Whistleblower Alleges Culture of Intimidation at Pentagon’s Contract Auditing Agency

Thursday, October 27, 2016
J. Kirk McGill (photo: Wikimedia Commons)

By Daniel Van Schooten, Project On Government Oversight

 

J. Kirk McGill was a Senior Auditor at the Defense Contract Audit Agency (DCAA), the agency responsible for auditing the Department of Defense’s (DoD) contract expenditures. He is also a whistleblower whose disclosures to Congress have resulted in multiple Congressional hearings, the termination of a nonprofit from grants worth over $400 million, and the closure of a loophole in contracting policy for nonprofit grantees. Importantly, his case also sets a precedent for federal whistleblowers to engage in whistleblowing activities while on official time. None of this was easy, and it came—as is too often the case for whistleblowers—at a personal cost to McGill.

 

In 2013, McGill and his DCAA team were loaned out to the National Science Foundation’s (NSF) Inspector General (IG) to conduct a follow-up audit of the $433 million construction grant NSF had awarded for a project called the National Ecological Observatory Network (NEON). The project was not competitively bid, and despite an earlier DCAA audit finding serious problems with the initial proposal, NSF awarded it to a nonprofit organization called NEON, Inc.—a nonprofit focused solely on the project.

 

McGill, who was the Auditor-in-Charge, and his team found that NEON, Inc.’s accounting system was seriously flawed and lacked important supporting documentation. The audit also found poor budget controls that meant the project managers wouldn’t know if the program ran over budget—even tens of millions of dollars over budget—until it was too late to prevent. (The NSF later admitted that the project had run $80 million over budget.) As concerning as those numbers are, the audit also found that NEON, Inc. was abusing a $1.8 million category of funds called “management fees,” which were being used to pay for unallowable costs like alcohol, lobbying, and a lavish holiday party. McGill reported two instances of suspected fraud to the NSF IG through the normal channels. The IG investigated and referred the cases to the Department of Justice (DOJ) for potential prosecution, but DOJ declined to pursue them [p.3].

 

When McGill examined the requirements of reporting suspected fraud in an audit report, he found himself trapped. DCAA policy, laid out in the Contract Audit Manual (§2-404(c); p. 37), states that any suspected fraud must be reported to the appropriate legal authority, but explicitly prohibits even the mention of it in the final audit report. However, Generally Accepted Government Auditing Standards (GAGAS), which DCAA is required to follow, explicitly states (§ 5.24; p. 108) that auditors must include any suspected fraud or violations of regulations in the audit report. This is significant because contracting officers rely on DCAA audit reports in their negotiations with contractors. If they are not made aware of suspicious activity, it not only calls into question the value of the audit and the agency as a whole, but also can lead to contracts and grants unknowingly being awarded to organizations that are less than trustworthy and under investigation for fraud. Once a contract is awarded, terminating the contractor becomes significantly more difficult—and recovering funds spent fraudulently is often impossible.

 

McGill followed the GAGAS requirements as best he could and included in his audit report the suspicious transactions at NEON, Inc., although he refrained from calling it fraud in accordance with DCAA’s Contract Audit Manual. The audit was approved by the two levels of management above him, but was blocked by a Regional Audit Manager, according to McGill’s filing with the Merit Systems Protection Board (MSPB). McGill describes how the audit then spent the next year bouncing around all levels of the DCAA and several different regions. Senior management wanted to remove the management fee finding (and several other findings including the weak budget controls) from the audit, but McGill and his supervisors refused to sign off on an audit that they believed hid improper and possibly illegal activity. After allegedly being threatened with poor performance evaluations—which could damage any future career potential—and even termination, McGill’s supervisor and second-level manager signed DCAA management’s version of the audit under protest. The second-level manager included a written statement, however, stating that he disagreed with the very audit he was approving as being accurate, and was signing only because he had been ordered to do so. Refusing to sign what he saw as a false audit, McGill resigned from the audit and subsequently received a negative performance evaluation.

