	Results of Investigation

We substantiated the allegations and auditor concerns made on each of  the 13 cases we investigated, involving 14 audits at two locations and  forward pricing audit issues at a third location. In the 12 cases at locations 1 and 2, we substantiated  the allegations and auditor concerns that (1) workpapers did not support  reported opinions, (2) DCAA supervisors dropped findings and changed  audit opinions without adequate audit evidence for their changes, and       (3) sufficient audit work was not performed to support audit opinions and  conclusions. We also found that contractor officials and the DOD  contracting community improperly influenced the audit scope,  conclusions, and opinions of some audits—a serious independence issue. We also substantiated allegations of problems with the audit environment  and inadequate supervision of certain forward pricing audits at location 3. DCAA states that its audits are performed according to professional  standards (GAGAS). However, in substantiating the allegations, we found  numerous failures to comply with these standards in all 13 cases we  investigated. This audit did  not meet GAGAS for auditor objectivity and independence because of  the up-front agreement, and it did not meet standards related to  adequate support for audit opinions. Throughout our investigation, auditors at each of the three DCAA  locations told us that the limited number of hours approved for their  audits directly affected the sufficiency of audit testing. During the DOD IG and GAO investigations, we identified a pattern of  frequent management actions that served to intimidate the auditors and  create an abusive environment at two of the three locations covered in our  investigation. DCAA Response to Investigation

In response to our investigation, DCAA rescinded two audit reports and  removed a contractor’s direct billing authorization related to a third audit. Reports issued with  unqualified opinions before supervisory  review was completed due to pressure  from contracting officers. The working papers did not contain audit evidence to support the  change in opinion. An internal DCAA Region audit quality review found audits where  the audit working papers did not support the final audit report,  working paper files were lost, and working paper files were not  archived in the DCAA-required time period.
Why GAO Did This Study

The Defense Contract Audit Agency (DCAA) under the Department of Defense (DOD) Comptroller plays a critical role in contractor oversight by providing auditing, accounting, and financial advisory services in connection with DOD and other federal agency contracts and subcontracts. DCAA has elected to follow generally accepted government auditing standards (GAGAS). These standards provide guidelines to help government auditors maintain competence, integrity, objectivity, and independence in their work. GAO investigated hotline complaints it received related to alleged failures to comply with GAGAS on 14 DCAA audits. Specifically, it was alleged that (1) working papers did not support reported opinions, (2) supervisors dropped findings and changed audit opinions without adequate evidence, and (3) sufficient work was not performed to support audit conclusions and opinions. GAO also investigated issues related to the quality of certain forward pricing audit reports. GAO investigators interviewed over 50 individuals, reviewed working papers and related documents for 14 audits issued from 2003 through 2007 by two DCAA offices, and reviewed documentation on audit issues at a third DCAA office. GAO did not reperform the audits to validate the completeness and accuracy of DCAA's findings. DCAA did not agree with the "totality" of GAO's findings, but it did acknowledge shortcomings with some audits and agreed to take certain corrective actions.

What GAO Found

GAO substantiated the allegations. Although DCAA policy states that its audits are performed according to GAGAS, GAO found numerous examples where DCAA failed to comply with GAGAS in all 13 cases. For example, contractor officials and the DOD contracting community improperly influenced the audit scope, conclusions, and opinions on three cases--a serious independence issue. At two DCAA locations, GAO found evidence that (1) working papers did not support reported opinions, (2) DCAA supervisors dropped findings and changed audit opinions without adequate evidence for their changes, and (3) sufficient audit work was not performed to support audit opinions and conclusions. GAO also substantiated allegations of inadequate supervision of certain audits at a third DCAA location. The table below contains selected details about three cases GAO investigated. Throughout GAO's investigation, auditors at each of the three DCAA locations told us that the limited number of hours approved for their audits directly affected the sufficiency of audit testing. Moreover, GAO's investigation identified a pattern of frequent management actions at two locations that served to intimidate auditors, discourage them from speaking with investigators, and create a generally abusive work environment.