Government Watchdogs

Mr. GRASSLEY. Mr. President, when it comes to doing oversight, I think I have a reputation of doing just as vigorous oversight when we have Republican Presidents as when we have Democratic Presidents, and what I am speaking to the Senate about today has no partisanship in it because I could have said the same thing--and did say it--when there was a President Bush or a President Clinton or a President Reagan.

I speak today about watchdogging the watchdogs, as I have done many times in the past. I first started watchdogging the Pentagon back in the early 1980s when President Reagan was ramping up defense spending. Then a group of Defense reformers were examining the pricing of spare parts of the Defense Department, and we uncovered some real horror stories, such as $750 toilet seats and $695 ashtrays, all going into military aircraft. That is ridiculous, of course.

As news reports of these horror stories were hitting the streets, Offices of Inspectors General--OIGs--were sprouting up in every Federal agency as a result of a recently passed act of Congress in 1978. The Defense Department OIG officially opened for business March 20, 1983. Today, thanks to the Inspector General Act of 1978, and the taxpayers, we now have a real army of watchdogs. The question is, To what extent are they doing their business?

This mushrooming IG bureaucracy is very expensive. It costs over $2 billion a year. But it now occupies a pivotal oversight position within our government, with a very important role to play.

As a Senator dedicated to watchdogging the taxpayers' precious money, I look to the IGs for help. That is because I just don't have the resources in my own office to investigate every allegation that might come my way. Like other Members of Congress, I regularly tap into this vast reservoir of talent called the inspector general. We count on them. We put our faith and trust in their independence and honesty. We rely on them to root out and deter fraud and waste in government wherever that waste and fraud rears its ugly head.

If--and that is a big ``if''--the IGs are on the ball, then the taxpayers aren't supposed to worry about things such as $750 toilet seats. But I underscore the word ``if'' because fraud and waste are still alive and well in government.

One could legitimately ask: How can this be? We created a huge army of watchdogs. Yet fraud and waste still exist unchecked.

So I keep asking myself the same question that one might ask: Who is watchdogging the watchdogs?

True, there is an IG watchdog agency called the Council of Inspectors General on Integrity and Efficiency. But that is just another toothless wonder. So the Senator from Iowa has the duty today. I am here to present another oversight report on the Pentagon watchdog. I call it a report card on the fiscal year 2010 audits, issued by the Department of Defense inspector general.

It assesses progress toward improving audit quality in response to recommendations that I made on an oversight report that I gave to my fellow Senators last year. After receiving a series of anonymous letters from whistleblowers alleging gross mismanagement at the Office of Inspector General and the audit office within that office, my staff initiated an in-depth oversight review. My staff focused on audit reporting by that office, and our work began 2 years ago.

On September 7, 2010, I issued my first oversight review. It evaluated the 113 audit reports issued for fiscal year 2009. It determined that the Office of Inspector General audit capabilities, which cost the taxpayers about $100 million a year, were gravely impaired.

As a watchdog, degraded audit capabilities give me serious heartburn for one simple reason.

It puts the taxpayers' money in harm's way, and it leaves huge sums of money vulnerable to threat and waste. Audits are the inspector general's primary tool for rooting out fraud and waste. Audits are the tip of an inspector general's spear. A good spear always needs a finely honed cutting edge. Right now, the point of that spear is dull, and so the inspector general's audit weapon is effectively disabled.

In speaking about my first report on the floor last September 15, I urged Inspector General Heddell to ``hit the audit reset button'' and get audits to refocus on the core inspector general mission of detecting and reporting fraud and waste. My report offered 12 specific recommendations for getting the audit process back on track and lined up with the Inspector General Act of 1978.

The response of the Office of Inspector General to my report has been very positive and very constructive. In a letter to me, dated December 17 last year, Inspector General Heddell promised to ``transform the Audit organization,'' consistent with recommendations in my report. The newly appointed deputy IG for auditing, Mr. Dan Blair, produced a roadmap pointing the way forward. Blair's report, dated December 15, laid out a plan for improving ``timeliness, focus, and relevance of audit reports.'' He promised to create a ``world-class oversight organization providing benefit to the Department, the Congress, and the taxpayer.''

