WASHINGTON – March 14, 2012 - Calling the audit work of the Defense Department’s inspector general a mission of the highest importance, Senator Chuck Grassley today urged auditors to double down on improvements to their work with stronger recommendations, a greater focus on fraud and appropriate criminal referrals, timeliness, and follow-up efforts that result in accountability and recovery of improper payments.
Grassley made his remarks as he released his third report card assessing the audit work of the Inspector General’s office. Grassley’s latest review awarded a grade of C, up from last year’s D-minus.
“There’s nothing more important to the taxpayers than having an aggressive team of auditors watch-dogging how the taxpayers’ money is spent,” Grassley said. “The good news is that in response to the feedback from these report cards and a productive ongoing dialogue, audit quality appears to be improving.”
The senator said he began assessing this audit work three years ago based on a tip about mismanagement and no benefit to taxpayers or program integrity despite a cost of $100 million a year for the auditing operation.
Grassley said that the work he first examined was little more than policy and compliance reviews, with no real attempt to scrutinize the dollar impact of misguided efforts. “If we’re going to have accountability with valuable defense dollars, we need hard-core, fraud-busting contract audits,” Grassley said.
Earlier this month, Grassley asked Defense Secretary Leon Panetta to examine audit recommendations and pursue reforms. Today, Grassley said he appreciates the interest of Acting Inspector General Lynne M. Halbrooks in making the audit work more aggressive and effective. Grassley shared his review with Halbrooks in a detailed 25-page document. Grassley’s floor statement about his continuing effort is below.
The Iowa senator has a long history of defense oversight and legislative reform work. During the 1980s, he led a vigorous campaign for military procurement reform. Grassley helped to expose the gross overpricing of spare parts and won passage in May 1985 of an amendment that froze the defense budget and ended the Reagan military budget build up. In working to reduce waste, fraud and abuse of defense dollars, Grassley took on the iron triangle of congressional committees, the Pentagon and special interest groups. He has been a leader in drawing attention to egregious practices of the Defense Finance and Accounting Services, the agency which manages payments for the Department of Defense, and offered a series of reform amendments to annual spending bills for the Department of Defense, while also ramping up pressure on auditors for the Inspector General to conduct aggressive and meaningful reviews of accounting practices. Over many years, Grassley has worked to empower watchdogs and whistleblowers to speak up regarding defense spending abuses and to hold accountable inspectors general responsible for oversight of defense dollars.
Floor Statement of U.S. Senator Chuck Grassley
Audit Oversight Review and Report Cards for 2009-2011
The Office of the Inspector General for the Department of Defense
Tuesday, March 13, 2012
Mr. President, I come to the floor today to report on the latest results of my ongoing audit oversight review.
This work examines audits issued by the Office of the Inspector General at the Department of Defense.
After receiving anonymous letters in early 2009 alleging mismanagement of audit resources, my staff initiated an in-depth oversight review. This is my third report in the series. Its goal is to assess audit quality in 2011 and make recommendations for improvement.
I am doing this work for one important reason.
Like investigations, audits are a primary oversight tool. In fact, audits may be the most important tool. That is because the auditors’ core mission is to watch-dog how the taxpayers’ money is being spent. That puts them on the “money trail” 24/7. If fraud is occurring, that’s where it will happen. That’s where they need to be, and hopefully they find it.
These audits cost the taxpayers $100 million a year. Are they getting the job done? Are they rooting out waste and fraud and saving money?
My first report, which was published on September 7, 2010, clearly indicated that the audit oversight capabilities of the Inspector General’s office were seriously degraded.
The Inspector General at the time, Gordon Heddell, responded to my first report in a very constructive way. He promptly approved a transformation plan designed to improve audit quality.
In order to assess progress on reforms, I issued a second report on June 1, 2011. I called this one a Report Card. It evaluated and graded 113 reports issued during fiscal year 2010.
I awarded those 113 reports a grade of D Minus.
The low overall score was driven by the very same deficiencies pinpointed in my first report.
