Washington, D.C.-The Pentagon's Defense Contract Audit Agency - the federal watchdog responsible for providing critical accounting and auditing oversight of military contractors - is riddled with audit quality problems that include serious breaches of auditor independence, congressional investigators charged.

In a report to the Senate Homeland Security Committee, investigators from the Government Accountability Office cited a series of disturbing and widespread problems with audit quality at the agency, and issued a laundry list of recommendations to correct them.

As part of its probe, the GAO reviewed 69 separate audit assignments designed to support contract awards and administrative decisions affecting billions of dollars in Pentagon expenditures. The problems uncovered included waste of time and resources. As an example, the GAO noted that DCAA auditors spent 530 hours to support an audit of the cash-management system at a research and development grantee, only to discover that the billing system was non-existent.

During a separate audit of a supplier of combat systems, investigators charged that, "Auditors deleted key audit steps related to the contractor policies and internal controls over progress payments without explanation."

One DCAA auditor admitted that he did not perform detailed tests because, "The contractor would not appreciate it."

Even more red flags were raised when a military contractor involved in the Iraq reconstruction project objected to a draft of a DCAA audit report that cited eight significant deficiencies in the firm's accounting system. In response, auditors dropped five deficiencies and downgraded three others to suggestions to improve without performing new work, the GAO said.

"Supervisory auditors directed the audit staff to delete some audit documents, generate others and, in one case, copy the signature of a prior supervisor onto new documents, making it appear that the prior supervisor had approved a revised risk assessment," the GAO stated. Instead of disciplinary action, however, the "supervisory auditor who approved altered documents was later promoted to western region quality assurance manager, where he served as quality control check over thousands of audits."

The GAO suggested that Congress consider creating an independent, government-wide contract audit agency. The report also called on the DOD to engage outside experts to develop a risk-based contract audit approach that identifies resource requirements and focuses on performing quality audits.

The new report was not the GAO's first slap at the audit agency. At a September 2008 Senate hearing, GAO investigators testified that the DCAA failed to meet professional audit standards at three separate locations in California.

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