

I was able to explain why we missed it. 

Senator MCCASKILL. These people were not even given an opportunity to explain. 

Ms. STEPHENSON. I cannot answer that, ma’am. That was not 

right. They should have been given an opportunity. And the value 

in the metric is in measuring—when we miss it or when we have 

a deviation, the improvement comes from the evaluation. So it is 

looking at what happened. It is not the red, yellow, green that matters. In fact, I would even say if someone had an entirely green 

39 

scorecard—and I said this as a regional director—that would be the 

first office I would visit because there is something wrong. 

Senator MCCASKILL. Well, then let me ask you—this sounds 

great, but obviously the system failed. 

Ms. STEPHENSON. Yes, ma’am. 

Senator MCCASKILL. And I think the system is failing. I think 

the performance metrics are not the right ones, and I think the culture of this agency has been about this red, yellow, or green scorecard, as opposed to how well the audits accomplish the goal of saving money. And maybe the most important metric would be measuring how much money you save by the audits? 

Ms. STEPHENSON. That was one of our metrics that we had, our 

net savings. 

Senator MCCASKILL. Yes, well, I have counted. It is mentioned 

twice in here. There is page after page about how you are cheaper 

than private auditors. Clearly, this started in the 1990s because 

you were worried that one of the big accounting firms was going 

to take the business. You were worried about Peat Marwick or 

somebody taking over, I assume. And then there is page after page 

after page about how quickly you do the audits and how many 

hours each audit takes, but literally, I mean, there are two sentences about money saved. And, by the way, let me talk about 

those savings. What is the metric in GAO of how many dollars you 

save per dollar of your budget? 

Mr. KUTZ. It is about $94, is the last estimate. 

Senator MCCASKILL. DCAA is at $5. And you ought to be shooting fish in a barrel. I mean, literally, the audits you do, I start salivating thinking about how much money is involved and the savings 

that are potentially there. And I would like you all to speak to that, 

Ms. Thi Le and Mr. Hackler. I think DCAA did $300 billion in 

audit work in fiscal year 2006, and I think the return on that was 

2 percent. You are saving $5 in return for every $1 you spend as 

opposed to $94 for every dollar spent in GAO. And I have to tell 

you, from where I sit and looking at the kind of audits GAO does 

and how many of them do not have the richness that you have in 

terms—I mean, the one audit you did, Mr. Hackler, was $276 million. That is more than half of DCAA’s annual budget. That is a 

huge return. And basically that finding was just chopped off without cause. 

Would you all speak to how, if you have been there 17 years— 

and how long did you say you had been there, Mr. Hackler? 

Mr. HACKLER. Twenty-five. 

Senator MCCASKILL. OK. Talk to me about savings and what 

kind of promotions happen if you save a bunch of money for the 

government? 

Mr. HACKLER. Savings are not nearly emphasized the way they 

were when I joined the agency. I believe back at that time we were 

saving in the $35 per $1 range. People do not get promoted because 

they have good savings anymore. They get promoted because they 

make metrics, because they make the customer happy. 

We did a climate survey in DCAA several years ago: What do you 

think of your boss? What do you think of your input? Is the agency 

doing the right thing? The agency could not stand to see the results 

of that. 

40 

Senator MCCASKILL. And when was this done? 

Mr. HACKLER. Five years ago. It asked about a couple dozen 

questions, and a 1 was a poor response, a 5 would be a very good 

response. And with the cumulative results that came back from 

that, the agency decided, well, this is pretty bad, we had better just 

address the items that came back as a 1. And we have not seen 

another climate survey since. 

Senator MCCASKILL. Ms. Thi Le, what about savings? In your experience, when did this shift occur? It used to be important how 

much money you were saving the government, and then it became 

how quickly you were doing the audits and how timely the audits 

were produced. 

Ms. LE. Back in the good old days, as I used to say, when I first 

joined the agency in 1989, the emphasis was on savings, how much 

money we save for the government. But starting in the early 1990s, 

the emphasis changed into do we issue the audit report within a 

certain time frame or do we meet the performance metric that we 

reduce the hours? So, lately, to be honest with you, I do not think 

of savings anymore. I think of how I am going to meet the due 

date, how I am going to meet the budgeted hours. And unless I am 

willing—and I have been—to work on my own time on weekends, 

I cannot finish within the certain hours. And at the year end, when 

my performance gets rated, my supervisor will run through a summary of the audits that I completed during the year and how much 

a percentage I ran over the budget, and if I ran over more than 

10 percent, I got dinged. 