Instead of being hard-core, fraud-busting contract audits, most reports were policy and compliance reviews. There was little or no attempt to even verify the exact dollar impact of the misguided policies examined. Such reports offered zero benefit to the taxpayers, though many were mandated by Congress.
I identified 27 good reports that involved commendable and credible -- and in some cases -- nitty gritty audit work. Were it not for their long completion times, all those reports would have earned top scores.
At the conclusion of the second report, my staff presented a list of the “Top Nine Audit Roadblocks” standing in the way of reform.
After the second report was issued, Inspector General Heddell issued a sharp rebuttal.
He complained that I did not give sufficient credit for 18 audits that identified $4.2 billion in potential monetary benefits.
I addressed Inspector General Heddell’s criticism on the floor on two separate occasions -- July 5th and July 28th, 2011. At that time, I admitted that he had a legitimate gripe about my report. My staff reviewed the matter and upped the scores on 12 of the 18 reports, but those adjustments did not move the overall score for 113 reports out of the D range.
Today, I am issuing my third audit oversight report. This one examines the latest batch of reports -- the 121 reports issued between October 1, 2010 and September 30, 2011. They are known as the fiscal year 2011 audits.
I am giving those reports an overall score of 3.51 or C.
As my report clearly indicates, there was across-the-board improvement in every category except one – timeliness.
I am very happy to report to my colleagues that audit quality appears to be improving.
The best possible indicator of improvement is the doubling of top-rated reports. Those numbers jumped from 27 reports, or 25% of total production in 2010, to 70 reports, or 58% of total production in 2011. That’s better than a two-fold increase.
The auditors have achieved a breakthrough. The apparent progress is promising.
The most important area of improvement in audit quality was in the strength of recommendations. There was a surge in this key area. It was propelled by calls for accountability and recovery of wasted money. Though modest and limited in number, these initiatives had force. Recommendations are the business end of an audit, and these recommendations were based on rock-solid findings.
At least 50 reports arrived at findings that documented flagrant mismanagement, waste, negligence, fraud, and even potential theft. Sixteen of those reports recommended that responsible officials be considered for administrative review. A comparable number contained recommendations for the recovery of improper payments. And 10 reports – largely those on “Stimulus” projects – recommended that wasteful projects be terminated.
These reports jumped out at me. They are quite remarkable. But 50 reports with rock-solid findings should generate 50 – not just 16 -- sets of hard-hitting recommendations.
These 50 reports add up to a good beginning, but they don’t confer world-class status on the Inspector General’s Audit Office. Within the grand totality of the 121 reports published in 2011, they are a drop in the bucket.
The vast majority of reports still offer weak recommendations.
Most reports merely instruct audit targets to do what they are already required to do under law and regulation. In my opinion, that’s a waste of ink and paper.
There are still four distinct trouble spots needing intense management attention.
The biggest problem continues to be the number of unsatisfactory reports. While I can no longer say that most reports were poor, at 42%, the proportion of low scoring reports remains unacceptably high.
Those reports continue to suffer from the same deficiencies identified in a report commissioned by Inspector General Heddell in response to my first report. This report was produced by two independent consulting firms and dated October 7, 2010. It is known as the Qwest Report. Their conclusions, which matched my own, were as follows:
“We do not believe Audit is selecting the best audits to detect fraud, waste and abuse. The organization does not audit what truly needs to be done. Some audits hold little value in the end.”
As I have said many times, far too many audits offer little or no benefit to the taxpayers. This was still true in 2011.
Long audit production times remain another big problem. Old reports offer stale information that weakens the power and relevance of audit reports.
Between 2010 and 2011, the average time needed to complete reports jumped from 13 to 16 months, and, as I understand it, those numbers don’t tell the full story.
They do not include the extra weeks or months reportedly needed for the planning and approval process that occurs before audit work begins. Add those numbers together, and you are really looking at two years to publish an audit.
Stale information reduces audit impact to zero over time.
The Qwest Report pinpointed the root cause of this problem: “it is apparent that in the planning phase of audit selection, audits are written to fit a team, as opposed to a team established to conduct a needed audit.”
Such organizational inflexibility drives long completion times. It also leads to the publication of audits having objectives that are so narrow and limited in scope that they are virtually worthless.
