Defense Contract Audit Agency
Encyclopedia

The Defense Contract Audit Agency (DCAA), under the authority, direction, and control of the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 Under Secretary of Defense (Comptroller), is responsible for performing all contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

 audit
Audit
The general definition of an audit is an evaluation of a person, organization, system, process, enterprise, project or product. The term most commonly refers to audits in accounting, but similar concepts also exist in project management, quality management, and energy conservation.- Accounting...

s for the United States Department of Defense
United States Department of Defense
The United States Department of Defense is the U.S...

 (DoD) (and, to a lesser extent, for other agencies outside DoD), and providing accounting and financial advisory services regarding contracts and subcontracts to all DoD components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts.

History

Audits of military
Military
A military is an organization authorized by its greater society to use lethal force, usually including use of weapons, in defending its country by combating actual or perceived threats. The military may have additional functions of use to its greater society, such as advancing a political agenda e.g...

 contracts can be traced back 60 years or more. Initially, the various branches of the military had their own contract audit function and associated instructions and accounting rulings. Uniformity was non-existent. Contractors and government personnel recognized the need for consistency in the areas of contract administration and audit.

The U.S. Navy
United States Navy
The United States Navy is the naval warfare service branch of the United States Armed Forces and one of the seven uniformed services of the United States. The U.S. Navy is the largest in the world; its battle fleet tonnage is greater than that of the next 13 largest navies combined. The U.S...

 and Army Air Corps
United States Army Air Corps
The United States Army Air Corps was a forerunner of the United States Air Force. Renamed from the Air Service on 2 July 1926, it was part of the United States Army and the predecessor of the United States Army Air Forces , established in 1941...

 made the first attempt to perform joint audits in 1939. By December 1942, the Navy, Army Air Corps, and Ordnance Department had established audit coordination committees for selected areas where plants were producing different items under contracts for more than one service.

On 18 June 1952, the three military services jointly issued a Contract Audit Manual (CAM). The Manual prescribed detailed policies and procedures for use in auditing procurement contracts. Because of differences between the procurement organizations and practices of the services, finalizing standard guidelines was difficult.

In May 1962, Secretary, Department of Defense, Robert S. McNamara instituted "Project 60" to examine the feasibility of centrally managing the field activities concerned with contract administration and audit. An outcome of this study was the decision to establish a single contract audit capability.

On 8 January 1965, the Defense Contract Audit Agency (DCAA) was formed. Mr. William B. Petty, formerly the Deputy Comptroller of the U.S. Air Force, was selected as the Director with Mr. Edward T. Cook, formerly Director of Contract Audit for the Navy, selected as the Deputy Director.

DCAA Today

Today, the Defense Contract Audit Agency consists of approximately 4,000 people located at more than 300 field audit offices throughout the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

, and in the Pacific. The Agency provides standardized contract audit services for the Department of Defense, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts.

DCAA also provides contract audit services to some other Government Agencies, as well as to other countries under the Foreign Military Sales
Foreign Military Sales
The U.S. Department of Defense's Foreign Military Sales program facilitates sales of U.S. arms, defense equipment, defense services, and military training to foreign governments...

 (FMS) program, on a reimbursable basis. The largest non-DoD agency for which DCAA performs audits is NASA
NASA
The National Aeronautics and Space Administration is the agency of the United States government that is responsible for the nation's civilian space program and for aeronautics and aerospace research...

 (primarily since the same government contractors, especially on major programs, do substantial business with both DoD and NASA).

DCAA's headquarters are located at Fort Belvoir
Fort Belvoir
Fort Belvoir is a United States Army installation and a census-designated place in Fairfax County, Virginia, United States. Originally, it was the site of the Belvoir plantation. Today, Fort Belvoir is home to a number of important United States military organizations...

, in the same building as the Defense Logistics Agency
Defense Logistics Agency
The Defense Logistics Agency is an agency in the United States Department of Defense, with more than 26,000 civilian and military personnel throughout the world...

. DCAA also operates a training facility on the Park Avenue Campus of the University of Memphis
University of Memphis
The University of Memphis is an American public research university located in the Normal Station neighborhood of Memphis, Tennessee and is the flagship public research university of the Tennessee Board of Regents system....

; however, this facility will close in 2012 and DCAA has not yet announced a replacement facility.

Under headquarters DCAA is organized into five geographic regions and a Field Detachment group, the latter handling contracts involving classified information. The five geographic regions, the location of the regional office, and the (as of 2011) general area of responsibilities are as follows:
  • Western--La Mirada, California
    La Mirada, California
    La Mirada is a city in southeast Los Angeles County, California, United States, and is one of the Gateway Cities. The population was 48,527 at the 2010 census, up from 46,783 at the 2000 census....