Senator MCCASKILL. And there was never any discussion about 

how much money you saved on any of the audits? 

Ms. LE. No, ma’am. 

Senator MCCASKILL. Talk to me a little bit about customer satisfaction. When did this notion—and, by the way, I noticed in the 

‘‘Expect More’’ that I read that one of the action plans was to make 

sure they deployed more resources in keeping the client happy. 

They bragged about personnel being deployed into the procurement 

offices to make sure that the procurement officers were really 

happy. When did all that happen? When did all of a sudden keeping the people that were buying stuff in the branches of the military happy, when did that happen? 

Mr. HACKLER. Some years ago—I will say 5 to 10—we used to 

have what we called procurement liaison auditors, and we had 

about a dozen of them over the years. And we would have a DCAA 

employee at the major buying commands, and he would interpret 

audit reports and coordinate with the offices and stuff. Perhaps 5 

to 8 years ago, we increased that number to well over 100. I spent 

many hours upon hours during those ELC proposal reviews arguing with my co-workers that were in these financial liaison audit 

positions who were trying to convince me to give up findings. It 

was not just upper management. 

Senator MCCASKILL. So what they have created—I want to make 

sure I understand this. Let’s say we have a procurement officer at 

the Navy, or the Air Force. Since we have had a lot of Air Force 

procurement problems, let’s use the Air Force. You start with a 

procurement officer at the Air Force. Then you have a field auditor—and what you are telling me is that as the field auditor found 

41 

problems with a contractor for the Air Force, then the person that 

was the go-between between the Air Force procurement people and 

the audit agency was, in fact, an employee of your agency. 

Mr. HACKLER. Yes. 

Senator MCCASKILL. And their job was to somehow reconcile the 

two? I mean, what is their job? Just to make these guys feel 

happy? Warm and fuzzy? 

Mr. HACKLER. Well, I think it started out to interpret DCAA 

audit positions, but what it turned out to be and what it has become is they aligned themselves with the buying command, and 

customer satisfaction becomes more important than doing the right 

thing, than telling the right story, than bringing up the appropriate 

exceptions that we find in the audit reports, what it takes to get 

it under contract. Buying commands are measured by putting dollars under contract—— 

Senator MCCASKILL. That is their performance metric. 

Mr. HACKLER. That is theirs. Not whether they get a good deal 

or save taxpayer dollars. 

Senator MCCASKILL. So who is the person who can change performance metrics? Give me their name. 

Ms. STEPHENSON. Ma’am, I can. 

Senator MCCASKILL. You can? Can you do it like tomorrow? 

Ms. STEPHENSON. I have put a team together, and we are assessing what are the appropriate metrics to use. We are anticipating 

having our analysis done by the end of this month. I have one of 

my highest senior executives within my headquarters that is leading this team, and I have tapped into many field resources to give 

us feedback. We will be changing our metrics by the end of this 

month. 

Senator MCCASKILL. Now, who has the authority to decide that 

customer satisfaction should be changed and we should move all 

these people that are out there trying to make these buyers happy 

into being field auditors trying to save taxpayer money? Who has 

the authority to do that? 

Ms. STEPHENSON. Let me first clarify what these positions are 

about, and I give my apologies to Mr. Hackler if he has experienced 

the negative feedback that he described here. That is not the role 

of our financial liaison advisers to fight with the field audit offices 

(FAOs) and the supervisors and the auditors. It is to facilitate. 

These financial liaison advisers are put into the buying commands 

to help identify the types of audits that are needed, to help interpret the audit results, and to facilitate additional audits that need 

to be done, not to stop audits from being done. It is to say which 

additional ones do you need in this circumstance. 

Second, our customer service surveys that we do with our customers are not about whether they are happy with our findings. It 

is not to say that if a clean report is making them happy, that is 

not what we are measuring. We are measuring to ensure that they 

understood the report; that we provided the results in an easy-tounderstand manner for the contracting officer; that we were timely 

in describing what those issues may have been; if we needed a due 

date extension, we were timely in that discussion. 

I would really ask that Mr. Hackler after this hearing give me 

the input on that person that he said fought with him because that 

42 

is not right and that is not what our financial liaison advisers are 

there for. They are to help our field offices in facilitating their audits, and they are to assist the buying commands in understanding 

what additional audit services they may need. 

Senator MCCASKILL. Well, let me make a suggestion. A dollar bet 

you a dime that if customer satisfaction is one of the performance 

metrics, and performance metrics is how you get promoted, then 

customer satisfaction is this big deal. Satisfaction means they are 

happy, and how you make buyers happy is by audits that say they 

have done everything right. That is how you make buyers happy. 

