Prepared Floor Statement of Senator Chuck Grassley Oversight Report of the Department of Defense Office of the Inspector General Delivered Wednesday, September 15, 2010
Video of Grassley’s statement can be found here.
Mr. President, I come to the floor today to speak about watch-dogging the watchdogs.
I first started watch-dogging the Pentagon in the early 1980’s when President Reagan was trying to ramp up the defense budget. A group of defense reformers were examining spare parts pricing. We found the Pentagon buying $750 toilet seats and $695 ashtrays for military airplanes.
That experience taught me an important lesson. If you are going to watchdog the Pentagon, like the Inspector General or IG is supposed to do, then you better sharpen your wits and have the tools of the trade ready.
One of the most important oversight tools is the audit.
The audit is the IG’s main weapon for detecting and reporting fraud, waste, and theft. Mr. President, I am sad to report, the IG’s Audit Office is not ready to tackle fraud and waste.
The lack of IG audit readiness comes at a time when aggressive audits are sorely needed.
Secretary Gates recently announced that he wants to cut $100 billion in wasteful spending. But he is relying on the Pentagon bureaucrats to eliminate it. Asking those who created the waste in the first place to then turn around and get rid of it is not a good plan. He needs a better mix of weapons. To win his declared war on waste, Secretary Gates needs independent back-up from the IG. Unfortunately, the IG’s Audit Office is AWOL doing policy audits.
Policy audits are not known for exposing waste.
Last year, I received a series of anonymous letters, alleging mismanagement and low productivity in the IG’s Audit Office. This is a huge office. It has 765 auditors and an annual budget of $90 million.
In response, my staff conducted an in-depth review of all the pertinent issues. That oversight report was just completed and forwarded to Secretary Gates with recommendations for corrective action.
My oversight should fit right in with Secretary Gates’ plan to cut waste at the Defense Department. Iowans are aching for some common sense fiscal policy here in Washington.
My oversight report puts the spotlight on a good starting point.
That oversight report indicates that this vital piece of IG oversight machinery – the audit -- has been disabled. It’s broken, leaving hundreds of billions of tax dollars vulnerable to fraud, waste, and theft.
The status quo is totally unacceptable. The IG’s audit machinery needs to be brought back up to standards.
IG Heddell needs to hit the re-set button. He needs to re-focus the audit effort on priority areas consistent with the IG’s core mission -- to detect and report fraud, waste, and abuse.
The problem identified in my oversight report is two-fold.
The first big problem is the broken Defense Department accounting system. That system is incapable of generating accurate and complete financial data.
The success or failure of an audit turns on the quality of data available for audit. Unfortunately, the quality of Defense Department data presented to auditors should probably be rated as poor to non-existent. The consequences are predictable. Auditors consistently report “no audit trail” found. But what does “no audit trail” found really mean?
It means that critical supporting documentation and data are missing. Vital records are not available for audit. Money has been paid out -- but for what? When there is no audit trail to follow, that question gets no answer.
The “no audit trail” finding is like a bad tooth ache that doesn’t go away.
The IG’s own audit manuals warn that a no audit trail scenario is a red warning flag. It is a very common indicator of fraud. So we have clear cut indicators of fraud that show up in one IG report after another, and nothing seems to happen. It’s like the IG is howling in the wilderness. There’s no follow-up and no corrective action.
Why is this being tolerated? How many more times does the IG need to be confronted by such obvious signs of fraud before decisive action is taken?
Maybe next time the auditors can’t find an audit trail on a big contract, they should “lock the doors and call the law”- Just drop a net on the place and call for back-up.
This brings me to the second audit issue.
The IG’s Audit Office has allowed itself to be buffaloed by the no audit trail scenario. It just backs off and rolls over instead of attacking it head-on with solutions.
The heart and soul of any financial oversight operation is the contract audit.
In the government, there can be no expenditure of public money without a written, binding contractual agreement. That document must specify what goods and services are to be delivered. That’s the law. That’s where “the money trail” starts. That’s where audit work should begin. It’s square one on the audit roadmap.
Beyond the contract, there are a number of critical data points or “dots.”
These should pop up on the auditor’s radar screen. These may include contract modifications, recorded obligations, inspection and receiving reports, invoices, and payments.
