[Senate Hearing 111-945]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 111-945

     DEFENSE CONTRACT AUDIT AGENCY: WHO IS RESPONSIBLE FOR REFORM?

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                                 of the

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 23, 2009

                               __________

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

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20402-0001






        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware           JOHN McCAIN, Arizona
MARK L. PRYOR, Arkansas              GEORGE V. VOINOVICH, Ohio
MARY L. LANDRIEU, Louisiana          JOHN ENSIGN, Nevada
CLAIRE McCASKILL, Missouri           LINDSEY GRAHAM, South Carolina
JON TESTER, Montana                  ROBERT F. BENNETT, Utah
ROLAND W. BURRIS, Illinois
MICHAEL F. BENNET, Colorado

                  Michael L. Alexander, Staff Director
                         Troy H. Cribb, Counsel
                     Paula Haurilesko, GAO Detailee
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
          Molly A. Wilkinson, Minority Deputy General Counsel
                   Eric B. Cho, Minority GSA Detailee
                  Trina Driessnack Tyrer, Chief Clerk
         Patricia R. Hogan, Publications Clerk and GPO Detailee
                    Laura W. Kilbride, Hearing Clerk









                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator Coburn...............................................    20
    Senator McCaskill............................................    22
    Senator Burris...............................................    24
Prepared statements:
    Senator Lieberman............................................    31
    Senator Collins..............................................    34

                               WITNESSES
                     Wednesday, September 23, 2009

Gregory D. Kutz, Managing Director, Forensic Audits and Special 
  Investigations, U.S. Government Accountability Office, 
  accompanied by Gayle L. Fischer, Assistant Director, Financial 
  Management and Assurance, U.S. Government Accountability Office     5
Hon. Gordon S. Heddell, Inspector General, U.S. Department of 
  Defense........................................................     7
Hon. Robert F. Hale, Under Secretary of Defense (Comptroller) and 
  Chief Financial Officer, U.S. Department of Defense............     9
April G. Stephenson, Director, Defense Contract Audit Agency, 
  U.S. Department of Defense.....................................    11

                     Alphabetical List of Witnesses

Hale, Robert F.:
    Testimony....................................................     9
    Prepared statement...........................................    66
Heddell, Gordon S., Hon.:
    Testimony....................................................     7
    Prepared statement...........................................    56
Kutz, Gregory D.:
    Testimony....................................................     5
    Prepared statement of Mr. Kutz and Ms. Fisher................    37
Stephenson, April G.:
    Testimony....................................................    11
    Prepared statement with an attachment........................    69

                                APPENDIX

Responses to post-hearing questions for the Record from:
    Mr. Kutz.....................................................    86
    Mr. Heddell..................................................    99
    Mr. Hale.....................................................   107
    Ms. Stephenson...............................................   114

GAO report titled ``DCAA Audits: Widespread Problems with Audit 
  Quality Require Significant Reform,'' GAO-09-468, September 23, 
  2009...........................................................   134

 
     DEFENSE CONTRACT AUDIT AGENCY: WHO IS RESPONSIBLE FOR REFORM?

                              ----------                              


                     WEDNESDAY, SEPTEMBER 23, 2009

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, McCaskill, Burris, Collins, 
and Coburn.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. The hearing will come to order. Good 
morning to all who are here. Welcome to this hearing where we 
are going to examine the potential that billions of taxpayer 
dollars are at risk of being wasted because of the inadequate 
auditing procedures at the Defense Contract Audit Agency 
(DCAA).
    DCAA has 300 offices and 3,800 auditors throughout the 
United States and the world. Just to give you a sense of the 
scope of their responsibilities, in fiscal year 2008, which is 
the last one obviously for which I have complete data, DCAA did 
more than 30,000 audits covering $501 billion in proposed or 
claimed contracts. That is a lot of audits with a lot of money, 
and therefore, what it does or does not do well is of great 
consequence to the taxpayers.
    A year ago, our Committee heard from the Government 
Accountability Office (GAO) and two auditors, whistleblowers, 
if you will, from DCAA about alarming problems in the Western 
Region of DCAA. We heard and then found that there was 
widespread failure in meeting professional auditing standards 
in that region. Time after time, DCAA had issued clean audits 
of contractors that were simply not supported by the underlying 
audit work. In some cases, supervisors had even overturned the 
audit findings of subordinates without a justification for 
their decisions.
    Because Senator Collins and I were concerned that these 
problems in the Western Region might be symptoms of a larger 
systemic breakdown rather than just a regional one, we, joined 
by Senator McCaskill, asked the GAO to do a review across all 
the regions of DCAA, and today we are going to hear the results 
of that review.\1\
---------------------------------------------------------------------------
    \1\ The GAO report referenced by Chairman Lieberman appears in the 
Appendix on page 134.
---------------------------------------------------------------------------
    I am sorry to say that GAO has found similar problems just 
about everywhere DCAA operates. I will just highlight some of 
the findings because I know Mr. Kutz will speak to them in 
detail.
    Each and every audit that GAO reviewed for this report was 
out of compliance with auditing standards, most with very 
serious deficiencies. As an example, in one case, a supervisor 
directed audit staff to delete some audit documents, generate 
others, and copy the signature of a prior supervisor onto the 
new documents and then issued a clean audit opinion. This 
supervisor was later promoted to Western Region Quality 
Assurance Manager, responsible for the quality control of 
thousands of audits.
    One auditor asked supervisors for permission to spend more 
time on an audit of a contractor known to be under criminal 
investigation for fraud. The auditor ultimately drafted a 
negative opinion that was overturned by supervisors who then, 
rather than praise the auditor's efforts, lowered his 
performance appraisal for performing too much testing and 
exceeding budgeted hours.
    In an audit of one of the Department of Defense's (DOD) 
largest contractors, the auditor told GAO that he did not 
perform detailed tests ``because the contractor would not 
appreciate it.''
    When auditors reviewed contractor invoices, in many cases, 
they did not look to see if the contractor could offer 
supporting documentation for the goods or services they were 
charging the government for. The auditors simply looked at the 
numbers on the invoices to see if they added up.
    To date, GAO's two reviews have led DCAA itself to rescind 
80 of its audits, which is, I gather, a rare and, of course, 
embarrassing step for an auditing agency. The recision of 80 
audits is, to me, effectively a self-indictment by DCAA for 
failure to hold audit quality above all else.
    Now, this would be bad enough if it was a separate and 
unique critical audit by GAO, but the fact is that this is the 
fifth major report sounding the alarm about DCAA. In addition 
to the two GAO audit reports that I have cited, we have a 2007 
Department of Defense Inspector General (IG) peer review, a 
report last fall from the Defense Business Council, and a new 
DOD IG report, all showing that an important watchdog agency, 
DCAA, is badly in need of overhaul.
    The fact is, when the people we have charged with the 
responsibility of auditing themselves receive this many 
critical audits--Washington, we have got a problem--and it is a 
big problem because of the enormous amount of money being 
audited that is spent--over half-a-trillion dollars in 2008 
through the Defense Department.
    In my opinion, DCAA is in need of a complete overhaul. One 
problem may be, as GAO suggests, that DCAA emphasizes speed and 