As part of their response to my report, the audit office also tasked two independent consulting firms--Qwest Government Services and Knowledge Consulting Group--to conduct an organizational assessment of the audit office and its reports. These independent professionals seemed to reach the very same conclusions I had. The Qwest report, issued October 2010, put it this way:

We do not believe Audit is selecting the best audits to detail fraud, waste, and abuse.

The auditors, the Qwest report states, have lost sight of that goal and ``need to step back and refocus on the IG's core mission.''

That is exactly what I saw last year and what I continue to see today. However, I wish to be not totally pessimistic. All the signals coming since my report from the IG's office are encouraging. They tell me I am on the right track. The key question before us is this: When will the promised reforms begin to pop up on the radar screen?

The fiscal year 2010 reports examined in my report card were issued between October 2009 and September 2010. They were set in concrete, so to speak, long before Mr. Blair's transformation was approved. So the full impact of those reforms will not begin to surface in published reports until later this year or in the fiscal year 2011-2012 reports. However, that is not to say some improvement is not possible any time now, since discussions regarding the need for audit reform actually began in June 2009.

As we will soon see, there is no sign of sustained improvement--not yet today--but a faint glimmer of light can be seen in the distant horizon. In order to establish a solid baseline for assessing the IG's transformation efforts, my staff has taken another snapshot of recent audits. My latest overview report is best characterized as a report card because that is exactly what it is.

Each of the 113 unclassified audits issued in fiscal year 2010 was reviewed, evaluated, and graded in five categories as follows: category No. 1 was relevance; category No. 2, connecting the dots on the money trail; No. 3, strength and accuracy of recommendations; No. 4, fraud and waste meter; and No. 5, timeliness. Grades of A to F were awarded in each category. To average, it was necessary, obviously, to use numerical grades of 1 to 5 and then convert them to standard A to F grades.

Scoring was based on answers to key questions such as this: Was the audit aligned with the core inspector general mission? Did the audit connect all the dots in the cycle of transactions from contract to payment? Did the audit verify the scope of alleged fraud and waste using primary source accounting records? Were the recommendations tough and appropriate? Lastly, how quickly was the audit completed?

Each report was then given a score called the junkyard dog index. That is an overall average of the grades awarded in the five evaluation categories.

For grading timeliness, the following procedure was used: Audits completed in 6 months or less received a grade of A; those completed in 6 to 9 months, a B; those completed 9 to 12 months, a C; those taking 12 to 15 months, a D; and those that took over 15 months, an F.

After each report was graded individually, all the scores for each report in each rating category were added and averaged to create a composite score for all 113 audit reports.

The overall composite score awarded to the 113 reports was D minus. This is very low, indeed. Admittedly, the grading system used is subjective. However, as subjective as it may be, my oversight staff has determined it is a reasonable or rough measure of audit quality. Right now, overall audit quality is poor.

The low mark is driven by pervasive deficiencies that surfaced in every report examined--with 15 notable exceptions out of the 113. Those deficiencies are the same ones pinpointed by the Qwest report previously referred to. Instead of being hard core, fraud-busting contract and financial audits, most reports were policy and compliance reviews having no redeeming value whatsoever. Those are basically the findings I gave to the inspector general last September, when I criticized then what they were doing--spending too much time on policy audits and not enough time on chasing the money--on the waste of the taxpayers' money.

You have to follow the money if you are to find out where there is waste, fraud, and abuse--particularly the fraud. So what has been done in most of these has no redeeming value whatsoever because they did not pursue fraud-busting contract and financial audits but instead policy and compliance reviews. Quite simply, the auditors were not on the money trail 24/7, where they need to be to root out fraud and waste as mandated by the IG Act.