Ms. STEPHENSON. I would—— 

Senator MCCASKILL. And so what I am saying is I guarantee you 

Mr. Hackler is not saying this is an outlier. Interrupt me if I am 

misrepresenting your testimony, Mr. Hackler, or what you believe 

is the culture. I believe the culture has, in fact, been driven by a 

notion that you make the buyers happy. And if the buyers cannot 

understand the audits, then we have got a problem with our procurement force because an audit—and that is a performance metric 

I would agree with. If you cannot write an audit so that the people 

that are going to consume the audit can understand it, then you 

have got a performance issue with an auditor. Every auditor must 

be able to express their findings in a way that is understandable. 

And I have got to tell you, I have looked at a lot of DCAA audits, 

and other than having to get out a book to figure out what all the 

initials stand for, you can follow them. And I am not a buyer. 

So I guess I am a little skeptical, Ms. Stephenson, that the culture that has grown up around page after page of customer satisfaction is that they are just identifying the next audit. If they are 

just identifying the next audit, they do not need to be arguing with 

Mr. Hackler about a finding. 

Ms. STEPHENSON. Ma’am, I opened this up today for the record 

that if there is any DCAA employee that feels our financial liaison 

advisers are not there to facilitate their audits and to facilitate the 

sustaining of our audits, I would like that person to give me a personal phone call or a personal e-mail. I will not take their name 

anywhere, and I will immediately rectify that situation. 

Senator MCCASKILL. OK, great. 

Ms. STEPHENSON. Open this for the record, ma’am. 

Senator MCCASKILL. That is great. Now, let me move on to performance metrics as it relates to being promoted. You said you had 

a lot of red marks and you got promoted. I imagine there are a lot 

of auditors out there listening to this that feel like you won the lottery because I do not believe fundamentally that people get promoted who get a lot of red. I think people get promoted who have 

a lot of green, or maybe some yellow and green. 

I guess what I would like to know is in the current management 

staff at DCAA, all of those people who have been promoted within 

the last 5 years—I do not need to know their names, but I would 

like somebody to submit for the record how many of them had essentially green records under the performance metrics and how 

many of them would have a record that would indicate that they 

were actually trying to stir the pot. That is, I think, something that 

is very important. And if either of you are willing to speak to that 

in that regard, I would appreciate it for the record. 

43 

Ms. LE. Senator McCaskill, in my experience the last couple 

years, I do not think I have seen any person who has been promoted because he had a red card but rather because he had a 

green card. That is just my personal observation and experience. 

I also would like to take this opportunity to go back to your previous question about how you think this culture developed. I think 

the culture beholden to performance metrics developed starting in 

the early 1990s. And in the early 1990s, the former Director, Bill 

Reed, went around all the DCAA offices, telling us that there was 

talk in Congress to privatize our agency and if we do not become 

a lean and mean machine, we would lose our jobs. 

Looking back, I think that was a scare tactic because then we became afraid of losing our jobs, and we began to accept the metrics. 

And as you know, once you push it, you can push further and further because the fear is if you do not do it, you do not meet the 

metrics, we are going to lose our jobs. 

And let me tell you, you hit it right. We are the audit agency. 

We are supposed to be an independent agency. And our role should 

be advisory, not to be a partner in the process, but to advise the 

procurement office and contracting officer so that we can get reasonable costs for government contracts. We should not be pressured 

by those officers because they have the need to negotiate a contract 

to get the parts. And because of that, we lose independence because, let me tell you, if I am performing an audit and I know that 

I have to turn this in in 25 days or 30 days because somebody else 

is waiting for that audit report, if I found a problem, I would not 

want to bring it up. And right there is the independence issue. I 

would not want to explore it further, follow my instinct because by 

doing so, I would not get the audit out in 25 days or 30 days and 

my customer is not happy. 

Another thing is that also because of the performance metrics on 

the audit hours, I would not want to explore the potential problem 

because I would run against the budgeted hours. 

Senator MCCASKILL. Right. 

Ms. LE. I am just an auditor at a small branch office. Of course, 

I do not see the whole picture. But it is my opinion that I do not 

think we should really belong to DOD. And maybe that is a white 

card out there, but this is, again, my opinion, that how could you 

audit DOD contracts? And you are supposed to be independent, but 

you are reporting to the same person. Just like Ms. April Stephenson has stated earlier—and I fully agree with her, I think she took 

a very corrective action—we have a Quality Assurance Department 

in our Agency, and it used to be that it was at the regional level. 