     (Los Angeles area)
    • California, Alaska, Arizona (excluding the Raytheon
      Raytheon
      Raytheon Company is a major American defense contractor and industrial corporation with core manufacturing concentrations in weapons and military and commercial electronics. It was previously involved in corporate and special-mission aircraft until early 2007...

       offices in the Tucson
      Tucson, Arizona
      Tucson is a city in and the county seat of Pima County, Arizona, United States. The city is located 118 miles southeast of Phoenix and 60 miles north of the U.S.-Mexico border. The 2010 United States Census puts the city's population at 520,116 with a metropolitan area population at 1,020,200...

       area), Hawaii, Idaho, Montana, Oregon, and Washington state, as well as audits in Asian Pacific Rim countries and Australia
  • Central--Irving, Texas
    Irving, Texas
    Irving is a city located in the U.S. state of Texas within Dallas County. According to the 2010 U.S. Census, the city population was 216,290. Irving is within the Dallas–Plano–Irving metropolitan division of the Dallas–Fort Worth–Arlington metropolitan area, designated...

     (DFW Metroplex area)
    • Texas, New Mexico, Utah, Colorado, Wyoming, North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, northern Louisiana, Arkansas, Missouri, Iowa, Wisconsin, Illinois, and the Upper Peninsula of Michigan.
  • Eastern--Smyrna, Georgia
    Smyrna, Georgia
    -Demographics:As of the census of 2000, there were 40,999 people, 18,372 households, and 9,498 families residing in the city. The population density was 2,949.9 people per square mile . There were 19,633 housing units at an average density of 1,412.6 per square mile...

     (Atlanta area)
    • Georgia, Mississippi, Alabama, Tennessee, Florida, North Carolina, South Carolina, southern Virginia, Indiana, Ohio, and the Lower Peninsula of Michigan, as well as audits in Central and South American countries
  • Mid-Atlantic--Philadelphia, Pennsylvania
    Philadelphia, Pennsylvania
    Philadelphia is the largest city in the Commonwealth of Pennsylvania and the county seat of Philadelphia County, with which it is coterminous. The city is located in the Northeastern United States along the Delaware and Schuylkill rivers. It is the fifth-most-populous city in the United States,...

    • Pennsylvania, northern Virginia, Maryland, Delaware, the District of Columbia, West Virginia, and southern New Jersey
  • Northeastern--Lowell, Massachusetts
    Lowell, Massachusetts
    Lowell is a city in Middlesex County, Massachusetts, USA. According to the 2010 census, the city's population was 106,519. It is the fourth largest city in the state. Lowell and Cambridge are the county seats of Middlesex County...

     (Boston area)
    • Massachusetts, northern New Jersey, New York, Connecticut, Rhode Island, Maine, Vermont, and New Hampshire, plus audits in Europe, Asia (including Israel and the Middle East, but excluding the Pacific Rim), and Africa, and all audits relating to Raytheon
      Raytheon
      Raytheon Company is a major American defense contractor and industrial corporation with core manufacturing concentrations in weapons and military and commercial electronics. It was previously involved in corporate and special-mission aircraft until early 2007...

       regardless of the physical location of the segment or division involved.


Within each region are between 15-22 field audit offices, referred to as resident offices (if auditing only one contractor, generally used at major facilities or corporate offices) or branch offices if auditing more than one contractor. Branch offices may have sub-offices under them, which have auditors dedicated to one contractor, but not enough to establish a separate office.

Notable Cases

In the 1990s DCAA supported a 9 agency Federal Task Force investigation, led by NASA's Office of Inspector General, into an elaborate multi-million dollar embezzlement and money laundering scheme perpetrated by Ralph Montijo, owner of Omniplan Corporation. Omniplan was a NASA prime contractor and subcontractor under Rockwell Space Operations Company. This investigation led to the largest count indictment and conviction in NASA's history. Ralph Montijo was indicted on 285 counts and convicted of 179 felonies. Five of his companies were also convicted of felonies, they were, Omniplan, Papa Primo's of Texas, Papa Primo's of Arizona, Omnipoint Production Services and Mercury Trust. These five companies, together with two unincorporated companies, Space Industries Leasing and Space Industries Properties, were ordered liquidated. Each embezzlement count was associated with a corresponding money laundering count which resulted in dozens of convictions for money laundering. In a New York Times story NASA's Office of Inspector General Senior Special Agent Joseph Gutheinz, who led the Omniplan task force investigation, was quoted as saying: "We didn't get any pizzas, but we got the bills", referring to the fact that some of the alleged mischarging to the NASA contract also involved costs associated with two of Ralph Montijo's pizza companies, Papa Primo's of Texas, and Papa Primo's of Arizona . "Mr. Gutheinz said the Montijo case was the most significant (case) the space agency had had."

