Pentagon contract fraud policy may not match reality

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The Defense Contract Audit Agency — the Pentagon's front-line defense from contractor rip-offs — has been under fire since last summer, when the Government Accountability Office determined that DCAA had not followed government auditing standards during several audits.

Now, DCAA has established new guidelines on how it will go about protecting troops and taxpayers from fraud in the future. The guidelines were documented Monday in a new internal memo, a copy of which was obtained by PaperTrail.

The memo specifically addresses what some insiders have cited as a key impediment at the agency: Management often demands a high standard of proof of fraud — seemingly in violation of policy — before sending referrals onto DCAA headquarters for further inquiry.

According to the memo from Karen K. Cash, DCAA’s assistant director for operations, “there is no requirement for the auditor to prove the existence of fraud or other contractor irregularities in order to submit a DCAA Form 2000” — the form required to refer suspected fraud and irregularities to headquarters. From there, cases needing further inquiry go to criminal investigators at the Defense Criminal Investigative Service (DCIS), an arm of the Defense Department’s inspector general.

"Management reviews of the DCAA Form 2000s prior to formal submission should be limited to that necessary to ensure clarity," the memo continues. "No attempt should be made to dissuade an auditor from completing and submitting a DCAA Form 2000."

The memo could help, but smoothing out the process may prove more complicated. A senior DCAA official, speaking on the condition of anonymity, said some DCIS criminal investigators “did not want a referral unless the DCAA referral demonstrated it was clearly fraud… We have had to educate our people that we do not need to prove fraud; that is the job of the investigator."

One case last year seemed illustrative of the broader confusion. In January 2008, a DCAA auditor's manager turned down his request to send his referral to headquarters for reasons that seem to contradict the policy. The DCAA employee name is withheld by request.

"While the subject referral may document unusual activity on the part of the contractor," the denial memo by the manager states, "it has not established that the alleged activity was prohibited by any legal, regulatory, or contractual requirement."

"It is my conclusion that there is not a sufficient basis for suspicion of fraud or other irregularity," the memo by a DCAA branch manager continues, "therefore, I will not forward a copy of the Form 2000 to Headquarters."

However, according to Darryn James, a Pentagon spokesman, "DCAA is not aware of investigators or other government employees discouraging the reporting of suspected irregular conduct." James added that DCAA management “is alert to situations that may warrant a referral and will assist auditors in making the determination of whether to submit a referral."

The manager in the 2008 case went on to tell the auditor that any further concerns could be sent to the Defense Department Office of Inspector General, through its hotline.

The IG hotline has problems of its own, as indicated by a congressional hearing. A senior DCAA auditor — Thi Le — had been retaliated against after the IG hotline told her managers that she had made allegations to the hotline.

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