production of audits over the quality of results. DCAA also 
appears to be very insular, with little or no infusion of 
skills from outside the agency.
    I think it is really time for us to make sure that we 
change this environment with specific steps, such as improving 
audit quality control, increasing training of the auditors, and 
developing a strategy to target resources rather than simply 
churning out audits that are faulty to hit numerical goals.
    So we want to have a very frank discussion today because 
this is very important. A lot of money is on the line, and the 
discussion really is about who is responsible in the end for 
the operational reform that is necessary at DCAA.
    This auditing agency has a unique role. Because of that 
role, it also needs to have independence. It needs to stand up 
to pressures from both agencies and contractors, and as I 
believe may be suggested here today, perhaps that independence 
should be strengthened. Perhaps it is time for us to consider 
separating DCAA from the Department of Defense and, either 
separately or as part of a larger operation, making it an 
independent auditing agency.
    But what is also needed right now is clearly strong 
leadership from the top ranks of DOD to help DCAA achieve the 
necessary transformation and reforms because this Committee, 
Senator Collins and I and the Members, do not want to be 
sitting here a year from now discussing another audit which 
finds similar problems once again in DCAA. Let us identify the 
root causes and implement the solutions that Congress must 
demand and that the taxpayers surely deserve.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    With the release of today's GAO report, we once again focus 
on the extensive problems with the quality of audits at the 
Defense Contract Audit Agency and with the management of this 
watchdog agency.
    The DCAA is the Defense Department's principal contract 
auditor. It completes more than 30,000 reviews and audits per 
year that cover hundreds of billions of dollars in Federal 
contracts. A well-functioning DCAA is thus vital to our 
government's responsibility to be careful stewards of taxpayer 
funds. DCAA plays a necessary role in ensuring the 
accountability and transparency of Federal contracts.
    Unfortunately, the GAO report contains a haunting refrain 
of disturbing past reports. It cites, for example, and perhaps 
most troubling, a lack of independence from undue influence on 
audit outcomes by contractors, program managers, and even some 
senior managers at DCAA. It cites poor or inadequate audit 
quality and gross mismanagement of government resources. And it 
cites ineffective audit practices that allow contractors to 
overbill the government in some cases for millions of dollars.
    The Department of Defense and other Federal agencies rely 
on DCAA to help detect waste, fraud, and abuse. It is, 
therefore, completely unacceptable for this Federal policing 
agency to continue to have such significant performance 
problems.
    With more than a little frustration, I note that we are 
here almost 1 year to the day since the Committee's last 
hearing on this very same topic, DCAA's poor performance. 
During the 2008 hearing, I raised significant concerns, as did 
the Chairman, about the mismanagement of DCAA, and yet here we 
are again.
    Three particularly troubling areas still need to be 
addressed. First, the GAO report highlights the ongoing lack of 
rigor and independence of DCAA audits due to coercion by a few 
errant contractors, program managers, and on occasion, even by 
DCAA management. Auditors cannot be constrained from doing 
their jobs. They must be able to work in an environment where 
they are encouraged to conduct their oversight in a fair, 
unbiased, and principled manner--indeed, not just encouraged, 
required to conduct their audits in that manner.
    Now, I want to make clear that there are many principled, 
dedicated, and competent auditors at DCAA who endeavor to 
conduct themselves with the highest possible ethical and 
professional standards. The management and the culture at DCAA 
must support their efforts, not undermine them.
    Second, I am baffled by the complete lack of a sense of 
urgency in terms of addressing and resolving these problems. As 
the Chairman has indicated, there have been repeated reports 
indicating these flaws. Recent reviews of DCAA's reform efforts 
do not assure me that significant progress has been made over 
the past year. While DCAA has taken some steps toward 
improvement, it has been too little.
    To date, DCAA, as the Chairman has indicated, has rescinded 
some poor quality audits and issued guidance to improve the 
quality. The agency also plans to hire 700 additional auditors 
to augment its workforce. But if all we do is add more people, 
that is not going to solve the fundamental failings of this 
agency. Indeed, the consequences of not requiring high-quality 
audits and of mismanagement may only multiply with these 
additional resources. Just throwing more people at the problem 
is not going to solve it.
    Less than a month ago, the DOD Inspector General completed 
an investigation that found evidence of this kind of 
mismanagement. It cited time pressure, uncompensated overtime, 
unauthorized changes to audit results, and other unprofessional 
behavior that had created a work environment not conducive to 
performing quality audits. What will it take to finally see 
progress? DCAA's inability to remedy its mismanagement, despite 
numerous hearings, investigations, and report after report, is 
truly an epic failure by the agency and the Department.
    Third, the GAO report raises significant questions 
regarding the need for structural reforms, such as the Chairman 
has mentioned and I brought up last year. How can it be that 
DCAA auditors spent more than 530 hours auditing a billing 
system that did not exist? How can it be that they repeatedly 
change audit findings to make the results acceptable to some 
contractors?
    To make matters worse, I am told that some supervisors 
responsible for deficient audits were given performance ratings 
ranging from ``exceeds fully successful'' to ``outstanding.'' 
Again, how can this be? Where is the accountability?
    Now, let me end by saying why this is so important. When an 
audit agency fails, the fallout can cascade throughout the 
system and ultimately shortchange our troops in the field. For 
this reason alone, Congress must carefully consider whether 
fundamental restructuring as well as internal reforms are 
needed at DCAA in light of these disclosures.
    Reestablishing DCAA as a first-rate audit agency is 
critical, and I will say that to date, I have been very 
disappointed at the lack of leadership at DCAA itself and at 
the Office of the Comptroller, which is responsible for 
overseeing and supporting DCAA. Action must be taken swiftly to 
help this agency regain its credibility and restore its 
oversight mission. Once its performance and image have been 
repaired, it can once again assume its vital role of ensuring 
the best value for the American taxpayer on all defense 
contracts.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you very much, Senator Collins.
    Before I call on Mr. Kutz, I want to say that I mentioned, 
Senator McCaskill, that you had joined us in the request for 
this report by GAO, and I appreciate that, and it leads me to 
moving slightly behind you and acknowledging the work of your 
Counsel, Peg Gustafson, who as you know has been nominated by 
the President to be the Inspector General of the Small Business 
Administration. I want to thank her for the hard work she has 
done on the matter before us today and so many other issues, 
and we look forward to working with you as you move on into the 
IG community. Your nomination is pending before our Committee 
now. We will give it a rigorous and dispassionate review, of 
course, and hope to discharge your nomination by unanimous 
consent as soon as possible. Good luck.
    Senator McCaskill. Mr. Chairman, can we slow that down any? 
[Laughter.]
    I am having buyer's remorse----
    Chairman Lieberman. I understand.
    Senator McCaskill [continuing]. About losing Ms. Gustafson. 
[Laughter.]
    Chairman Lieberman. We have a conflict of interest here, 
but we will help you resolve it.
    Mr. Kutz, you are here for the second day in a row. God 
only knows what may bring us together tomorrow---- [Laughter.]
    But I thank you for your continuing high level of work, 
which greatly benefits Congress and ultimately the people of 
our country. I would note that you are here with Gayle Fischer, 
who is an Assistant Director at GAO who will be available to 
answer questions.
    For the record, Mr. Kutz is before us as Managing Director 
of the Forensic Audits and Special Investigations Team of GAO. 
Thanks for your work, and we welcome your testimony now.

