Federal auditors on the trail of wasteful spending in Iraq

Posted on Fri, Mar. 26, 2004
Federal auditors on the trail of wasteful spending in Iraq
By Seth Borenstein
Knight Ridder Newspapers

WASHINGTON - Uncle Sam's "cost detectives" are following the billions of taxpayers' dollars the Bush administration is spending to rebuild Iraq, and that makes some people nervous.

Federal auditors are on the trail of wasteful spending and padded bills. They work in the offices of the politically connected defense contractors they're investigating. What they've dug up so far is big news. Who they are remains mostly a secret.

They've found that Halliburton, Vice President Dick Cheney's old firm, has charged $67.3 million for soldiers' meals that were never served, billed Uncle Sam $2.64 per gallon for gas in oil-rich Iraq and had cost estimates that were inflated by $700 million at one point. They faulted contractor Science Applications International Corp. for billing the government for flying a Hummer and a pickup into Iraq on a chartered jet.

And the Defense Contract Audit Agency is just getting started.

"You just gotta understand auditors. Once we get a taste of something, we start digging," said Rich Buhre, a recently retired regional agency director. "You peel the onion (of finances) enough ... it's very difficult to try to hide that stuff" from the auditors.

What makes a good auditor is "the junkyard dog mentality," Buhre said. "It's like, you ever get an itch and something just doesn't feel right?"

The agency's job is to be a consultant to the Pentagon and more than two dozen other federal agencies on the arcane language of contracts, to see whether taxpayers are getting their money's worth.

It's the most un-Washington of the federal agencies. It shuns attention, gets bipartisan praise in Congress and adheres to strict ethics rules that rotate auditors every five years so they don't get close to the companies they investigate.

What really separates it from the rest of the feds is that it saves taxpayers money instead of just spending it.

Last year, it spent $406 million, but helped the government save $2.2 billion. In the past three years, it found that contractors had inflated the prices they charged the government by more than $88 million.

"They're the last line of defense for taxpayers," said Keith Ashdown, the vice president of the liberal fiscal watchdog group Taxpayers for Common Sense.

The key to the agency is that it's independent from the rest of the Defense Department bureaucracy and from political and business pressure, said former acting agency director Fred Newton. He added: "You got to be independent about pursuing it and not having a contractor make you back off."

That's what the agency is doing with Iraqi spending. Its work triggered a Pentagon inspector general's report March 18 that found serious problems with 24 early contracts in Iraq. The agency has issued 187 reports on Iraqi contracts in all.

"DCAA's been the one that's really out front on this," said David Cooper, the director of acquisition and sourcing management at the U.S. General Accounting Office. "This is a good deal for the taxpayers."

Much of the digging has been in Texas, where Halliburton - which has the bulk of the no-bid contracts in Iraq - is headquartered. Fifteen agency auditors work at Halliburton's Houston headquarters. Their audit reports come from the agency's regional headquarters in Arlington, Texas.

On Jan. 13, in a special "flash report," Texas audit agency branch manager William Daneke, who oversees the Halliburton investigations, wrote that Halliburton's cost-estimating system was inadequate, questioning its ability to produce services at "fair and reasonable prices." He told the Army Corps of Engineers "we recommend you contact us to ascertain the status of (Halliburton's) estimating system prior to entering into future negotiations."

Two days later the Army Corps gave Halliburton a $1.2 billion oil contract for southern Iraq, then caught hell from Congress for ignoring the agency's advice.

That illustrates the agency's unique position: It finds waste, inflated costs and shenanigans in government contracts - $44 billion worth since 1990 - but it's up to someone else to do something about it.

The auditors don't have the power to stop or to negotiate contracts. They examine a contractor's finances, dissect the costs in a deal and issue a report. Usually, that's enough. The reports often spur cost adjustments that save taxpayers money or require companies to repay overcharges. If they find something even worse, they can get the inspector general to investigate or spur criminal prosecutions.

"It's a subtle power they have," said NASA Chief Financial Officer Gwen Brown, a former defense contract auditor who hires her old agency to look over contractors' spending at the space agency. "Subtle because they're tenacious, because of the power they have to trigger investigations ... because they have a long history of credibility."

The agency's staff is shrinking even as experts say it's more necessary than ever. In 1990, the agency had 6,601 workers. Last September, it had 4,063. With new spending in Iraq, the Pentagon recently decided to give the agency more money, officials said.

Defense Department Comptroller Dov Zakheim told Congress he created a special office of 25 defense contract agency auditors in Iraq last year and is increasing it to 31. He praised their work and said it showed how the Pentagon was unearthing its contracting problems and taking them seriously.

Democrats also praise the agency, but say it's being ignored.

"Despite this impressive record, the administration does not appear to take DCAA audit work and its warnings seriously," Rep. Henry Waxman of California, the ranking Democrat on the House Government Reform Committee, said in an interview. "The administration appears to ignore the DCAA and prevent the Congress from seeing DCAA's work."

Contractors either fear or embrace the agency, and object when its reports become public.

Greg Smith, a Washington attorney for contractors, charged that the agency "adds a layer of bureaucracy to the process" especially because it won't admit when it's incorrect. Because what it finds is technical and arcane, the government usually takes the auditors' side even when they're wrong, he complained.

Some companies don't let the agency have access to records and that, former agency auditor Buhre said, "just sends up an antenna that says, `Something must be wrong.' "

Most companies comply - even giving the agency constant access. Neal Couture, the executive director of an association that represents government and corporate contracting officials, said that when he was in charge of contracting at EG&G Inc., a Maryland firm, he welcomed the agency because it often saved his company money as well as the taxpayers.

"Industry comes to rely on them as another set of eyes," Couture said.
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(Researcher Tish Wells contributed to this article.)