Internal Pentagon Proposals to Boost Contract Oversight Go Kaput!

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Did the Pentagon ignore proposals by the Defense Contract Audit Agency (DCAA) to increase oversight of federal contractors and save taxpayer dollars? The Project On Government Oversight (POGO) has obtained documents outlining legislative proposals submitted by the DCAA to Pentagon leadership back in September 2009—but the Department of Defense (DoD) did not submit these proposals for inclusion in either the fiscal year 2011 or fiscal year 2012 defense authorization bills. The proposals would have strengthened DCAA’s power to subpoena contractor records and would have limited the amount that government contractors could bill the government for their employees’ salaries.

In September 2009, then-DCAA Director April Stephenson submitted the two proposals to the DoD General Counsel and Shay Assad, a senior DoD acquisition official. However, Assad did not support the DCAA proposals, POGO has been told. Stephenson had proposed that the language be included in the fiscal year 2011 defense authorization bill.

The two proposals to change the law were: (1) “to expand DCAA’s access to contractor records required to accomplish our mission as a remedy to a prior court imposed limitation”; and (2) “to expand the application of the limitation on allowable compensation from the top five executives to all contractor employees.”

“Because the courts have limited DCAA’s access to contractor records under the existing laws, the proposed amendments are needed to provide DCAA with the access required to obtain sufficient evidence to comply with the applicable auditing standards,” according to the subpoena proposal that was drafted. The Associated Press reported in 2008 that DCAA has not used its subpoena power in over 20 years. The Senate and the Government Accountability Office (GAO) have repeatedly criticized the DCAA for failing to adhere to auditing standards.

Some quick history on the contractor employee compensation issue, according to the compensation proposal:

In the mid-nineties, there was increasing concern in Congress regarding seemingly excessive individual compensation charged to contracts. As a result, for FY 1995 and FY 1996, Congress limited the allowability of individual compensation [of all employees] on covered contracts. For 1997 through 2009, Congress revised the application of the compensation ceiling so that it applied only to certain contractor personnel generally identified as the top five most highly compensated individuals in senior management positions at each home office and each segment of a contractor. We believe that the current law which limits the compensation of only the five most highly compensated employees in management positions places the Government at an unacceptable risk of reimbursing contractors for excessive compensation costs.

The intent of the compensation cap is to reduce the risk of excessive individual compensation charged to Government contracts. Our audits have shown that there are lower level executives not subject to the cap and non-executive employees who receive compensation in excess of the benchmark compensation amount. In addition, if a contractor is not organized into multiple segments only the top five executives are covered by the benchmark compensation amount whereas similarly sized contractors with multiple segments will have additional employees subject to the cap.

POGO supported stronger subpoena power for DCAA in testimony before a Senate subcommittee this February and has supported expanded limits on how much contractors can charge the government for employee compensation in testimony before the House in 2008 and in a letter to the Office of Management and Budget last year.

The GAO is studying the issue of expanding DCAA’s subpoena power at the request of the Senate Armed Services Committee. Currently, there are no legislative proposals to expand DCAA’s subpoena power.

Provisions to expand the limitation on what contractors can charge the government for employee compensation currently exists in House and Senate versions of the FY 2012 defense authorization bill. However, these provisions have been pushed by the American Federation of Government Employees and by POGO, rather than by DoD.

Update: Government Executive reports that the DoD did support an expansion of contractor employee pay caps this year:

A Pentagon spokeswoman told Government Executive the proposal to expand the coverage of the cap on executive compensation eligible for reimbursement under Pentagon contracts was sponsored this year by the Office of the Defense Undersecretary for Acquisition, Technology and Logistics. “It went through the department’s approval process and was submitted to Congress,” she said. “It has been included in both the House and Senate versions of the National Defense Authorization Act for fiscal 2012.”