 TESTIMONY OF GREGORY D. KUTZ,\1\ MANAGING DIRECTOR, FORENSIC 
      AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT 
    ACCOUNTABILITY OFFICE, ACCOMPANIED BY GAYLE L. FISCHER, 
 ASSISTANT DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Kutz. Mr. Chairman and Members of the Committee, thank 
you for the opportunity to discuss the Defense Contract Audit 
Agency. Last year, I testified that 14 audits at three 
California locations did not meet professional standards. 
Today's testimony highlights our broader review of the DCAA 
quality control system.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kutz and Ms. Fischer appears in 
the Appendix on page 37.
---------------------------------------------------------------------------
    My testimony has two parts. First, I will discuss our 
findings, and second, I will discuss our recommendations.
    First, 65 of the 69 engagements that we reviewed did not 
meet professional standards. Key issues relate to lack of 
independence, insufficient testing, and inadequate planning and 
supervision. Examples of these problems include, first, an 
accounting system report drafted with eight significant 
deficiencies. One year after contractor objections to this 
draft report, an adequate or clean opinion was issued with no 
deficiencies. We found little evidence to support these 
changes.
    Second, an adequate opinion issued on a billing system with 
insufficient testing. As you mentioned, in this case, Mr. 
Chairman, an auditor told us that testing was limited because 
the contractor would not appreciate it.
    Third, an adequate opinion issued for a billing system 
based on a test of only four vouchers, all from the same day.
    And finally, as Senator Collins mentioned, 530 hours spent 
auditing a billing system that did not exist.
    Further evidence of problems at DCAA is the recision of 80 
audit reports. I expect that the recision of 80 audit reports 
is unprecedented in both the Federal Government and the private 
sector. The evidence supporting our conclusion of widespread 
audit quality problems is irrefutable.
    So why did these problems happen? Let me give you a few of 
the examples. First, we found a production-focused culture 
resulting in part from flawed metrics. These metrics focused on 
getting audits done on time and within budget. Taking time to 
find and address issues was discouraged. This resulted in some 
audits of accounting and billing systems being issued within 2 
to 3 weeks of the entrance conference. No wonder we saw 
opinions of contractor systems being issued based upon a 
conversation with the contractor and a quick look at a few 
transactions.
    Further evidence of the need to cut corners is the 22,000 
reports issued in 2008 by DCAA's 3,600 auditors. That is 60 
reports issued every day of the year, including weekends and 
holidays. There is also evidence of pressure caused by the fear 
of DCAA being outsourced. In other words, DCAA's metrics were 
intended to show that they could do their work faster and 
cheaper than public accounting firms.
    Let me move on to human capital. Last year, the original 
whistleblower, Thi Le, testified before this Committee on her 
experience at DCAA. Ms. Le's testimony is one of the most 
memorable of my experience. If this GS-12 auditor and the 
dozens of others that we have spoken to are representative of 
DCAA's employees, then the quality of audit staff is not the 
issue. Instead, what you have are thousands of good auditors 
trapped in a broken system.
    Let me move on to steps that can be taken to improve DCAA's 
operations. First, let me commend this Committee for your 
oversight on this matter. The hearing you held last year and 
your consistent oversight have made a difference. DOD is taking 
these matters very seriously. Positive steps have been taken 
and are underway to address most of these issues. My only 
recommendation to you is to continue your oversight.
    We made 15 recommendations to the Secretary of Defense. The 
intent of these recommendations was to strengthen DCAA's 
independence and effectiveness. DOD agreed with 13 of these 
recommendations. We also provided three matters for the 
Congress to consider, as you had requested.
    The first of these relates to providing DCAA with the 
protections and authorities granted to Inspectors General. 
Legislation would be needed to implement this matter. This 
change could strengthen leadership, independence, and 
transparency through external reporting of DCAA results to the 
Congress.
    The other two matters relate to organizational placement. 
Most of the effectiveness issues can be addressed within the 
current organization placement. However, elevating DCAA to a 
separate DOD component or outside of DOD as an independent 
audit agency are matters for longer-term consideration. We 
believe that organizational placement changes should not be 
considered until current reform efforts are complete.
    In conclusion, the 14 audits that we reported on last year 
were not isolated cases but, in fact, proved to be the tip of 
the iceberg. We commend DOD for their recent actions. However, 
it is important to remember that if not for a tip from a 
courageous GS-12 auditor, Congress would still believe that 
everything at DCAA was fine. We look forward to working with 
this Committee and DOD to help DCAA achieve its full potential.
    Mr. Chairman, this ends my statement, and I look forward to 
your questions.
    Chairman Lieberman. Well done. Thank you very much.
    Next, we are going to hear from the Hon. Gordon Heddell, 
who is the Inspector General for the Department of Defense.

