WASHINGTON — Boeing Co., the U.S.’s second-biggest defense contractor, stands to lose as much as $271 million in government payments for satellite launch services if Pentagon auditors conclude it violated federal accounting rules, according to officials and documents.
The Defense Contract Audit Agency is reviewing whether Boeing “improperly billed” the Air Force in a 2006-2008 contract for labor, management, quality control and support costs that were incurred between 1998 and 2006 in the Delta IV rocket program, said Pentagon spokesman Navy Commander Darryn James. Federal accounting standards require that the billings take place in the year the costs were incurred.
“These costing issues encompass very complex and highly technical accounting matters,” James said in an email. “The agency is aggressively pursuing this issue.”
At stake is $82 million already paid to Boeing, plus interest, as well as $189 million that the Chicago-based company claims it is owed, James said. The audit may be completed by mid-January, he said.
The audit agency has been criticized by Congress’s Government Accountability Office and the Pentagon’s inspector general, which uncovered problems with 14 audits of various programs and 62 pricing agreements at government locations in California. The government was alerted to those problems by a whistle-blower telephonehot-line complaint.
Dennis Muilenburg, president of Boeing’s Integrated Defense Systems unit, said in an interview the company is entitled to the $271 million.
The Air Force in 2006 agreed to pay the costs associated with the Delta IV booster rocket launch services, he said.
The Delta IV and the Lockheed Martin Corp. Atlas V rockets are the primary methods for launching U.S. military satellites.
The Pentagon auditing agency began its new review of the Delta IV costs in September after the Defense Department’s inspector general concluded that a May 2006 audit approving the billing was “flawed” and “cannot be relied upon as a basis to negotiate fair and reasonable contract prices.”
A regional manager for the Pentagon auditor approved “a flawed audit that could have allowed Boeing to recover $271 million in unallowable costs,” Inspector General Gordon Heddell said in Sept. 23 testimony to Congress.
The regional manager, who wasn’t identified by the inspector general, overturned a draft audit conclusion that Boeing shouldn’t be paid anything because the company was in “potential violation of accounting standards,” Heddell said.
The regional manager failed to meet government “standards for independence and objectivity” and she “engaged in conduct that was inconsistent with established leadership standards for senior officials,” Heddell testified.
The inspector general began a criminal investigation against the regional manager, according to the Government Accountability Office. The manager has hired a lawyer, according to the inspector general.
Business, Pages 29 on 12/30/2009