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INSIDE WASHINGTON: Auditors go easy on contractors

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WASHINGTON — Instead of seeing red, Pentagon audit managers saw business as usual after being told that a major military contractor failed to open all its books for review.

At a meeting of Defense Contract Audit Agency staff in California last May, auditor Acacia Rodriguez used a 24-page PowerPoint briefing to describe how she and her co-workers struggled with the Bechtel Group's "chronic failure" to provide the financial records required to prove tax dollars were being spent properly.

"Mtn View, we have a problem!!!" said one of Rodriguez's briefing charts, a shorthand reference to the audit agency's branch office in Mountain View, outside San Francisco.

If her bosses were upset over the contractor's foot-dragging, they didn't show it, according to an auditor who attended the meeting, which included Christopher Andrezze, director of the agency's Western region.

Five days later, the agency issued a report rating Bechtel's internal accounting procedures as "adequate," a passing grade that meant defense auditors could ease up on the company. The report made no mention of the records delays.

DCAA is the first line of defense for the public in policing billions of dollars in defense contracts awarded by the government's top-spending department. In theory, the audit agency has extensive powers, including withholding payments and issuing subpoenas, to force contractors to provide the necessary information.

The reality is quite different.

The Bechtel episode illustrates how tolerant the agency can be when defense contractors slow the government's access to paper records and databases. There is no way to know how often DCAA withholds payments because it does not keep track. And it has not used its subpoena power in 20 years.

"We have been basically on the trust system for years," said the auditor who attended the May meeting. "It did not work on Wall Street and it is not working for federal contracts," said the two-decade veteran of the agency who spoke on condition of anonymity because DCAA employees are not allowed to publicly discuss their work.

Negotiation, not confrontation, is the usual method for prying hard-to-get data loose from companies that make weapons or support troops in Iraq and Afghanistan. But the numbers show that approach is too cozy when the need for tough oversight is greater than ever.

In 2007 alone, DCAA performed nearly 34,000 audits covering $391 billion in contractor costs. Of that total, auditors challenged $4.6 billion, or 1.2 percent, as lacking necessary documentation. The question is, how much more could they have caught?

"I start salivating thinking about how much money is involved and the savings that are potentially there," Sen. Claire McCaskill, D-Mo., said at a congressional hearing in September.

Compared with other federal oversight organizations, such as the Government Accountability Office, DCAA's return on investment is weak. For every dollar GAO spends, it saves taxpayers $94. At DCAA, the ratio is $5 saved for every one spent.

DCAA officials declined to be interviewed for this story. In an e-mailed response to questions, Pentagon spokesman Darryn James said contractor delays and refusals to provide records are not extensive problems.

He acknowledged there are times when contractors have to be reminded to provide information. Records disputes are handled at the lowest possible level by the nearly 3,500 defense auditors in the U.S. and overseas, James said. Officials at the agency's headquarters at Fort Belvoir, Va., have had to step in just four times since 2003, he said. All four disagreements were settled without going to court.

"It should be considered a success that DCAA has been able to get the information it needs without having to resort to subpoena authority," James said.

James described the Bechtel situation as an unusual case that was resolved after the agency and the company worked out a way to answer auditor requests for records more promptly.

But an e-mail exchange between DCAA employees in early 2006 indicates the problems with Bechtel were long-standing. "This is the slowest responding (contractor) that I've been at," reads the message from early 2006, provided to The Associated Press on the condition that the employees not be named. "You would be unnerved to know that some of my data request (sic) here have been outstanding for more than six months!!!"

Based in San Francisco, Bechtel is an engineering and construction company that has won just under $10 billion in Defense Department work since 2000, according to FedSpending.org, a Web site created by the public-interest group OMB Watch to track government contracts.

Bechtel spokesman Francis Canavan said the company has a "long record" of working with DCAA. He said there have been occasional delays in locating older records. "We're not aware of any findings that these delays adversely impacted the audits," Canavan said.

Bechtel is not the only trouble spot, according to internal agency documents.

_In September, two auditors traded e-mail complaints about Raytheon, one of the largest U.S. manufacturers of military weapons. "It is not possible to do quality audits under such an environment," one message said. "It is an endless battle," a second said. Raytheon did not respond to a request for comment from the AP.

_Northrop Grumman, which did more than $20 billion in business with the Pentagon in 2007, has refused to give DCAA access to minutes from meetings of the audit committee that reports to the company's board of directors, according to an internal DCAA memo dated Oct. 29. Randy Belote, a Northrop Grumman spokesman, declined comment, saying the issue "is part of an ongoing legal review within the company."

DCAA, formed in 1965, has long been viewed as a bulwark against waste and fraud. Its reputation took a hit this summer after an investigation by the GAO found that supervisors improperly influenced audits to favor contractors. Auditors also were pressured to close audits early in order to meet productivity goals, the GAO report said.

The report mentioned records access problems only in passing. Boeing, a defense giant, did not give auditors the necessary detail to trace costs on a $1 billion space-launch contract, it said. Boeing spokesman Joe Tedino said the company did nothing improper.

"In the end, contractors are getting away with murder" because they know auditors are pushed to complete audits quickly, Diem Thi Le, a senior auditor at DCAA, said at a Sept. 10 congressional hearing on the GAO report. In November 2005, Le reported allegations of misconduct by managers. Her complaints led to the GAO inquiry.

DCAA Director April Stephenson told lawmakers the agency is taking the report seriously and addressing the shortcomings.

The fault isn't all DCAA's, procurement experts say. The agency doesn't always press contractors hard because its actions may not be backed up at the top levels of the Defense Department.

That's especially true for high-profile contracts supporting operations in Iraq and Afghanistan. In one example, department officials overruled auditors who objected to nearly $1 billion in payments to KBR, the Houston-based contractor that supplies U.S. troops with food and housing.

"DCAA finds few friends," said Richard C. Loeb, an adjunct professor of government contract law at the University of Baltimore Law School. "Their work is not appreciated the way it should be."

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On the Net:

Defense Contract Audit Agency: http://www.dcaa.mil/