TESTIMONY OF HON. GORDON S. HEDDELL,\1\ INSPECTOR GENERAL, U.S. 
                     DEPARTMENT OF DEFENSE

    Mr. Heddell. Chairman Lieberman, Ranking Member Collins, 
and distinguished Members of this Committee, thank you for the 
opportunity to be here today to discuss continuing oversight by 
my office of audits conducted by the Defense Contract Audit 
Agency.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Heddell appears in the Appendix 
on page 56.
---------------------------------------------------------------------------
    The Department of Defense Office of the Inspector General 
has the responsibility to verify that audits by all DOD audit 
agencies, including DCAA, comply with stringent standards. At 
the hearing last year before this Committee, we discussed 
serious problems with DCAA, to include weaknesses in its 
quality assurance programs, audits that failed to comply with 
generally accepted government auditing standards, and 
allegations of an abusive work environment. We have been 
monitoring DCAA's efforts to correct the deficiencies 
identified in our May 2007 peer review and in a report issued 
in July 2008 by the Government Accountability Office.
    On August 31 of this year, we issued a report following up 
on the deficiencies identified by GAO. We found that a flawed 
audit could have allowed a contractor to recover millions of 
dollars in unallowable costs on a major aerospace program. We 
found audits performed by trainee auditors at one location that 
did not comply with standards. We found audit opinions that 
were not sufficiently supported. And we found audit findings 
that were dropped without sufficient justification. 
Additionally, employee concerns with time pressures, 
uncompensated overtime, changes to audits, and unprofessional 
behavior created a work environment not conducive to producing 
quality audits.
    We made several recommendations to DCAA, including that it 
rescind an additional five audit reports and notify contracting 
officials not to place reliance on the reports' conclusions. 
Our report also recommended that DCAA take appropriate 
corrective action regarding the performance of the two 
supervisors associated with the majority of cases reviewed by 
my office and GAO. DCAA reported that those individuals will 
retake supervisory courses and receive additional training. We 
expect DCAA to monitor their performance very carefully.
    We issued a report on September 11 of this year regarding 
improper conduct by a DCAA manager. This senior official 
investigation supported a GAO finding that a former regional 
audit manager was not free from external impairments to 
independence. Her direction resulted in a flawed audit that 
could have allowed a contractor to recover $271 million in 
unallowable costs. Additionally, we concluded that the 
individual failed to adhere to established leadership standards 
and fell short of the type of leadership skills expected from 
senior leaders. The report was provided to the Director of DCAA 
for appropriate action.
    Based on the most recent GAO review of DCAA, together with 
the deficiencies identified in our May 2007 peer review, I 
notified DCAA that our adequate opinion on its system of 
quality controls would expire as of August 26 of this year. 
Further, that DCAA should qualify its audits with a statement 
noting an exception to compliance with the quality control and 
assurance standard.
    On August 5 of this year, we announced the peer review for 
the period ending September 30, 2009. This review will assess 
whether DCAA's quality control system provides reasonable 
assurances of compliance with standards. We will also follow up 
on DCAA corrective actions in response to prior GAO and DOD IG 
recommendations, including the findings in our May 2007 and 
December 2003 peer review reports.
    On September 1 of this year, DCAA requested that GAO 
approve delaying the announced peer review by at least 2 years 
so that it could continue internal improvements. The DOD 
Inspector General has a statutory responsibility to provide 
continuous audit oversight, and should the peer review be 
postponed, we will undertake a number of targeted reviews of 
DCAA high-risk areas.
    Our oversight is essential to helping DCAA identify audit 
deficiencies and to take corrective actions. However, 
implementing change and creating a quality workforce requires a 
commitment by management. It is essential that DCAA's senior 
management address fundamental issues, to include recruiting, 
training, and cultivating skilled personnel, and most 
importantly, developing highly skilled and motivated leaders. 
Equally important is the engagement, involvement, and support 
of senior DOD management. Absent any of these factors, DCAA 
will fail to achieve the cultural transition necessary for 
success.
    This concludes my statement. I welcome your questions.
    Chairman Lieberman. Thank you very much.
    Next, we will hear from the Hon. Robert Hale, Under 
Secretary of Defense, Comptroller, and Chief Financial Officer 
of the Department of Defense, to whom, if I have this straight, 
the DCAA reports, correct, Mr. Hale?
    Mr. Hale. Yes.
    Chairman Lieberman. Thanks for being here.

TESTIMONY OF HON. ROBERT F. HALE,\1\ UNDER SECRETARY OF DEFENSE 
 (COMPTROLLER) AND CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF 
                            DEFENSE

    Mr. Hale. Mr. Chairman, Members of the Committee, thank you 
for the opportunity to share some observations about the 
Defense Contract Audit Agency. I will focus on the concerns 
raised by the recent audits of DCAA, particularly by the GAO 
audit.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hale appears in the Appendix on 
page 66.
---------------------------------------------------------------------------
    As Members of the Committee are aware, the Department has 
submitted a lengthy response to GAO's recommendations. We 
acknowledge the seriousness of GAO's findings as well as those 
of the IG and others and concur with their recommendations with 
very few exceptions. I will mention a couple below.
    Based on my own review of DCAA and the GAO recommendations, 
as well as the IG, I believe that DCAA, with assistance from me 
and others in the Department of Defense, needs to focus on 
three major issues. First, maybe foremost, improving the 
quality of audits, especially the audits of contractor business 
systems. Second, assessing the number and types of audits 
performed by DCAA and whether all audits currently required by 
acquisition laws and regulations are appropriate. I am worried 
about 24,000 audits a year, as the GAO pointed out. We have to 
be sure we do all that are needed, but we also need to look at 
that number. And finally, assessing improvements in the process 
for resolving DCAA audit results to ensure that audit findings 
are fully considered during contracting officer deliberations.
    DCAA has already begun to focus on these major issues and 
on others. As GAO said, a number of steps have been taken, and 
in her testimony, the DCAA Director, April Stephenson, will 
describe some of the actions that have already been completed 
and those that are underway.
    It is important to note that the audit assignments covered 
by GAO and the IG were completed 3 to 5 years ago, and all of 
the audits that we are talking about cover items completed 3 to 
5 years ago, and that a series of corrective actions was 
undertaken beginning in late 2008, not long after the hearing 
that you held last year. The Committee has to understand that 
it may take several years--it took us several years to get into 
this problem--for the full benefit of these actions to be 
realized.
    In addition, I would like Members of the Committee to know 
that the Office of the Under Secretary of Defense, Comptroller, 
my office, has taken some steps to improve oversight of DCAA 
operations. First, I have assigned a senior member of my staff 
to assist on oversight efforts. This provides me some personal 
eyes and ears to keep track of what is going on.
    Second, last March, I established a DCAA Oversight 
Committee to provide my office with advice and recommendations 
concerning the oversight of DCAA. The committee is made up of 
the Auditors General of the Army, Navy, and Air Force--all 
three of them personally agreed to participate--and these 
individuals provide me with some heavyweight audit experience 
that is simply not present on my staff, which is focused on 
financial management and the budgetary responsibilities.
    Also on this oversight committee is--and I think we need to 
pay careful attention to--the Director of Defense Procurement 
and Acquisition Policy (DPAP). He is the key customer for DCAA, 
and we want to keep them in mind as we work to improve the 
agency's performance. The DOD Deputy General Counsel for 
Acquisition and Technology is also a member.
    This senior group will assess DCAA's activities--they have 
already begun to do so--and the actions taken to correct 
problems, and they have provided me advice. I have met with 
them several times personally and will continue to do so.
    We have also taken steps in the Department of Defense to 
increase the resources available to DCAA. During fiscal years 
2009 and 2010, we will add 500 new auditors, and we will 
consider additional auditor positions beyond fiscal year 2010. 
I will be monitoring the DCAA budget carefully, and that is 
something I can do during our fall program and budget review.
    We believe that by taking aggressive action, improving 
oversight, and increasing resources, we can resolve the 
significant issues posed by the GAO report, as well as the 
report by the IG, and we will monitor that progress, and I will 
personally, to determine if further actions need to be taken.
    While we generally agree with GAO, there are two areas 
where we take exception or disagree with their findings. First, 
GAO suggested that Congress consider providing DCAA with 
independence similar to that of the Department's Inspector 
General. There are some aspects of that suggestion that may 
make sense. For example, we are looking at increased subpoena 
authority for DCAA. But we disagree with the number of the 
implications of that recommendation.
    For example, we do not believe the DCAA Director should be 
a presidential appointment with Senate confirmation. It will 
inject, in my view, an inappropriate element of politics into 
what should be a technical audit agency and inevitably will 
create long periods of delay--it is just inevitable in our 
system--when there would be no Director in charge.
    Likewise, we oppose fixed terms for the DCAA Director and 
mandatory public reporting, as the IG is required to do. It is 
an additional burden on an agency that is already struggling to 
meet its many mission demands.
    While we do not support IG-like independence for most 
aspects of it, we are taking steps to strengthen DCAA's 
independence internally in a number of ways, but I will mention 
one in particular, by assessing improvements to the process 
used by contracting officials to resolve DCAA audit findings. 
When there is disagreement, we need a process that allows DCAA 
to elevate that disagreement if it cannot be resolved at the 
staff level, and we have put that in place with the Director of 
Procurement and Acquisition Policy and appeals to both the 
Under Secretary of Acquistion, Technology, and Logistics (AT&L) 
and the Comptroller if DCAA does not feel that the first set of 
appeals has resolved the issues.
    Second, GAO suggested that Congress require DCAA to report 
to the Deputy Secretary of Defense. DOD strongly disagrees with 
this recommendation. The Deputy Secretary is the Chief 
Management Officer of one of the world's largest organizations. 
He backs up the Secretary in the wartime chain of command. 
Direct oversight of an individual Defense Department agency 
would, I believe, add unreasonably to his current 
responsibilities.
    I think DCAA should remain within the Department, and at 
least until these issues are resolved, I believe it should 
continue to report to my office. I feel personally responsible 
for helping to fix the problems that have occurred.
    In sum, Mr. Chairman, we acknowledge that GAO has raised 
some serious issues. We believe that we have begun taking 
appropriate steps--and I think that is important--to resolve 
these issues, and I will personally monitor the situation to 
determine if additional steps are needed.
    Let me close with what I believe is an important and 
critical context, and I ask the Committee's help. DCAA provides 
valuable services to the Department of Defense and other 
government organizations. You have all said that. I agree. I 
have spoken personally to the Director of Defense Procurement 
and Acquisition Policy, one of DCAA's key customers. He 
informed me that DCAA products are necessary and critical to 
the acquisition process. The Commission on Wartime Contracting 
has made similar comments.
    As we strive to resolve the issues raised by GAO and 
others, I am worried about morale at the agency. We have to be 
careful not to undermine the unique value of DCAA to DOD and 
other organizations. Let us be careful not to throw out the 
baby with the bathwater here.
    Mr. Chairman, thank you again for providing this 
opportunity for me to comment on GAO's findings. I am convinced 
that working together with this Committee and the senior 
leadership of the Department and, of course, DCAA, we can 
ensure that the work of DCAA will continue to support the 
Department and the security of the United States.
    When the other witnesses have completed their statements, I 
would be glad to answer your questions.
    Chairman Lieberman. Thank you, Mr. Hale.
    And finally, April G. Stephenson, Director of the Defense 
Contract Audit Agency.