There is an Office of Quality Assurance, and they used to report 

to the regional director. Now, if you are going to report to your regional director and tell him what is wrong with your region, you 

cannot be independent. But since then, a change DCAA has made, 

if I understood it correctly, is that the Quality Assurance Division 

now reports directly to the headquarters. I think that is a great 

thing. 

Senator MCCASKILL. Good. 

Ms. LE. The same thing with DCAA, and again, I do not see the 

whole picture, but it is my opinion we cannot audit the DOD at the 

44 

same time we are reporting to DOD. I think that is a conflict of 

interest there. 

Senator MCCASKILL. Mr. Kutz, probably I should ask the Acting 

Comptroller this. Should DCAA be a division of GAO as opposed 

to working for DOD? 

Mr. KUTZ. I cannot answer that, but I think that her point about 

whether it should be in a different place, either within DOD or outside of DOD, should be on the table here for discussion. 

Senator MCCASKILL. Ms. Stephenson, what do you think? Should 

we remove it from the chain of command at DOD and put it so that 

it can have more independence? 

Ms. STEPHENSON. I am along with Mr. Kutz. I would certainly 

support an evaluation. 

Senator MCCASKILL. OK, great. How about you, Inspector General, DOD? 

Mr. HEDDELL. I do not have the answer to that, but if you look 

at it from the standpoint of the Inspector General community, Inspectors General are assigned at individual departments, but the 

law, the Inspector General Act, gives us independence. And so it 

works there when the Inspectors General—— 

Senator MCCASKILL. Most times it works. 

Mr. HEDDELL. When they are doing their jobs, it works mostly. 

Senator MCCASKILL. As long as you have an IG that pays attention to the counsel. And we have a few rogues right now, as you 

know, where the counsel has recommended disciplinary action, and 

these yahoos, a couple of them, have stayed in their jobs, even 

though everybody knows that they have not done the title proud 

as an Inspector General. But the vast majority of the time, I agree 

with you. I think the Inspector General community, by and large, 

is professional, independent, and does the appropriate thing in 

most instances. 

And, by the way, let me say for the record I think in most instances at DCAA you have got strong, capable auditors that are 

doing the right thing. 

Ms. STEPHENSON. I fully concur. 

Senator MCCASKILL. And I absolutely do not believe this cultural 

problem is one that comes from people being dishonest or playing 

footsie with contractors. I think it comes from a set of phony performance metrics that have put inordinate pressure at the wrong 

place. And that can be fixed by a changing of the culture, by telling 

these auditors that they are going to be celebrated and promoted 

for the money they save taxpayers as opposed to making the guys 

who want this stuff happy or as opposed to doing it really quickly. 

Ms. STEPHENSON. And, ma’am, can I address that? Having been 

a regional director, there were times when I had offices that had 

quality problems. I told those managers to put the scorecard away 

because the measures of whether we were performing the right audits and whether our people were getting the right training was 

our audit reports. And that is what we needed to focus on. And regardless of the hours, we need to focus on that. We needed to train 

our people properly. We needed to ensure they had the right supervision, including the fact that these teams were not too large for 

oversight. It needed to be smaller teams. 

45 

I completely recognized that, and that is the way I ran my region. And that is the way I envision running the agency. 

Senator MCCASKILL. That is terrific, and if you are going to be 

bold—— 

Ms. STEPHENSON. Absolutely, ma’am. 

Senator MCCASKILL. If you are going to be bold, you have got a 

shot. But if you are not bold, that is not going to happen. 

Ms. STEPHENSON. And in many of these metrics, it was misapplication. Metrics such as 30 days on forward pricing, that was 

never intended to be a ceiling. That was merely an intention of 

measuring whether we were providing information in a timely 

manner. We have had a number of audit reports this year that 

have been issued far in excess of 30 days, and those have been very 

large dollar ones. And that is absolutely the right thing to do. 

And, again, for this record—and this is a good opportunity for me 

to ensure the acquisition workforce and my own workforce knows, 

I stand behind doing the audits appropriately, 30 days or not. 

Senator MCCASKILL. And I know that you have stated very 

strongly today, repeatedly, how committed you are to fixing these 

problems. And, obviously, we are going to be watching very closely. 

And I have now all kinds of lines of communication into your agency that we will maintain to make sure that is happening, not just 

what we are told by the people at the top but what we are learning 

from deep within the agency, from the auditors that are doing this 

heroic work day in and day out. 