There is one bright spot, however. The auditors got it right--mostly right--in 5 reports and partially right in 10 other reports. Clearly, this is a drop in the bucket, but these 15 reports--which constituted just 13 percent of the total we reviewed for fiscal year 2010 output--prove that the audit office is capable of producing quality reports.

The 15 best reports earned grades of good to very good overall, with excellent grades in several categories. They involved very credible and commendable audit work. Each one deserves a gold star. While the top five reports earned overall scores of C-plus to B-minus, those scores would have been much higher were it not for long completion times. The average time to complete the top five reports was 21 months. Long completion times make for stale information and, of course, that makes the reports irrelevant.

Had they been completed in 6 months, for example, they could have earned a high B-plus score. Such long completion times clearly show that doing the nitty-gritty, down-in-the- trenches audit work requires large audit teams, if--and I want to emphasize ``if''--they are to be completed in a reasonable length of time.

Right now, there are no specified goals for audit completion times. They are desperately needed. Then audit teams can be organized with the right skill sets to meet those goals.

My report includes seven individual report cards--six on the best reports and one on the worst report. I think the best way for my colleagues to understand my audit report card is to briefly walk through two of them--the best and the worst.

The highest grade was awarded to an audit that the Department of Defense entitled ``Foreign Allowances and Differentials Paid to DOD Civilian Employees Supporting Overseas Contingency Operations.'' This report examined the accuracy of $213 million in payments to 11,700 DOD civilians in fiscal years 2007-2008 for overseas ``danger and hardship'' allowances.

After reviewing the relevant payment records, the auditors determined that the Defense Finance and Accounting Service--and I am going to refer to that as their acronym, DFAS--had made improper payments--underpayments and overpayments--totaling $57.7 million. The audit recommended that the DFAS Director ``take appropriate corrective action to reimburse or recover the improper payments'' and that new policies and procedures be put in place to preclude erroneous payments in the future.

This report received an overall grade of B-minus. However, it received excellent grades--A minuses in three categories: relevance, connecting the dots on the money trail and fraud and waste meter. But it earned a B-minus for incomplete recommendations and an F for timeliness because it took too long--over 21 months--to complete, and so it was stale at that point.

The auditors went to the primary source records to verify the exact amount of erroneous payments. I wish to emphasize to the auditors at the IG this move is the one reason why this report earned high scores. Very few audits--just a handful--actually verified dollar amounts using primary source accounting records. That is why I emphasize so often on the need to follow the money trail if you are going to find the fraud and the waste.

In this report, the recommendations were good but did not go far enough. Recommending recovery or reimbursement of overpayments or underpayments was worth a B-minus, but responsible officials were not identified and held accountable for the sloppy accounting work that produced $57.7 million in erroneous payments.

It is kind of a rule of thumb around this place. If you don't identify who screwed up and make them feel personally responsible and send a message to other people, how are you going to bring about change? Did the audit office follow up to determine whether the DFAS Director had taken steps to reimburse underpayment or recover overpayments? The answer is probably no. In fact, nothing has been done.

On February 23, 2011, in response to a question from my office, DFAS reported that the Department of Defense is still ``developing a policy'' to fix the problem. Isn't it funny that they have to develop a policy for what is so obviously wrong? Once that process is completed, though, DFAS will ``take appropriate corrective action to reimburse and initiate collection action.''

When auditors make good recommendations, such as here in this audit, and nothing happens, it is as though they are kind of howling in the wilderness. That has to be very demoralizing.

At this late hour the probability of correcting these mistakes is fading fast. For starters, this audit work started over 2 years ago. Couple that with the fact that it is in connection with payments made in 2006. That is 5 years ago. With the passage of so much time, this has become essentially an academic exercise.

That is exactly why reports need to focus on current problems and why they must be completed promptly. That is exactly why this one, which took 16 months to complete, earned an F for timeliness, but otherwise was a pretty good audit.