TESTIMONY OF APRIL G. STEPHENSON,\1\ DIRECTOR, DEFENSE CONTRACT 
            AUDIT AGENCY, U.S. DEPARTMENT OF DEFENSE

    Ms. Stephenson. Mr. Chairman, Members of the Committee, 
thank you for the opportunity to appear before you today. I am 
pleased to be here.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Stephenson appears in the 
Appendix on page 69.
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    As requested, I will describe the actions taken as a result 
of the recent oversight reviews of DCAA. Please be assured, we 
take all findings that have taken place on DCAA from any source 
very seriously.
    We have worked diligently since late 2008 to accomplish a 
number of actions to improve the quality of the audit services 
and to improve the working environment for our employees. As 
shown in the appendix of my submitted testimony, we have 
completed over 50 specific improvement actions. We are not 
done, and we have various long-term actions in process.
    For the purposes of my testimony today, Mr. Chairman, we 
have categorized the issues into four general areas: 
Insufficient testing, ineffective quality assurance program, 
lack of independence, and management abuses.
    The GAO identified noncompliances with the audit standards 
of nearly all the assignments it has reviewed. This is 
primarily due to an insufficient number of transactions tested, 
particularly in assignments of business systems where the 
contractor's system was deemed to be adequate.
    Contractor internal control systems involve hundreds of 
control points. Auditors assess the risks of the control points 
on government contracts and establish the level of testing on 
that risk. At times, auditors assess the risk at low and 
sampled few transactions, and at other times the risk was high 
and sampled more transactions. In some instances, the number of 
transactions we reviewed, we have no defense for. It was 
unacceptable. In others, it was a judgment call, and we are in 
the process of revamping this process.
    As I said, we recognize these concerns with the business 
systems and initiated a project in 2009 to reassess the entire 
process for performing audits of business systems and the types 
of opinions to be provided. This will continue into early 2010. 
We are consulting with the GAO and the IG as we proceed with 
this project.
    The GAO concluded that DCAA's quality assurance program was 
deficient. We recognize that improvements are required, not 
only with the structure of the quality assurance organization, 
but also the manner in which the reviews were performed. In 
August 2008, we centralized the quality assurance function to 
headquarters. We then proceeded with more than double the 
reviews we performed in the past. We no longer provide a rating 
of pass-fail depending on the number of deficient assignments. 
Offices that are determined to have at least one assignment in 
noncompliance with the auditing standards are required to 
provide a meaningful corrective action plan, which is monitored 
at the headquarters level.
    The GAO concluded that DCAA's independence was impaired. 
This was primarily due to providing input on draft corrections 
to internal control policies and procedures and then auditing 
the final policies and procedures. It is not uncommon for 
contractors with system deficiencies to seek input from the 
auditors while they are developing corrections to the systems. 
In many instances, providing feedback throughout the process 
expedites the correction of the deficiencies.
    The GAO has concluded that this feedback impairs the 
auditors' objectivity as they audit information they have 
provided feedback for prior to implementation. We have 
corrected these issues. Auditors no longer provide feedback to 
contractors on draft corrections to systems, and we will no 
longer remove deficiencies from reports when the deficiencies 
are corrected during the audit.
    In July 2008, the GAO concluded that DCAA had an abusive 
work environment. The IG was engaged to investigate this 
matter, and as Mr. Heddell mentioned, they finished their 
review in August 2009. Although they did not go as far as to 
say we had an abusive work environment, it concluded that we 
had a work environment that was not conducive to producing 
quality audits. Auditors felt pressure to work uncompensated 
overtime, and in another office, several employees said that 
they heard people yelling in the office and raising their 
voices. We believe these issues have been adequately addressed, 
and the IG concurs.
    The DOD IG did not identify any attempts by DCAA to impede 
the GAO investigation other than the letter that was written in 
August 2007 to one of our senior auditors, which I know this 
Committee is familiar with. As we discussed at the hearing last 
September, the letter was prepared by one of the Defense Legal 
Services attorneys that reports to DCAA. The letter was 
rescinded the day after the hearing last year.
    To provide employees an opportunity to report instances of 
perceived management abuse without fear of retaliation, we 
launched an anonymous Web site in September 2008. The Web site 
is treated as a hotline, and allegations are either 
investigated by DCAA's internal ombudsman team, which we 
established in late 2008, or referred to the DOD IG for 
investigation.
    Mr. Chairman, as a result of these oversight reviews, we 
have taken a number of actions. I would like to highlight some 
of the actions I have not previously discussed in a very brief 
form.
    We completed a bottom-up staffing assessment to determine 
whether we had the appropriate staffing at all levels of the 
organization. We have received funding under the Defense 
Acquisition Workforce Development Fund, as Mr. Hale mentioned. 
We added 25 new field audit offices, increasing from 79 offices 
in August 2008 to 104 offices in August 2009, to provide 
greater training to employees as well as to ensure appropriate 
oversight of audit quality.
    The performance measure process was completely revamped. We 
eliminated 18 prior measures and added eight new measures to 
focus on audit quality. Focus groups were held in 2009 and 
feedback was favorable that most employees reported they did 
not feel pressure to meet the performance measures on 
individual assignments. Auditors did feel pressure to meet 
additional budget hours and did not feel they could request an 
extension. So as a result, we removed the requirement to meet 
budget hours from performance standards and inserted new 
language on the requirement to complete audits in accordance 
with the auditing standards.
    We hired the Center for Defense Management Reform at the 
Naval Postgraduate School to assist with cultural 
transformation across the agency. We instituted a revised 
process for determining the audit requirements for 2010. Audit 
priorities were established based on the audits required under 
laws and regulations, and the field offices developed the audit 
hours that were necessary, taking into consideration the risk 
of the contractors, the skill level of the audit staff, and the 
additional hours required to comply with the auditing 
standards. This process is consistent with the GAO's 
recommendation of performing a risk-based approach rather than 
production line auditing.
    We engaged the Army Force Management Support Agency to 
evaluate DCAA's process for planning 2010 audit needs as well 
as our staffing requirements. We provided training to all 
employees on quality audits and the work environment.
    In closing, Mr. Chairman, I want to underscore that DCAA is 
committed to ensuring the agency is above reproach, that our 
audits are performed in accordance with auditing standards, and 
that its culture promotes the kind of vigilance and quality 
that protects the interests of the American taxpayers.
    Mr. Chairman, thank you again for the opportunity to 
address the Committee. I would be pleased to take your 
questions.
    Chairman Lieberman. Thank you, Ms. Stephenson. We will now 
go to 7-minute rounds.
    Mr. Kutz, let me begin with you just to draw out a little 
more a couple of the points that were in your findings than you 
had the time to do in your opening statement. One of the 
findings was, and I paraphrase it, you found a lack of 
independence in DCAA. So I wanted to ask you, a lack of 
independence from whom, the contractors, the Department of 
Defense, perhaps supervisors? What is the problem?
    Mr. Kutz. It would be more along the lines of the 
contractors, I would say, with respect to the example I 
mentioned in the opening statement, that they did not do 
additional work because the contractor would not appreciate it. 
That is a disturbing finding, I think, that someone would 
actually believe that was important. That would be like us 
auditing an Executive Branch agency for you, and if they said, 
we would prefer that you do not look at the transactions, we 
would walk away. I mean, that is not the way things should 
work.
    Chairman Lieberman. So they were too cozy or whatever, 
intimidated in some sense by some of the contractors, is what 
you are saying. So they were not performing the independent 
audits that we presume auditors will perform.
    Mr. Kutz. That, and there were also certain other issues 
with respect to data requests maybe that were made, not filled, 
and then the audit was completed even though the data was not 
received at the end of the day. So things like that----
    Chairman Lieberman. Without the auditor insisting on it.
    Mr. Kutz. Or making it a scope restriction and saying, we 
just did not have enough evidence to conclude on the system or 
whatever was being audited. So those are the kinds of things. 
And again, I believe it was seven--Ms. Fischer, is that 
correct?
    Ms. Fischer. Right.
    Mr. Kutz. Seven of the audits. So how widespread it is, I 
do not know, but seven of the 69. So there is enough there that 
it is a bit of a concern.
    Chairman Lieberman. Senator Collins cited, and you did, 
too, this case of the auditor spending more than 500 hours 
auditing a billing system that did not exist. How does that 
happen?
    Mr. Kutz. Well, it was not the contractor in this case. It 
was a grantee, and grantees do not bill. They do drawdowns on 
lines of credit. So that was the issue there. And there was 
actually a single audit done that would have covered the actual 
drawdown system. So the audit was not necessary in the first 
place. So it really was not the contractor. It was a grantee.
    Chairman Lieberman. So an audit was done. In other words, 
it is not that somebody cheated on their worksheets to describe 
what they were doing. It is that 500 hours were spent----
    Mr. Kutz. That were not necessary.
    Chairman Lieberman [continuing]. That were not necessary.
    Mr. Kutz. Correct. That is what that is. Yes. And I think 
that they agree, and they are not going to do that one in the 
future.
    Chairman Lieberman. When there is such a collapse, if you 
will, or so many shortcomings in an audit, or any organization, 
obviously, there is a lot of blame to go around. But I was very 
interested in your comment. Again, you are drawing from 
selective cases--you could not review every one of the 
auditors. I paraphrased from what you said. Your conclusion 
from the auditors you did interview is that there are thousands 
of good auditors trapped in a broken system, and some of the 
recommendations you have made are clearly systemic. But then 
some of the responses that I have heard today go more to the 
individual auditors, training opportunities and the like.
    So I am going to ask you first to comment on that, and then 
ask the other witnesses. Is it both, or is it really the 
system? If it is the system, are you talking about the fact 
that they are trying to do too many audits?
    Mr. Kutz. Yes, I really am, and I think Mr. Hale touched on 
it in his opening statement. I agree with him 100 percent.
    Chairman Lieberman. Yes.
    Mr. Kutz. You are trying to do 22,000, or he mentioned 
24,000, or whether it is 30,000 audits----
    Chairman Lieberman. Right.
    Mr. Kutz [continuing]. With 3,600 people. That is not 
possible.
    Chairman Lieberman. You just cannot do those audits. That 
is 22,000 to 30,000 a year.
    Mr. Kutz. Right. You are going to do drive-by audits in 
some cases, where you go by and ask a few questions, look at a 
couple transactions----
    Chairman Lieberman. Yes.
    Mr. Kutz [continuing]. And issue an opinion, and you are 
setting up the people in that particular case to fail. You have 
not given them the proper resourcing. Now, I cannot believe 