Audit teams need to be organized to support more challenging and more relevant audit tasks, and Mr. Blair indicated recently that he was moving in this direction.
There are two other outstanding problems.
Far too few reports - just 9 in all -- verified actual payments, using primary source accounting records.
Failing to nail down exact dollar amounts of waste and mismanagement, including those resulting from misguided policies, undermines the credibility and completeness of audit reports.
For example, using invoices or contracts to estimate payments would not appear to meet the most stringent audit standards. A more acceptable procedure is essential because of the Defense Finance and Accounting Service’s long-standing track record of making erroneous and unauthorized payments. In the face of such sloppy accounting practices, verification of payments should be mandatory.
Lastly, referral rates to the Defense Criminal Investigative Service (DCIS) are still far too low. Only 5 reports generated potential criminal referrals, which appears to point to a lack of concern about fraud. Surely there was enough grist in the 50 reports, which documented egregious waste and misconduct, to warrant additional referrals to DCIS and/or the Justice Department.
A number of audits standout as candidates for further review and possible prosecution.
I have urged Secretary Panetta and the Acting Inspector General to reexamine some of these issues.
Acting IG Halbrooks has put the public spotlight on disgraceful and scandalous waste and alleged misconduct that demands accountability.
Unfortunately, unless the recommendations in those hard-hitting audits are somehow converted to concrete action, all this good work will amount to nothing more than a bunch of auditors “howling in the wilderness.” It will simply “fall through the cracks.”
Converting tough recommendations into concrete action takes determination and relentless follow-up. The key is making sure agencies do what they agreed to do at the conclusion of an audit. However, all indications suggest that corrective actions proposed in 16 hard-hitting reports have run into some serious flak in the Pentagon bureaucracy.
Without high-level intervention, most, if not all, accountability and savings measures could be slowly and quietly quashed in bureaucracy. A recent report from the Navy clearly indicates that this fate awaits at least one of the reports and probably all the others, as well.
In order to assist in the audit resolution process, I have asked Secretary Panetta to conduct a top-level review of all the allegations contained in the 16 most disturbing reports.
I urged him to establish a reasonable path forward on all unresolved recommendations.
Until there are meaningful consequences and real penalties for such gross waste and misconduct, the culture of the organizations involved will not change.
Without accountability, there will be no positive results. Good audit value will go down the drain. Unabated waste of the taxpayers’ money will continue.
Clearly, significant progress was achieved in 2010-11. But the Inspector General’s audit capabilities are not yet out of the woods. Much more work remains to be done. Management needs to build on the strengths exemplified by the 50 reports containing rock-solid findings and 16 sets of hard-hitting recommendations. Those reports could be used as models for improving audit quality in the future.
In order to start producing more top quality reports, management needs to consider the following suggestions:
· bring report recommendations into balance with findings;
· increase calls for accountability and recovery of improper payments;
· verify all payments using primary source accounting records;
· organize audit teams to match more complex and challenging tasks;
· pick-up the pace of fraud referrals to the Defense Criminal Investigative Service;
· develop a more effective audit follow-up strategy;
· follow-up to ensure that prosecution occurs where warranted or necessary;
These adjustments should be achieved using available resources.
Correct these problems, and top quality reports will be the norm. All these goals are within easy reach. Once accomplished, audits will be fully aligned with the core mission.
In closing, I want all the auditors in the Inspector General’s office to know that I consider their oversight mission to be of the highest importance. There is nothing more important to the taxpayers than having an aggressive team of auditors watch-dogging how the taxpayers’ money is being spent. I know there has been a concerted effort over the past few years to improve the quality of their work. I deeply respect, appreciate, and support these efforts. They are starting to pay off. I can see results of all the hard work. I encourage all the auditors to keep moving ahead until the job is finished. And I urge Mr. Blair to unleash the auditors. I want them to be tigers. Encourage them to call waste what it is – WASTE. Let them follow their instincts and the guidance in their audit manuals that instructs them to: “Think fraud and plan audits to provide a reasonable assurance of detecting fraud.”
Mr. President, I yield the floor.