The rest of the audits examined in my report card--98 in all, or 87 percent, of the total output for fiscal year 2010--were of poor quality and earned grades of D and F. These are primary examples of the kind of audits targeted in the Qwest Report previously referred to. That is an outside report. They had the Department of Defense bring them in to do so some investigating that is not questionable because they do not have an interest in what comes out. But these audits were not designed to detect fraud and waste. That is what the IG ought to be doing, following the money trail.

It happens they did not document and verify financial transactions. They were not on the money trail where they needed to be and where their audit manuals tell auditors to go to detect fraud and waste. They did not audit what truly needs to be audited. They had little or no monetary value or impact.

Some were mandated by Congress, including 27 memo-style audits of stimulus projects. That is from the stimulus act we passed here in 2009. Tiger Teams should have been formed to tackle these audits. Unfortunately the exact opposite happened. These were the worst of the worst. They contained no findings of any consequence. They offered few if any recommendations. Most did not even identify the costs of the project audited. The taxpayers were deeply concerned about the value of these so-called shovel-ready jobs that were supposed to be quickly consummated by the stimulus bill of 2009.

Taxpayers were looking for aggressive oversight. Taxpayers wanted assurances that huge sums of money were not wasted. Taxpayers got none of the objectives they sought. Instead of probing audits, the taxpayers got the equivalent of an inspector general stamp of approval, like a rubberstamp that reads, ``OK, approved.''

I will now review the worst report. It typifies the ineffectiveness and wastefulness of the bulk of the fiscal year 2010 audit production. I remind my colleagues, each one of these reports costs an estimated $800,000.

The report that received the lowest score is entitled by the auditor ``Defense Contract Management Agency Acquisition Workforce for Southwest Asia.'' It received an F score in every category, across the board. The purpose of this report was to determine whether the Defense Contract Management Agency had adequate manpower to oversee contracts in southwest Asia. It concluded that the Defense Contract Management Agency was unable to determine those requirements and there was no plan for doing so. The report recommended that the Defense Contract Management Agency ``define acquisition workforce requirements for southwest Asia.''

This is one of many OIG policy reviews, but this one is unique in that it took 18 months to review a policy that did not even exist. This audit should have been terminated early on, but as the Qwest Report points out, the inspector general's office has no process ``for stopping audits that are no longer relevant.'' So this is like a runaway train. What redeeming value did this report offer to the taxpayers? None that I can see. This is the stuff for a Department of Defense staff study, or some think tank analysis, not for an independent officer or inspector general audit.

This audit, like so many others like it, did not focus on fraud and waste and, not surprisingly, found no fraud or waste.

The Defense Contract Management Agency has a long history of exercising lax contract oversight. The Office of Inspector General resources would have been better spent auditing one of the Defense Contract Management Agency's $1.3 trillion in contracts. Go where the money is, if you want to find the fraud, follow the money.

The inclusion of individual report cards on the best and worst audits is meant to be a constructive educational exercise. So I am hoping the analysis accompanying these report cards will serve as a guide and a learning tool for auditors and managers alike.

I am hoping the auditors will read my report and use it to sharpen their skills. I hope it will help guide them on a path to reform and transformation. If the auditors adopt and follow the simple guidelines used to gauge the quality of the best or worst reports, they will begin producing top-quality audits that are fully aligned with the core IG's mission prescribed by that 1978 law.

Before wrapping up my comments I wish to call the attention of my colleagues to several very interesting charts presented in the final section of my report card. They appear in the chapter entitled ``Comparative Performance with Other OIG Audit Offices.'' These two sets of charts highlight striking contrasts. They show the Department of Defense auditors are being significantly outperformed by their peers at three other agencies: the Department of Health and Human Services, Housing and Urban Development, and Homeland Security--and by very substantial margins indeed. Their peers may be five times more productive than they are at the Department of Defense, and able to produce audits at one-quarter of their costs.

