By Max Cacas
Reporter
Federal News Radio

Sen. Chuck Grassley (R-Iowa) wonders, “If you don’t follow the money, how are you going to know if it’s wasted?”

Grassley said the failure of the Pentagon’s Inspector General’s Office to perform proper audits is just as important an issue for Defense Secretary Gates to address as his current campaign to slash spending.

“If he’s going to be successful, his own IG needs to be at the front line in trying to accomplish this, and the IG needs to change methods of operation to gear up to help Gates get his job done,” Grassley said in an interview with Federal News Radio from Cedar Rapids, Iowa.

The 73-page investigative study, first reported by Reuters Wednesday, charges that the Defense Department IG is not doing in-depth audits of defense contracts and therefore missing millions in possible waste, fraud and abuse.

The Grassley report states that in fiscal 2009, the DoD IG did not audit any “major or non-major weapons contract or contractor.” It charges that auditors failed to follow up even when it found possible evidence of contract problems. The report also states the Pentagon’s accounting systems are in such disarray that large tracts of payment records missing, making it difficult for auditors to do their jobs.

Grassley also faulted the management of the DoD IGs office for focusing primarily on what he called “policy audits,” in which auditors search for information pertinent to management decisions within the department; and less on financially-based contract performance audits. The long-time Senator strongly feels financially-based performance audits would reveal more waste, fraud and abuse.

He said the report’s major recommendations are:

• “To get the management of the IG, and the office squared away, so they can then do what they’re supposed to be doing, which brings me to point two:”
• “The audit shop has to focus on financial audits instead of policy audits. In other words, you have to follow the money to see where the fraud, waste and mismanagement is.”
• “One of the main changes that needs to be made is that they’re operating under a lot of smaller teams of auditors. They need a number of larger teams to do the really big jobs that financial audits are.”

Ron Perlman, a partner in the government contracts practice group at Holland and Knight in Washington, praised Grassley’s study.

“At first blush, it’s wonderful and fascinating to see a senior member of Congress auditing the auditors,” Perlman said. “It’s outstanding that Senator Grassley in particular has chosen to focus on the DoD IG.”

Perlman, who is also the immediate past president of the D.C. chapter of the National Contract Management Association, said the report’s finding of a “broken financial reporting system” explains, in part, the fact that Pentagon IG auditors were performing the policy audits that Grassley objects to, rather than more transparent financially-based contract performance audits.

“If you have a broken financial reporting system,” Perlman explained, “within the Department of Defense, or any business organization, then you can’t audit things. And if you can’t audit the money trail, then I suppose if you have a significant workforce, you want to keep them busy, and you have them focus on other things.”

Grassley didn’t just find problems with how the IG audited, but the report also questions why one audit conducted by the Pentagon IG took as long as 18 months to complete.

Perlman puts this finding in context with recent concern over the Obama administration’s priority to reverse the trend toward outsourcing, or handing work to contractors that could or should be performed by government employees.

“At the heart of Senator Grassley’s report is a question about management practices,” Perlman said. “If Secretary Gates were running a commercial enterprise the size of the Department of Defense, he as a manager would find it absolutely intolerable to be getting audit reports a year and a half after the subject matter had arisen.”

The Project on Government Oversight obtained an internal e-mail from DoD IG Gordon Heddell responding to Grassley’s report.

In the memo, Heddell outlined the steps DoD would take to fix the issues Grassley’s report details:

• Adjusted how it approaches performing financial audits of the Department;
• Realigned its assets to focus on duplicative requirements in major acquisition systems;
• Initiated audits aimed at identifying redundancies and savings in the Department’s spare parts programs;
• Initiated processes to improve timeliness of reports; and
• Sponsored a team to revise the way we communicate audit findings.

Requests to the Pentagon Inspector General’s Office and the DoD public affairs office for reaction to the Grassley report were not answered by press time.

Grassley said he will deliver a major speech from the Senate floor on the findings of the report when the upper chamber returns to session next week.

Grassley’s office initiated the report in January 2009 after receiving anonymous complaints from workers in the DoD IGs Office.

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