Allegations of intimidation, retaliation, lax oversight, and poor performance

A report released by the Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 (GAO) on July 23, 2008 alleged that DCAA managers threatened a senior auditor with personnel action if he did not remove negative findings from a report criticizing a large federal contractor. The report found a too-cozy relationship between management at the DCAA and some of the contractors they are assigned to audit, including Boeing
Boeing
The Boeing Company is an American multinational aerospace and defense corporation, founded in 1916 by William E. Boeing in Seattle, Washington. Boeing has expanded over the years, merging with McDonnell Douglas in 1997. Boeing Corporate headquarters has been in Chicago, Illinois since 2001...

. GAO also said auditors who complied with the investigation were subject to harassment and intimidation from their supervisors.

The DCAA responded on July 25 that it had asked the US Department of Defense's (DoD) Inspector General (IG) office to investigate the GAO's claims. "We take the GAO report very seriously," said April Stephenson, DCAA's director. US Senator Claire McCaskill
Claire McCaskill
Claire Conner McCaskill is the senior United States Senator from Missouri and a member of the Democratic Party. She defeated Republican incumbent Jim Talent in the 2006 U.S. Senate election, by a margin of 49.6% to 47.3%. She is the first woman elected to the U.S. Senate from Missouri in her own...

 said GAO may have uncovered the "biggest auditing scandal in the history of this town," and asked the DoD to immediately fire the supervisors cited in the report.

An Associated Press
Associated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

report on November 10, 2008 revealed that DCAA challenged $4.6 billion, or only 1.2 percent, of the contracts it audited as lacking necessary documentation. The agency has not used its subpoena authority in over 20 years to produce the required paperwork from defense contractors under audit. According to the Associated Press, in contrast to the GAO, which saves taxpayers $94 for every dollar it spends, DCAA's return on investment is only $7. As an example, the Associated Press reported that a May 2008 audit of Bechtel Group, supervised by DCAA regional director Christopher Andrezze, showed a "chronic failure" by Bechtel to produce the required documentation for the audit. In spite of this, DCAA issued a report rating Bechtel's internal accounting procedures as "adequate," a passing grade which meant DoD auditors could ease up on the company. The DCAA report did not mention the company's failure to produce the required documentation.

A Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 (GAO) report in September 2009 found that agency auditors failed to follow basic auditing standards in 65 of 69 audits. The GAO noted that the agency lacks independence from the contractors it audits and the DoD agencies doing business with those contractors. The GAO concluded that pressure from outside groups helped create a hostile work environment which caused agency auditors to rush reviews of contractor billing systems, falsify audit reports, and appease contractors when auditing their business methods and systems. Said Senator Joe Lieberman
Joe Lieberman
Joseph Isadore "Joe" Lieberman is the senior United States Senator from Connecticut. A former member of the Democratic Party, he was the party's nominee for Vice President in the 2000 election. Currently an independent, he remains closely affiliated with the party.Born in Stamford, Connecticut,...

 in response to the report, "This organization needs bold changes. The larger question … is whether, as [GAO] suggested, we ought to take a look at creating a totally independent auditing agency for the federal government overall and go back to the idea of an auditor general."

The DoD IG released a report of its investigation into the agency on August 31, 2009. The IG found that the DCAA has an "environment not conducive to performing quality audits." The IG report cited an audit of Boeing in which the company was allowed to keep $217 million in taxpayer's money because a DCAA regional auditor did not perform his/her duties properly. When Boeing was unresponsive to a request for information, the regional auditor ordered a subordinate to change the audit report in Boeing's favor. Said Senator Tom Coburn
Tom Coburn
Thomas Allen "Tom" Coburn, M.D. , is an American politician, medical doctor, and Southern Baptist deacon. A member of the Republican Party, he currently serves as the junior U.S. Senator from Oklahoma. In the Senate, he is known as "Dr. No" for his tendency to place holds on and vote against bills...

 about the agency in response to the report, "It’s atrocious. Several of those people ought to be fired." Added Senator Claire McCaskill
Claire McCaskill
Claire Conner McCaskill is the senior United States Senator from Missouri and a member of the Democratic Party. She defeated Republican incumbent Jim Talent in the 2006 U.S. Senate election, by a margin of 49.6% to 47.3%. She is the first woman elected to the U.S. Senate from Missouri in her own...

, "This report is just further confirmation that DCAA is fundamentally broken. I certainly hope the Department of Defense takes these accusations seriously. As I said before, if somebody is not held accountable for the shoddy audits the DCAA has produced, nobody should take this agency or their work seriously in the future." DCAA director Stephenson stated in the IG report that her agency concurred with the IG's recommendations.

In the wake of the investigations, Stephenson was removed from her position as director of the agency by DoD comptroller Robert Hale and reassigned to Hale's staff effective November 9, 2009. She was replaced by Patrick Fitzgerald, previously the Auditor General of the United States Army Audit Agency.
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