 

When the NSF IG inquired (p. 3) as to why the management fees, which were highlighted in a draft audit report, were not mentioned in the final version, DCAA told them it had followed its established process for resolving differences of opinion between members of the audit team. Unfortunately, it appears as though the “established process” is one of simple intimidation. According to McGill and other DCAA whistleblowers, it is not uncommon for DCAA auditors to be pressured by their superiors into leaving out findings or otherwise compromising their independence. Potential whistleblowers throughout DCAA have been intimidated into silence because they can’t afford to risk being transferred across the country, demoted, or fired.

 

Rather than letting that be the end of it, however, McGill notified Congress of the waste and possible fraud occurring in the NEON project and of DCAA management’s suppression of those findings. It led to several Congressional hearings, and McGill’s claims were validated when the Office of Management and Budget ordered federal agencies to ensure that management fees were closely supervised and not put toward “inappropriate uses” such as alcohol, entertainment, and lobbying. In December 2015, NSF terminated NEON, Inc., and a few months later put Battelle Memorial Institute in charge of the NEON project. Also as a result of the hearings, Representative Barry Loudermilk (R-GA) introduced the NSF Major Research Facility Reform Act of 2016, which has been passed in the House and is currently being considered in the Senate. McGill was personally credited and thanked for his disclosures by Science, Space, and Technology Committee Chairman Lamar Smith (R-TX) in the report (p. 8) accompanying the bill.

 

McGill’s case sets a strong precedent for the ability of whistleblowers across the federal government to do their whistleblowing “on the clock.” Whistleblowing has long been relegated to realm of personal computers and off-the-clock homework. McGill, however, fought for and won the right to log over 1,000 hours under “whistleblowing” in his time sheets, including two trips to Washington, DC, in order to meet with Congressional staffers from the House Committee on Science, Space, and Technology. In memos, the DCAA Office of the General Counsel acknowledged that the combination of the Whistleblower Protection Enhancement Act, the Anti-Deficiency Act (no working for free), and 5 CFR § 2635.101(b)(11) (the code of ethics for executive branch employees) meant that it was an official part of McGill’s job to report waste, fraud, abuse, and corruption to the appropriate authorities. This precedent has the potential to drastically reduce the additional time and energy that blowing the whistle can cost employees.

 

While McGill’s story appears to be one of the rare whistleblower stories with a happy ending, it came at substantial personal cost. McGill claims he was subjected to retaliation for blowing the whistle that included workplace harassment, a negative performance evaluation, removal of duties (over a year of not being allowed to conduct audits), an involuntary transfer, and a five-day unpaid suspension. Under increasing pressure and mounting stress, McGill resigned from DCAA in April 2016 and is now enrolled in law school. His retaliation cases before the MSPB are still ongoing.

 

Moreover, no one at DCAA has been held accountable for the suppression of findings or for whistleblower retaliation. Those in senior management positions who had pressured the auditors to remove their findings have not been fired, and some have even been promoted. Furthermore, the conflicts between DCAA’s policies and GAGAS have yet to be resolved or even officially acknowledged as conflicting.

 

As evidenced by a 2009 Government Accountability Office (GAO) report, DCAA has a long history of failing to follow GAGAS and of silencing those who speak up. For its own survival, DCAA needs to learn from and encourage whistleblowers, rather than silence and intimidate them. It may be that all it takes is one more scandal to convince Congress and the American people that it is time to follow through on the 2009 GAO recommendations to dramatically reorganize DCAA. Such reorganization could see it taken out from under the DoD and turned into a new, independent, federal contract audit agency that isn’t afraid to tell the truth, even if it upsets government agencies or contractors. If that does happen, McGill would be the first to sign back up.

 

To Learn More:

Whistleblower Alleges Culture of Intimidation at DCAA (by Daniel Van Schooten, Project On Government Oversight)

Defense Contractor Audits Decline (by Noel Brinkerhoff, AllGov)

Pentagon Auditor Allowed Boeing to Keep $271 Million Owed the Government (by Noel Brinkerhoff, AllGov)

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