there are 22,000 audits that are necessary. That gets into the 
risk-based approach that we talk about with respect to--and I 
think Mr. Hale hit it on the head--are those audits necessary? 
Are there things that can be done either by redefining audits 
or looking at what is actually generating the audits from the 
Federal Acquisition Regulation (FAR) or whatever the case may 
be? If you do not deal with that issue, I do not think you will 
ever fix this.
    Chairman Lieberman. That is a very powerful point. Let me 
go back to whether it is a problem with the auditors or it is a 
problem of the system. That is part of the indictment of the 
system that we just talked about, that perhaps they are trying 
to do too much and therefore they are doing a lot badly. But 
let me ask this direct question. Is the leadership inadequate? 
I know it is awkward, not just for Ms. Stephenson, but anybody, 
but the supervisors generally----
    Mr. Kutz. Well, I think it is an insular culture. I think 
we talked about that.
    Chairman Lieberman. Yes.
    Mr. Kutz. And that is why I think one of our 
recommendations to bring in some outside expertise to take a 
fresh look at this is useful, someone to come in and say, OK, 
how are we doing these audits? How are we deciding which ones 
to do? Are they all mandated? Do we have to go back to the 
source and figure out how we get down?
    Because, again, I think, if you learn to do an audit where 
a couple of transactions is enough to opine on a system, that 
does not mean you are not a good auditor. It means you were not 
taught how to do an audit correctly. I mean, if I had been 
brought in as an entry-level auditor at DCAA and I learned that 
is the way you do audits, then I would think it was OK. That 
does not necessarily mean I am a bad auditor. It means I really 
grew up in a system where I learned that was the way you do 
audits because we have 10 audits to do in the next 2 months and 
the only way to get them done is to do them quickly.
    Chairman Lieberman. Mr. Hale, let me ask you to comment on 
this a bit. I know you are relatively new on the job. I 
appreciate the steps you have taken. When you said you assigned 
somebody on your staff to oversee your liaison with DCAA, is 
that going to be their primary responsibility?
    Mr. Hale. It is probably about half-time. She is doing some 
other things for me----
    Chairman Lieberman. Yes.
    Mr. Hale [continuing]. But I will have her devote enough of 
her time to see this through. I told you, I am committed to 
fixing this.
    Chairman Lieberman. Right.
    Mr. Hale. Yes, it happened on a previous watch, but 
nonetheless, it is my responsibility now, and I need those eyes 
and ears as we go forward.
    Chairman Lieberman. Right.
    Mr. Hale. There are still a number of issues that need to 
be resolved. I think we all understand that.
    Chairman Lieberman. Have you, since you have been there, 
met regularly with Ms. Stephenson?
    Mr. Hale. Yes. I see her almost weekly at my staff 
meetings, and we have had a number of one-on-one discussions, 
and Ms. Stephenson and I are e-mail buddies.
    Chairman Lieberman. Yes.
    Mr. Hale. We have had a lot of exchanges.
    Chairman Lieberman. So do you agree, just to draw you out 
from your testimony, that one of the most significant problems 
here is that DCAA is trying to do too much and therefore it is 
doing a lot of it badly?
    Mr. Hale. You have a tough tradeoff to make. I am concerned 
about that. We need to look at it. On the other hand, I do not 
want to start not doing audits----
    Chairman Lieberman. Yes.
    Mr. Hale [continuing]. That could be productive for the 
government.
    Chairman Lieberman. Right.
    Mr. Hale. So there is a tradeoff. Incidentally, just to 
clarify the numbers, the 30,000 is the total number of 
engagements. I thought it was 24,000 under Generally Accepted 
Government Auditing Standards (GAGAS). Maybe it is 22,000--
well, just to clarify the numbers.
    Ms. Stephenson. It is merely a difference of the number of 
assignments that we do and the number of reports issued. There 
are some assignments that incorporate into a single report, so 
it is not necessarily one-for-one. The number of reports are 
around 20,000.
    Mr. Hale. So I have talked to Ms. Stephenson about the 
numbers. I have talked to Shay Assad, who is the Director of 
Defense Procurement and Acquisition Policy. He is the customer.
    Chairman Lieberman. Right.
    Mr. Hale. We need to keep them in mind here.
    Chairman Lieberman. Sure.
    Mr. Hale. I am concerned the pendulum has swung too far. We 
were not paying enough attention to quality. I do not want to 
swing back and ignore the customer or we will not meet DOD's, 
the government's, and the taxpayers' needs. So there is a 
balance to be struck. So we have talked to both of them. We 
need to review the numbers.
    Chairman Lieberman. Do you know if you have the statutory 
latitude to selectively audit so you reduce the numbers----
    Mr. Hale. I am going to need to get the lawyers involved.
    Chairman Lieberman. Mr. Kutz, do you know?
    Mr. Hale. They may not. Some of it may be the FAR. Some of 
it may be laws.
    Chairman Lieberman. Yes.
    Mr. Kutz. I would defer to DOD. We did not do an in-depth 
look at that.
    Chairman Lieberman. My time is up. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Ms. Stephenson, I want to read to you your opening 
testimony before our Committee last year on September 10, 2008. 
You said, ``Mr. Chairman, I want to assure you and all the 
members of this Committee that DCAA is taking the GAO's 
findings very seriously.'' This year, at the beginning of your 
testimony, you said, ``Please be assured that we have taken the 
GAO's findings very seriously.'' In other words, almost the 
exact same words. But from what I can see, very little has 
changed during the past year.
    I am particularly concerned to learn from my staff that one 
of the executive-level managers from the Western Region who was 
responsible for the problematic audit has actually since been 
promoted to the Senior Executive Service.
    So what has really changed since you came before us a year 
ago and assured us that you were taking GAO's audits very 
seriously? It is not sufficient for you to come back a year 
later and just repeat those same words. I had such hope when I 
heard that from you last year because I knew you were a career 
employee with a lot of experience who had worked her way up in 
the agency and only several months before our hearing last year 
had become head of DCAA. But words are not enough. We need to 
see real progress.
    Ms. Stephenson. I agree, Senator, and it is a very fair 
question to ask, and I will say, over the last year, we have 
made significant progress. And let me answer your question in a 
couple of ways.
    First, the Senior Executive was promoted in October 2007. 
It was not after the hearing, it was a year before the hearing, 
just to clarify that.
    Second, the number of actions we have taken have ranged 
from--we completely changed the way in which we conduct the 
performance measures. Feedback from employees has been 
favorable on that. We removed the requirement for employees to 
meet budget hours, which was one of the primary barriers that 
people felt. That was removed actually from the performance 
standards. Language about quality assurance has been inserted 
in all standards at all levels within the organization.
    We completely changed the way in which we review contractor 
documents. No longer do we look at drafts. We only look at a 
final product. We have removed any fixed cycle times on 
assignments. It is now based on the amount of time that is 
necessary to perform a full and complete audit. We have 
reiterated to our workforce the necessary number of 
transactions that must be reviewed in order to express an 
opinion, and if there is an impairment, such as a time 
constraint from a contracting officer, to have an appropriate 
disclaimer in a report.
    I have numerous actions in which I could go through to 
describe what has changed, but I will explain what employees 
tell me as I visit the offices. They tell me that there has 
been more positive change made in DCAA in the last year than 
there had been in the prior 10 years. They explain that we have 
put a workforce environment in place with our anonymous Web 
site where they feel they can come forward and discuss and 
disclose allegations of poor management or an abusive work 
environment.
    I feel that although we have a number of changes yet to be 
done, we have made significant progress in this past year.
    Senator Collins. Ms. Stephenson, I want to clarify the 
issue you raised about the manager because you said that the 
promotion occurred in October 2007. But in fact, it was a 
probationary period, I am told, that extended for a year. So 
the information was available to you, and yet this woman's 
probationary period passed and, in fact, she was made permanent 
in October 2008.
    Ms. Stephenson. That is correct.
    Senator Collins. It is a bit misleading for you to say that 
she was promoted prior to your having knowledge of these 
issues.
    Ms. Stephenson. It is the difference between promotion----
    Senator Collins. That is a big difference. She could have 
failed the probationary period. It could have been rescinded. 
So you had that information.
    Ms. Stephenson. But I did consult with attorneys. We did 
not have enough information to reduce her appraisal below 
``achieved.''
    Senator Collins. There is something wrong with the 
performance system then. I do not want to spend all our time on 
one employee.
    Ms. Stephenson. I understand.
    Senator Collins. I want to go to Mr. Kutz and ask a broader 
question. You found clear violations of DCAA policy and 
procedures representing serious departure from what is called 
the Yellow Book standards. To your knowledge, were any of the 
management personnel who were involved in these problematic 
audits disciplined or retrained or counseled? Was action taken?
    Mr. Kutz. Probably on the training front, yes. Counseling, 
I am not sure. Any serious consequences, none I am aware of.
    Senator Collins. Thank you.
    Ms. Fischer, you testified last year that some of the DCAA 
auditors were scared to talk to you and were nervous about 
being seen with GAO and telling you what was really going on. 
Have you seen an improvement in that area or is this still a 
problem?
    Ms. Fischer. I guess I would have to put it in the context 
of the continuing hotlines we are getting----
    Senator Collins. Yes.
    Ms. Fischer [continuing]. In our office. Some of the people 
that have come to us have also gone to DCAA's internal hotline 
through the Web site, and I would say there is a greater 
comfort level coming forward in the agency now than there was 
before. I think the management of the hotline is working pretty 
well, at least in the cases we have looked at, and they have 
shared that information with us.
    Senator Collins. Thank you.
    Mr. Hale, my time is almost gone, but let me just make a 
comment to you. You expressed your concern about the morale of 
the people working at DCAA, and in a sense, you were cautioning 
us about tipping the balance too far. You said, ``I am 
concerned about morale at the agency.'' Well, I guess I would 
say to you, what effect do you think that it has on morale when 
managers who are responsible for problematic audits get 
promoted? When there is pressure to weaken audit findings? When 
report after report indicates that there is undue pressure for 
production at the expense of quality?
    It seems to me that those problems have a far more 
devastating impact on the morale of the auditors than our 
investigations or other reports that are trying to get this 
agency back on track. Ultimately, you are the person to whom 
DCAA reports, and I think you need to take personal 
responsibility to get this agency back on track.
    Mr. Hale. Senator, I think I may not have been clear 
enough. What I was looking for is a statement from the 
Committee, which you have done, that DCAA performs valued 
services. I also want them to hear that from me. I have said 
it, and you have said it, too. That is what I was driving at, 
not that we should not solve the problems that have been 
identified here or continue to look at them. I am sorry if I 
was unclear.
    I do worry that the drumbeat of criticism needs to be 
balanced by the fact, as the GAO has pointed out, that there 
are a lot of good people at DCAA trying to do good things, and 