I would offer one caveat of what I said about the other departments' IGs. While I have reviewed comparisons of cost and productivity data from all four audit offices, I have not evaluated the quality of the other reports issued by the other three OIGs, meaning the Department of Health and Human Services, Department of Homeland Security, and Housing and Urban Development, as I did the report on quality of the Department of Defense report card. I believe it is a fair apples-to-apples comparison. It may not be. I want to say I do not know for sure.

Deputy IG of Auditing Mr. Blair needs to provide a satisfactory explanation for these apparent disparities. Otherwise he may need to hit the reset button once again on audit production and costs--as well as what he has said he is doing now. While Inspector General Heddell cannot be happy with an overall audit grade of D-minus, I think he understands the problem and I believe his heart is in the right place and he has taken the right steps to fix it. His apparent commitment to audit reform and Mr. Blair's promise to create ``a modern, world-class'' auditing oversight organization--those words happen to be music to my ears. They bode well for the future. In other words, they bode well for the future where, if these people do their job and do it right, fraud and waste will be rooted out and people would fear to commit it in the first place, considering the fact that people are going to be on their tail and find out about it.

For right now, though, I cannot report that I see sustained improvement in audit quality--not yet, not by a long shot. But the signals coming my way are good. I said that at the beginning of my comments. The ray of hope can be seen on the distant horizon. Maybe we will see it in the next batch of audits and I will be here to report to my colleagues what those audits show. I hope I can give every one of them Bs and As.

The 15 best reports show that the Department of Defense Office of Inspector General Audit Office is capable of producing quality reports. That number is obviously a drop in the bucket but these fine reports could be a solid foundation for building the future. Repeat them 10 times and Mr. Blair could well be on his way to creating that world-class auditing operation, one that would be capable of detecting--not only detecting but, because people are

going to be so scared of them, that would be capable of detecting and deterring fraud and waste.

Before those lofty goals can be achieved, Mr. Heddell and Mr. Blair need to tear down some walls. I call them the top 10 audit roadblocks, and these roadblocks are these:

No. 1, top management lacks a clear and common vision of and commitment to the Inspector General's core mission, a problem that adversely affects every aspect of auditing;

No. 2, most audits are policy-compliant reviews that yield zero financial benefit to the taxpayers;

No. 3, auditors are not on the money trail 24-7, where they need to be to detect fraud and waste;

No. 4, auditors consistently fail to verify potential fraud and waste by connecting all the dots in the cycle of transactions. They need to match contract requirements with deliveries and payments using primary source documents. By making these matchups, auditors will be positioned to address key oversight questions such as: Did the government receive what it ordered at an agreed-upon price and schedule, or did the government get ripped off, and if so ripped off by how much money?

Roadblock No. 5, most audits take so long to complete that they are stale and irrelevant by the time they are published. Reasonable time-to-complete goals need to be set and the audit team then can be organized with the right skills, the skill sets to meet these goals.

Roadblock No. 6, until the Department of Defense accounting system is fixed, complex audits will require large audit teams if reports are to be completed within a reasonable length of time.

Roadblock No. 7, audit findings and recommendations are usually weak, responsible officials are rarely held accountable, and waste or stolen money is rarely recommended for recovery or returning to the Treasury.

Roadblock No. 8, while relentless followup is an important part of audit effectiveness, it is not practiced by the audit office.

The last roadblock, No. 9, since the Department of Defense broken accounting system is obstructing the audit process, contracts designed to fix that system need to be assigned a much higher audit priority.

These mighty barriers stand between all the promises and reality. IG Heddell and Deputy Blair must find a way to tear down these walls. Otherwise, audit reform and transformation will never happen. These unresolved issues will demand tenacious watchdogging by my oversight team and by all other oversight bodies as well, including the Committees on Armed Services and Appropriations. My oversight staff will keep reading and evaluating the Office of Inspector General audits until steady improvement is popping up on my oversight radar screen every day.

I yield the floor.

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