WASHINGTON – Senator Chuck Grassley today said that the Department of Defense’s flagship accounting agency, the Defense Finance and Accounting Service (DFAS), likely did not earn clean opinions on its own financial statements despite claims to the contrary, putting the Secretary of Defense’s audit readiness initiative in jeopardy.
In addition, the Office of the Inspector General (IG) seems to have turned a blind eye to the problems within the Defense Finance and Accounting Service. The IG appears to have buckled under pressure from the Defense Finance and Accounting Service when it attempted to conduct oversight of the troubled agency’s financial statements required by the Chief Financial Officers Act. Because of all the bungling and ethical missteps on these audits, the independence and integrity of the Inspector General’s audit process may have been compromised.
Grassley released the findings and recommendations in a staff oversight report. These have been forwarded to Secretary of Defense Chuck Hagel and Defense Department Inspector General Jon Rymer in a joint letter today.
“Audits are a primary oversight tool for rooting out fraud and waste in the government. To protect taxpayers, these government audits must be as good as they can be,” Grassley said. “Effective audit reporting is the key to pinpointing long-standing accounting deficiencies that allow waste and theft to go undetected and unchecked. Hard-hitting audits should help senior management separate the wheat from the chaff and apply mandated cuts where they are needed most. But, as long as the Inspector General’s audit shop remains weak and ineffective, the probability of rooting out much fraud and waste during sequestration is very low. And, instead of helping identify where savings can be made, it looks like the Defense Finance and Accounting Service may be trying to hide its own problems by pretending their books are in order and then running roughshod over anybody who dares to question their ‘clean’ audit.”
In April 2012, Grassley began receiving allegations of misconduct regarding the Defense Finance and Accounting Service opinion audits. Grassley staff initiated a review of official records of those audits with the guidance of Certified Public Accounting (CPA)-qualified government auditors.
“Discoveries in these documents, when coupled with verbal and written interviews of knowledgeable officials, tell the story of what really happened. And it’s not a pretty picture. If this snapshot is characteristic of the work being produced by that office, we have a problem,” Grassley wrote to Hagel and Rymer. “To make matters worse, the Inspector General – the institution that exists to root out fraud, waste and abuse – appears to have played the role of silent enabler in the alleged misconduct. It’s a disgrace to the Inspector General community.”
Click here to read the letter to Hagel and Rymer. Click here to read the report.
Here is a summary of Grassley’s findings in the report.
• A CPA firm awarded “clean” opinion audits on financial statements produced by DFAS since fiscal 2002. The Inspector General took a two-year snapshot and examined the firm’s opinions, but the Inspector General didn’t report on whether they met prescribed audit standards, as required by the contract, policy, and law, due to a series of ethical and legal blunders.
• The work performed by DFAS was substandard. The outside CPA firm rubber-stamped DFAS’ flawed practices using defective audit methods.
• The IG was steamrolled by DFAS and possibly other forces and pressured not to call foul on the outside CPA firm. Instead of exposing poor practices by both DFAS and the CPA firm, the IG tried to cover its tracks.
• The bungled opinion audits of DFAS have the potential for undermining the credibility of the Secretary of Defense’s audit readiness initiative and the independence and integrity of the audit process may have been compromised.
• DFAS’ apparent inability to accurately report its own internal “housekeeping” accounts of $1.5 billion casts doubt on its ability to accurately report on the hundreds of billions of dollars the Defense Department spends each year. If the department’s central accounting agency can’t earn a “clean” opinion, then who in the department can?
Here are Grassley’s recommendations in the report.
• The Department of Defense Chief Financial Officer should “pull” the DFAS Working Capital Fund financial Statements for fiscal 2008 and 2009 and remove those audit opinions from official records.
• The Office of the Inspector General needs to undertake an independent audit of DFAS’ financial statements for fiscal 2012 and/or 2013 and determine whether those statements and the CPA firm’s opinion report meet government audit standards as required by the IG Act. This work needs to include the verification of the fiscal 2012 beginning account balances. The OIG examination should be coordinated with and reviewed by the U.S. Government Accountability Office (GAO). Consistent with this recommendation, the Office of the Inspector General has already initiated a “Post Audit Review” of DFAS’ fiscal 2012 financial statements. And at Grassley’s request, the GAO has agreed to independently validate the results of that work to ensure that it meets all applicable standards. This work is ongoing.
• The Inspector General should address and resolve any allegations of misconduct involving DFAS officials and make appropriate recommendations for corrective action.
• Grassley will refer allegations of misconduct by OIG staff to the Integrity Committee of the Council of the Inspectors General on Integrity and Efficiency for further review and resolution as provided under the IG Reform Act of 2008.