I want them to continue to hear that.
    And I do take this personally. Again, it did occur before I 
had this job, but it is my job to fix it. I am here today to 
tell you I will do my best, and I have devoted a fair amount of 
my personal time in the midst of a fairly chaotic budget 
environment and two wars to try to make this better.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks, Senator Collins.
    I had the same reaction Senator Collins expressed in her 
last question, so I appreciate your response. And I will say 
that, perhaps it is because employees of DCAA know the 
Committee is on the case, in fact, the calls from employees to 
our office have gone up over the last year, not down. So I am 
encouraged to hear that though the calls have continued, they 
seem to reflect some improvement, at least as GAO is getting 
those calls on its hotline. Thanks, Senator Collins.
    Senator Coburn is next.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman, and thank you for 
having this hearing. I think it is really important.
    I read a summary of the GAO report last night and, quite 
frankly, got sick. There is a culture that is absolutely 
unacceptable in your agency, Ms. Stephenson, and it still 
exists. It is not about doing auditing. It is about getting the 
work done and looking like you are doing the auditing.
    You have been Director since 2008, correct?
    Ms. Stephenson. Correct, sir.
    Senator Coburn. Do you have any auditing experience outside 
of this agency?
    Ms. Stephenson. No. I have been with DCAA since college.
    Senator Coburn. There was a firm called Arthur Anderson. It 
no longer exists because it failed greatly in its ability to do 
independent audits. If we cannot trust auditors, we cannot 
trust anybody.
    Personally, I can put forward about $50 billion of waste a 
year in the Pentagon--$50 billion. And now I really understand 
why--we have a system that we call an audit that is not an 
audit. I mean, that is essentially what the GAO report is 
saying. We probably would not see much difference without your 
organization there. And although there may have been some 
changes brought forward, the fact that there was a recision of 
80 audit reports and 65 to 69 were not professionally conducted 
audits, did not meet the Federal Accounting Standards Advisory 
Board (FASAB) accounting standards for auditing, to me says we 
have to start over.
    Mr. Kutz, what would be the effect of ending or phasing out 
the direct bill program at the Pentagon?
    Mr. Kutz. I do not know.
    Senator Coburn. Do you have any comments on that? Ms. 
Fischer.
    Ms. Fischer. Well, either DCAA or the Defense Finance and 
Accounting Service would need to review vouchers prior to 
payment, or maybe the contracting officers. DCAA has assumed 
this responsibility for the contracting officers, and the 
certifying officers in the Defense Finance and Accounting 
Service rely on that work in making payments.
    Senator Coburn. But if we have an agency that is not 
actually performing its function, what control, what safeguards 
do we have?
    Ms. Fischer. You do not.
    Senator Coburn. We do not, and that is exactly it. The 
question that comes down to me is, the people responsible, I 
cannot understand why they are still there. I do not understand 
that. I do not understand why the management of this agency has 
not been totally changed and why people with real experience, 
with real audit experience in the real world, have not been 
brought in to create a culture of true auditing, which means 
you verify to make sure when you claim an audit that it is 
accurate, and you do the amount of testing that is necessary to 
make that verification. Otherwise, you give a qualified 
opinion, and we do not see that.
    Mr. Chairman, I will not spend all my time on questions. I 
am a little bit too upset to go where I really want to go. But 
I think our Committee, with Senator McCaskill and her 
experience, should look at this thing from the ground up. And I 
do not doubt that some efforts have been made to improve 
things, but, in fact, Ms. Stephenson's experience coming up, 
starting as an auditor trainee and now leading this agency, 
tells me that there is a culture that is outside of what we 
would expect of auditing, and it is different than the culture 
anywhere else in this country in terms of when you get a 
certified audit.
    I have been audited as a businessman. It is tough. As a 
publicly traded company, you had better be able to justify what 
you are saying. The auditors, you pay them, but you want that 
unqualified opinion when they finish, and you had better be 
able to prove what you are doing is accurate, and I do not 
think we are anywhere close to having the confidence that is 
the case. And this is our biggest agency. It is a half-a-
trillion dollars a year. And we know the waste that is out 
there. I mean, in our Subcommittee on Federal Financial 
Management, Senator Carper and I have documented the waste, and 
now I understand why it is there. There is not a check on what 
is going out.
    So I am highly disappointed. I thank the GAO for their 
insight, but I think we ought to stay on this. And I will tell 
you, morale will improve. It will not go down. It will improve 
when people are doing what they are supposed to be doing, 
getting rewarded for doing what they are supposed to be doing 
rather than checking the boxes in a culture that says we will 
look out for the contractors more than we will look out for the 
American people, and I think that is the culture that exists 
there today. Thank you.
    Chairman Lieberman. Thanks, Senator Coburn.
    I agree with you. Incidentally, the calls that we get from 
auditors in DCAA are exactly along that line. Just help us to 
make this place better. We know we have an important job to do. 
We feel like we are not able to do it now.
    I do not want to jump ahead, but the Committee, just to 
respond to Senator Coburn, is going to stay on this because it 
is very important. I would say that the number of Members of 
Congress who know that DCAA exists is small, but its 
responsibilities are enormous. Its impact on taxpayer spending 
is enormous. Its impact, as Senator Collins said in her earlier 
statement, on the well-being and security of our troops is 
enormous.
    So we are going to stay on it. In the short-run, I think we 
are going to really focus on you, Mr. Hale, because this group 
reports to you. You are new there. You do not have 
responsibility, if you will, for how it got to where it is, but 
you do have a responsibility now to fix it, and we are going to 
figure out a way to stay in touch on a regular basis and ask 
you to report to us, and maybe we will come back periodically 
for hearings on how we are progressing.
    Thanks, Senator Coburn. Senator McCaskill, again, thank 
you.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Thank you. I used to be a prosecutor 
before I was an auditor, and in the criminal law, we have 
ordinances, then we have misdemeanors, then we have felonies, 
and then we have capital crimes, and criminal conduct ranges 
from one end to the other. In the world of auditing, what has 
been committed here is a capital crime. There can be no greater 
indictment of an auditing agency than this GAO report.
    Now, how do we begin to get value out of this audit agency 
after it has had this kind of indictment? I want to make sure I 
put in the record just one of the case studies because, 
unfortunately, I know from experience, most people do not read 
these.\1\ This is an audit that was done with one of the five 
largest DOD contractors working in Iraq, initiated in November 
2003.
---------------------------------------------------------------------------
    \1\ The case study referenced by Senator McCaskill appears in the 
Appendix on page 158.
---------------------------------------------------------------------------
    In September 2005, after nearly 2 years of audit work, the 
DCAA provided draft findings and recommendations to the 
contractor that included eight significant deficiencies. The 
contractor objected, saying the auditors did not really 
understand. The auditors did not get the new policies and 
procedures that were being developed for the fast track in 
Iraq.
    Following those objections, various supervisory auditors 
directed the auditors to revise and delete some work papers, 
generate new work papers, and in one case copy the signature of 
a prior supervisor onto new work papers, making it appear that 
the prior supervisor had approved those work papers.
    On August 31, 2006, after dropping five significant 
deficiencies and downgrading three significant deficiencies for 
improvement, DCAA reported adequate opinion on the contractor's 
accounting system. The interim audit supervisor, who instructed 
the lead auditor to copy and paste the prior supervisor's name 
onto the risk assessment and work papers, was subsequently 
promoted to the Western Region's Quality Assurance Manager, 
where he served as quality control check over thousands of 
audits, including some that the GAO reported on last year.
    In April 2007, the Special Inspector General for Iraq 
Reconstruction (SIGIR) reported that despite being paid $3 
million to complete the renovation of a building in Iraq, the 
contractor's work led to plumbing failures and electrical fires 
in a building occupied by the Iraqi Civil Defense Directorate.
    Now, I have one simple question. Has that interim audit 
supervisor been fired?
    Ms. Stephenson. No, ma'am.
    Senator McCaskill. And, in fact, has that interim audit 
supervisor who told that auditor to commit fraud by copying and 
pasting a supervisor's signature to work papers even been 
demoted?
    Ms. Stephenson. On the work paper copying, that was an 
issue where they had copied work papers from one assignment to 
another. It was not deliberate to copy the signature. It 
happened when they copied papers.
    Senator McCaskill. Mr. Kutz, was there, in fact, a copying 
and pasting of an auditor's signature on a report that auditor 
supervisor had never even seen?
    Ms. Fischer. Senator McCaskill, yes, that did occur because 
the prior supervisor had moved on, and it occurred on a number 
of work papers, even work papers that were created after the 
signature date.
    Senator McCaskill. Mr. Hale, I have to tell you, when we 
had the scandal at Walter Reed, I admired Secretary Gates so 
much because he went to the very top and found accountability. 
When we had the problems at the Air Force, I admired Secretary 
Gates, and I really was beginning to believe that we had in the 
military now someone who understood that when you have a 
scandal, you must have accountability.
    Let me say for the record that no one has been demoted over 
this capital offense. No one has lost his job. And I will tell 
you, to add insult to injury, I do not think the GS-12 auditor 
even got a letter of commendation. In fact, I do not think she 
has even been promoted.
    Ms. Stephenson. She has been.
    Senator McCaskill. Well, it is a lateral move. She is 
training. This is not somebody who has been heralded by the 
agency as a hero. I mean, there has been no recognition. She 
has not been called to the Pentagon to be thanked for what she 
did. And if it was not for her, we would not be here. And the 
people who did this are still there. The culture is still 
there.
    Listen, I know, Ms. Stephenson, you are new, and I know you 
are trying, but we have to come to grips with the fact that 
people who work there work there forever, and their sense of 
outrage is not significant for the American taxpayer and the 
American military right now.
    And honestly, with all due respect, Mr. Heddell, you were 
not there, but how in the world does a peer review happen with 
a clean opinion in 2006 at this audit agency? Who are the 
people who did that peer review? Who said this agency was OK in 
2006? Clearly, it was not.
    And it is not the quantity of the audits, it is the quality 
that matters. If they do not have quality, they are nothing. It 
is hard enough to get people to read one that is good. The ones 
that are horrible, I mean, who is going to read a DCAA audit 
right now without joking, without laughing about it?
    I honestly have to tell you, Mr. Hale, that you have to go 
back to the Pentagon and you have to tell them this is not good 
enough. If somebody is not fired over this, I do not think 
anybody should ever take this agency seriously again.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thank you, Senator McCaskill. Senator 
Burris.