Let me briefly go on to accountability before we close this today, 

and I will have additional questions for the record, probably for all 

of you. But on accountability, there are two kinds of accountability 

that have to happen here: One is for the personnel involved in this 

mess, and second is for the money that is potentially collected. 

Now, I have got to tell you, it sounded a little bit like the Tooth 

Fairy to me, Ms. Stephenson, when you said that there is some potential of recovering the $276 million from Boeing. I mean, I do not 

think there is any way that is going to happen, is there, Mr. Hackler? 

Mr. HACKLER. Not the way it is going today. There is a re-review 

of the ELC proposal within the office, but they are looking at the 

wrong things. They are only looking at the exceptions we were allowed to report in the initial ELC proposal which related to Cost 

Accounting Standard 406. But I was commanded, if you will, at the 

outset of that audit that we are not going to mention estimating 

deficiencies, we are not getting into Cost Accounting Standard 418. 

There are some major regulation violations that are not being 

looked at the second time around. 

Senator MCCASKILL. And what do you attribute that to? 

Mr. HACKLER. Too much control of the person that directed the 

audit opinion in the first place. 

Senator MCCASKILL. Well, that is really problematic. 

Ms. STEPHENSON. Absolutely, ma’am. In fact, I will invite Mr. 

Hackler right now to set up those assignments that he feels are 

necessary to fully investigate this issue so that we can get the 

recoupment under the Cost Accounting Standards because that is 

the avenue for the recoupment here. 

46 

Senator MCCASKILL. Now we could fix this if we had a hearing 

every day. 

The boss just said that whoever told you that was wrong. Now, 

I will follow up and see what happens. But there is accountability 

there. Whoever told him that should be demoted or fired. Whoever 

was involved in removing findings without any working papers to 

back it up should be demoted or fired. And I am waiting. Nobody 

has been demoted. Nobody has been fired. In fact, just the opposite. 

People have been promoted. 

So that is a failure in accountability—complete, total, and abject 

failure in accountability. And that should be a performance metric, 

that when people make mistakes that absolutely crush the credibility of an organization whose lifeline is credibility, something has 

to happen to them, whether it is the pretend lawyer who wrote this 

gag order or whether it is the supervisor who took out findings 

without any cause. And I will not be satisfied in this regard until 

someone is held accountable. It is just not fair to this auditor that 

her performance reviews dropped 20, 30 points overnight after 17 

years of hard work. She was held accountable for trying to do her 

job, but the people who were failing in their jobs have not been 

held accountable. That is upside down. 

And so this is the first chapter of what, I hope, will be many 

chapters toward a happy ending at DCAA, including the kind of 

independence that they need, the resources they need, and the performance metrics that celebrate the taxpayer instead of defense 

contractors and procurement officers. 

One other question I will have for the record that I will mention 

now is how many people who have retired from DCAA have gone 

to work for defense contractors? I would love to know if there is 

any way we could figure that out, and we will direct that to all of 

you through the record and see if we can figure that out. 

I do not think that is the big problem, though. My sense is the 

problem is not pleasing the contractors. The problem is a culture 

that went haywire. It just goes to show you—and I read all those 

books in the 1990s about government performance metrics and I 

began performance audits. Performance metrics are only as good as 

the metric itself and the testing of the metrics because the irony 

of this is that one of the metrics is peer review. And, clearly, peer 

review failed here. It does not happen very often that peer review 

fails, because normally the auditing profession takes peer review 

really seriously. And we will continue to follow up as to why the 

peer review failed in this instance because, clearly, it failed. This 

was a textbook example of where peer review should have done its 

job and said something is rotten here, and it did not. 

So I really appreciate all of you being here. I think you are all 

good, solid Americans, and I know I have been very hard on you, 

Ms. Stephenson, and it is not because I do not have a lot of sympathy for the situation you find yourself in. You are new on the 

job—both of you, the Inspector General at DOD and you, Ms. Stephenson, are new on your jobs. And you have inherited a myriad 

of problems. And I will be here to try to provide the accountability, 

but also to provide moral support and help anywhere I can to make 

this better. 

47 

I believe very much in auditing. I believe very much in accountability. I refuse to give up on DOD. Many people who have come 

through these doors have given up. And I refuse to give up. I know 

we can make it better. And I appreciate all of you very much, and 

this hearing is adjourned. 

Ms. STEPHENSON. Thank you, ma’am. 

[Whereupon, at 12:43 a.m., the Committee was adjourned.] 

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