To get a handle on fraud and waste, auditors need to connect all the dots between the contract and final payments. They need to make all the hook ups. For example, when contract requirements can’t be matched with payments, bingo. There is a potential problem.
This is what is called a full-scope, end-to-end audit. This is what auditors must do to document and verify fraud and waste. Doing that work positions them to answer two key oversight questions:
Did the government get what it ordered at the agreed upon price and schedule?
Or did the government get ripped off?
Top audit officials repeatedly and consistently told my investigators that doing genuine contract audits was “impossible …. We can’t do it ….. It’s too difficult.”
One audit in particular appears to illustrate and typify the seemingly impassable obstacle – or brick wall – perceived by the auditors.
The report is entitled “U.S. Air Forces Central War Reserve Material Contract,” Report No. D-2009-108.
Instead of attempting to verify payments at the primary source, which is the Defense Finance and Accounting Service, the audit team opted for an unauthorized shortcut.
They chose to rely on payment data provided by the contractor – DynCorp – the target of the audit. Even using this flawed audit procedure, examiners were unable to match contract requirements with payments and gave up. The report concluded: “The government did not know what it was paying for …. It may have paid for services DynCorp did not perform.” The auditors simply turned a blind eye to the potential fraud here.
$161 million dollars went out the door, and for what, we don’t know. The report does not tell us. It does not nail down all the pertinent facts. It’s inconclusive and unfinished. The auditors just kicked the can down the road, bucking it to another Defense Department audit agency.
Clearly, auditing large, complicated Defense Department contracts where there is no audit trail to follow is a daunting task. But that does not mean it is mission impossible. It can be done. Senior managers refer to this task as “audit trail reconstruction work. It’s labor intensive pick and shovel work.”
Today, the IG relies on small, “rinky dink” 5- or 10-auditor teams. That just doesn’t cut it. The IG needs to deploy much larger teams consisting of 25, 50, or even a 100 auditors or more to tackle the most egregious contract jobs.
Let me make one point crystal clear right here. I am not suggesting the IG needs to hire more auditors. This should be done within available resources. What I am saying is this:
The Audit Office needs to switch from a large number of small teams to a small number of large teams. That would be a reallocation of audit resources.
A top Audit Office official said that it would be possible “to cobble together such an audit team to look at one of the big weapons programs.” However, doing that would “deplete resources needed to meet other priorities.”
Mr. President, the “other priorities” referenced by this top official are probably wasteful reviews of the department’s policy and procedures.
In 2009, the Audit Office did not conduct one in-depth contract audit of a major major weapon system or contractor. Aren’t major weapons systems an audit priority?
The record suggests otherwise.
To this Senator from Iowa, this is an astonishing revelation. The IG is not doing contract audits. How can this be? If the IG is not doing contract audits, then the office of the IG is not – or should not be -- open for business.
The core IG mission is to detect and report fraud, waste and abuse to the Secretary and Congress and to recommend corrective action. To detect and verify fraud and waste, auditors need to be on the “money trail” 24/7. That’s where most fraud occurs. They need to be connecting all the dots between contracts and payments.
Instead of trying to do contract audits, the Audit Office just gave up and moved to greener pastures.
Most audits now focus on policies and procedures. In moving in this direction, the IG has strayed far from its core mission.
Today’s preference for policy audits yields zero benefits to the taxpayers. These reports cost about $800,000.00 apiece. Cranking out worthless policy audits may not qualify as misconduct. But it’s surely blatant waste of precious tax dollars.
The current focus on policy audits helps me understand why 765 auditors – with an annual budget of $90 million – could not root out any measurable fraud and waste last year.
IG Heddell needs to hit the re-set button and re-focus the audit effort on the core IG mission.
First, he needs to resume full-scope contract audits to root out fraud and waste.
Second, the Audit Office needs to aggressively review all the Defense Department’s plans and programs for deploying a modern accounting system. It needs to offer specific recommendations that would help the department reach the 2020 readiness goal.
I am receiving assurances from IG Heddell that he is moving smartly in the right direction. The signals from that office are very encouraging. Yet I remain skeptical. The Audit Office still seems to think that full-scope contract audits are a non-starter and policy reviews are highly relevant.
Mr. President, I yield the floor.