              OPENING STATEMENT OF SENATOR BURRIS

    Senator Burris. Thank you, Mr. Chairman. I want to echo my 
colleague, Senator McCaskill. My experience as a Federal bank 
examiner, as a State comptroller, and on the board of directors 
leaves me to wonder whether or not the Defense Department 
should not have to do what we did in private industry. Senator 
Coburn made mention of what is happening.
    Do you all remember the law that passed here called 
Sarbanes-Oxley, detailing what you do with cost controls? I 
understand that the controls at DCAA were just not very 
effective at all, but the controls in auditing are what really 
run it. And if the auditor is not doing his or her job, there 
is no reliability. You are the first and the last line of 
defense to determine what is happening to taxpayers' money. I 
know you do not want to hear a lecture, but from what I have 
read and the testimony I have heard, it really leaves a lot to 
be desired.
    Mr. Hale, I know Sarbanes-Oxley does not apply to the 
Federal Government, but have you all tried to use those 
standards, which cause businesses to have to spend millions of 
dollars in order to make sure that their financial reporting is 
correct? Why would it not be the same thing for the taxpayers' 
money with the Defense Department?
    Mr. Hale. Well, as you say, that particular law does not 
apply to the Federal Government----
    Senator Burris. Sure.
    Mr. Hale [continuing]. But there are extensive standards--
you can verify that with GAO--that govern both auditing and 
internal controls and management. I am not going to sit here 
and tell you that we do the greatest job in abiding by all of 
them, but we are mindful of them and working on them.
    Senator Burris. Ms. Stephenson, I read in my notes that the 
DCAA also does auditing outside of the Pentagon. So if you do 
not have enough staff--you just hired 700 new people--how are 
you doing outside audits of other agencies?
    Ms. Stephenson. We perform audits for 34 other civilian 
agencies on a reimbursable basis. However, we do put the 
priorities on efforts such as the war and other Department 
initiatives. We have deferred a significant number of audits 
that we were required to do under law and regulation since the 
beginning of the war. So we have quite a large backlog, 
especially of the annual audits of the cost-reimbursable 
contracts. So because we do not have what we need, we defer. It 
is not as though we try to get them all done in one year. We 
recognize that we cannot do that.
    Senator Burris. Now, Mr. Hale, do you, as the Comptroller 
of the Defense Department, authorize the payment of bills? Is 
that your responsibility?
    Mr. Hale. We set the policy for it. The actual 
authorization is done at lower levels in the organization. I do 
not personally do it.
    Senator Burris. Well, it comes under your jurisdiction?
    Mr. Hale. Yes.
    Senator Burris. Do you also prepare the financial statement 
for the Defense Department as the Comptroller?
    Mr. Hale. Yes.
    Senator Burris. Is there any type of certification of that 
financial statement, which would come about as a result of what 
they are spending with outside contractors, that the auditors 
are reporting to you for the accuracy of that statement?
    Mr. Hale. Well, there is an overall audit, and we do not 
have auditable financial statements in the Department of 
Defense. There are also a number of reviews at various levels 
in the Department and outside the Department, by the IG, GAO, 
and others, of particular aspects of those statements. I do not 
know if that answers your question, but overall, the 
Department's financial statements are not auditable.
    Senator Burris. Mr. Chairman, there is a deep concern here 
because I remember when I was President of the National 
Association of State Auditors, Comptrollers, and Treasurers, we 
came to Washington to try to get the Federal Government to 
really begin to set up a structure that would allow more 
accountability to the taxpayers, and what the compromise was--
we tried to create an Auditor General who would take over the 
auditing of the Federal Government's financial statements, and 
the current Comptroller General of the United States would 
become the Auditor General, and then this person would have the 
same status as the Comptroller General has now, but he would 
oversee the financial statements of the Executive Branch.
    The compromise was this. They set a Comptroller up in the 
Office of Management and Budget (OMB), which is the fourth-
level person in OMB, and then they put comptrollers in each one 
of the agencies. That is the reason why I was questioning Mr. 
Hale. His position was created as a result of that action that 
State governments took to bring them in line pretty much with 
what States were doing. And so they did not quite complete it 
because they said that they are too big to operate. I think 
there is no such thing, but we had to compromise in that 
regard.
    I would certainly like to follow up with that action 
because the whole accounting system of the Federal Government 
really needs to be changed. What you see happening in the 
Defense Department is just a microcosm of what is happening in 
other agencies, probably because what they allege to us is that 
it is their size.
    Of course, I have also a concern about personnel in terms 
of skills. Ms. Stephenson, in terms of the new hires, are you 
able to hire skilled auditors or certified public accountants? 
Just who are they, and where are you finding these people that 
you are hiring?
    Ms. Stephenson. The people that we are hiring are generally 
entry-level. Under the Defense Acquisition Workforce 
Development Fund, which is the funding that we have for this, 
it is entry-level interns that are funded for the hiring. So 
these are entry-level individuals. There are no other auditors 
that perform the functions that we perform.
    Senator Burris. What are their skills and qualifications--
--
    Ms. Stephenson. We are contract----
    Senator Burris [continuing]. A bachelor's degree in 
accounting?
    Ms. Stephenson. Right. It is a degree in accounting, but we 
are contract auditors, and there are no other contract 
auditors, and so we have a very unique technical niche in the 
auditing arena. But specifically, under the Acquisition 
Workforce Development Fund, that is limited to interns and that 
is what we have hired.
    Senator Burris. We might have a problem with their skills. 
Who is training these individuals for skills and 
responsibilities and how long is their training period? GAO, 
did you all get into any of that, in terms of the skills of 
those new hires?
    Mr. Kutz. Not the new hires, but as we mentioned, we 
believe overall that the audit staff are good auditors, and as 
I mentioned in my opening statement, I think they were in a bad 
system at this point. And one of the things that the Department 
is trying to do is take actions to make a better system for 
them, better training, better scoping of audits, and possibly 
reducing the number of audits they are required to do so they 
can do more in-depth kind of work that you would expect a 
normal system-type audit to do.
    Senator Burris. So there is some concern about the work 
flow and the volume of work and the necessity of particular 
items being audited with these contractors?
    Mr. Kutz. Right. We believe that it is difficult to imagine 
22,000 or 30,000 audits being done a year by 3,600 people. I 
know they are trying to hire 700 more auditors, but I still 
think that denominator is a problem.
    Senator Burris. Thank you, Mr. Chairman. My time has 
expired, and I might not be here for the second round, but I 
would certainly like to follow up with this because I would 
like to talk more about the circumstances of the overall system 
that we tried to get established in the Federal Government.
    Chairman Lieberman. Thanks, Senator Burris.
    You bring a very helpful background and history about this 
State effect on the Auditing Comptroller system of the Federal 
Government. It is very interesting.
    Mr. Kutz and Ms. Fischer have made some suggestions for 
longer-term consideration that I think the Committee really 
needs to take seriously, which is whether the placement of DCAA 
within the Department is the correct place. Should it be 
separated from the Comptroller? Is there a better place for it 
to be? Should the Deputy Secretary handle DCAA? I know Mr. Hale 
has said that he thinks not.
    But the larger question, which really comes off of the 
history that Senator Burris refers to, is whether, as you 
suggest, we ought to take a look at creating a totally 
independent auditing agency for the Federal Government overall, 
maybe to go back to that idea of an Auditor General. That is 
something I think I would like to come back to.
    We are not going to do a second round. I think we have made 
the point here that this Committee has lost its patience, 
really, and there is too much on the line to not see the kind 
of aggressive action, decisive action, that Members of the 
Committee have asked for.
    Mr. Hale, I am going to ask you to give us a monthly 
report. It can be a letter, and our staff will work with you on 
the details of it. And then we will probably want to come back 
and do some more specific public hearings on this and other 
related questions.
    As soon as you are able, it would be of interest to me, 
anyway, to get your reaction to Mr. Kutz's and Ms. Fischer's 
recommendation that part of the problem here is the auditors 
are trying to do too much and they are doing a lot of it 
badly--in other words, DCAA should go to risk-based auditing. I 
would be interested in hearing whether you need statutory 
changes to do that. We understand, as you said, and you were 
right, that when you do that, you are running the risk that you 
are not going to audit a contract and you really will look back 
and say, oh, we should have audited that. But anyway, I want to 
have a more detailed evaluation of that.
    Senator Coburn. Mr. Chairman, would you yield?
    Chairman Lieberman. Senator Coburn, and then we will go to 
Senator McCaskill.
    Senator Coburn. If you create the expectation that you are 
going to get a real audit and you do not know when you are 
going to get the real audit, you will change multitudes of 
behavior. What needs to happen is the suppliers and contractors 
of the Defense Department need to be very worried about when 
they come into an audit, that, in fact, it is going to be 
thorough, aggressive, and accurate. And if you create that 
expectation, then you will not have to audit everybody every 
year. But they will not know when they are going to get 
audited, and that is how auditing works best, with the 
expectation that they are going to uncover our problems.
    So quality, as Senator McCaskill said. It is not quantity. 
It is quality and then creating an expectation in the rest of 
the contractor community that you better have it right. 
Otherwise, we are going to expose it.
    Senator Burris. Mr. Chairman, just one quick point----
    Chairman Lieberman. Yes, go ahead, and then we will go to 
Senator McCaskill.
    Senator Burris. Sorry. Thank you. As Senator Coburn 
mentioned, when I was a bank examiner, surprise, that is what 
we did. The banks did not know when we were coming.
    Chairman Lieberman. Yes.
    Senator Burris. So what Senator Coburn said is exactly what 
we did when I was with the Federal Government. The banks always 
had to be ready because they did not know when the examiners 
were coming in.
    Chairman Lieberman. Yes. To some extent, the Internal 
Revenue Service depends on this kind of psychology with the 
auditing. They cannot audit every tax return in the country, 
but because everybody worries that they may be audited, 
presumably, it encourages more honesty.
    Senator McCaskill.
    Senator McCaskill. I am almost disappointed we do not have 
a second round so I could be calm during the second round.
    Chairman Lieberman. I prefer to remember you as angry. 
[Laughter.]
    Senator McCaskill. Well, just a couple of things I think we 
need to make sure we have on the record. One is that I know 
that you may find this shocking, but there are hundreds and 
hundreds of auditors around the country that are not doing 
every audit that has been statutorily mandated because you know 
what legislators always do? Legislators always say, audit it in 
the legislation, and they never give the resources to audit it. 
So auditors are constantly struggling with mandated statutory 
audits that they do not do. That is why the risk assessment 
system was born. That is why we have the single audit, the 
different levels of programs that are audited because of risk 
and the amount of money that is flowing. And clearly in a 
contingency, in a situation like the case study I talked about, 
that is where you have the most risk. And I just really do not 
get this reluctance.
    And I think that leads to the second point, Mr. Chairman. I 
think we need to really stay focused on how insular this agency 
truly is. I have to tell you the truth, Ms. Stephenson, the 
notion that you just testified that there are no other contract 
auditors out there, there are. There are hundreds of auditors 
that have the same government auditing standard background, 
that have done the same kind of scope and work on their audits, 
that have the same kind of supervisory check. I mean, auditing, 
yes, there are different kinds and different expertise, but 
what you have always done in that agency is lateral and 
promotion. You have never brought in anybody from the outside, 
whether it is on a peer review or whether it is on deciding 
whether or not people get promoted. It has always been a birth-
to-death organization, and it is dying because of it.
    I was going to calmly go through those points in questions 
if we had had a second round. I have a number of questions for 
the record, and I will just let both the Chairman and the 
Ranking Member know that if there is any of this follow-up work 
that the Subcommittee can do--as you can see, I am fairly 
agitated and involved in this particular subject matter--in 
terms of follow-up hearings, we are happy to do that on the 
Subcommittee if that is your pleasure and prerogative. 
Obviously, we leave it to your decision as to what work you 
would like us to do on the Subcommittee.
    Chairman Lieberman. No, I think that is a great idea. You 
are agitated, but you are also experienced, and that is a good 
combination. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    I think it is important for our witnesses to know why we 
feel so strongly and why there is such a sense of outrage among 
all of us who are here today. The first reason is that we are 
talking about contracts that are worth hundreds of billions of 
dollars. So what we have on the line here is an enormous 
investment by the taxpayers.
    Second, ultimately, we are talking about services and goods 
in the case of DOD that are going to support our troops in 
harm's way. Senator McCaskill's example of the Iraq contractor 
is replicated over and over again. So if we do not have good 
audits that are catching overbilling, shoddy work, the failure 
to deliver on a contract, contractors who are ripping off the 
Federal Government, the people who are being shortchanged in 
many cases are the men and women who are risking their lives 
every day for us, and that is why this matters so much.
    And third and finally, the frustration you are hearing 
today is that it appears that virtually nothing has changed 
since we held our hearing last year, and that is completely 
unacceptable.
    So I join the Chairman in his commitment to keep on top of 
this. It is exactly the kind of shoddy work that devalues the 
very good work that is done by the majority of the hard working 
employees at DCAA whose work I do value and acknowledged in my 
opening statement.
    We have to get this right. We cannot be here next September 
with yet another GAO report that tells us little has changed.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins.
    I think the time for incremental responses is over. 
Training programs are good, but this organization really needs 
bold change, and we are counting on you, Mr. Hale. Bringing 
that about is another one of the bonuses that comes with your 
accepting this position.
    The record of this hearing will stay open for 15 days for 
additional questions or statements to be filed for the record.
    I thank everybody. The hearing is adjourned.
    [Whereupon, at 11:38 a.m., the Committee was adjourned.]



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