Pentagon Backs Off on Prediction for General Dynamics

A Pentagon audit that found General Dynamics has a “possible chance for bankruptcy” was revised by Pentagon auditors in recent weeks, some three months after they originally made the prediction, it was learned Wednesday.

It remains unclear what motivated auditors to change their findings, although congressional sources allege that there was pressure brought to bear on the Pentagon accountants.

On Dec. 7, the auditors issued an unusual revision to their original report, solely to “delete” the analytical measure that made the bankruptcy prediction in the original report, which was issued Sept. 7.

The Times reported the findings of the original audit Tuesday; the revision was not made available until Wednesday. The deletion was made for technical accounting reasons, according to the supplemental audit report.

A companion audit of McDonnell Douglas, which used the same techniques and contained similar predictions about bankruptcy, was apparently not revised by the agency. “I am not aware of any revision,” a McDonnell spokeswoman said Wednesday.

The audits, performed by the Defense Contract Audit Agency, involved an examination of the troubled Navy A-12 attack jet program. The audit of General Dynamics found that the St. Louis-based firm, the nation’s second-biggest defense contractor, had fallen into a “weak” financial condition and that its “ability to perform this contract may be in jeopardy.”

Those conclusions were not deleted from the revised report.

Congressional sources questioned whether auditors caved in to political pressure resulting from the original audit in deleting the bankruptcy prediction. Auditors involved in issuing the reports declined to comment Wednesday.

The original audit had begun circulating in the Pentagon by late November. At that time, a number of congressional investigators were attempting to obtain it, because word had spread that the audit contained a prediction of bankruptcy, according to staff members on the House Energy and Commerce Committee. The committee has been active in probing the A-12 controversy.

The supplemental audit report said the deletion of the bankruptcy prediction was made because the analytical measure, called a z-score, “can only be computed using annual data.” The original audit used data for the first six months of 1990 in rating General Dynamics a “possible chance for bankruptcy.”

A Pentagon auditor who declined to be identified said Wednesday that he has often used other than annual data in computing z-scores. But an audit manual used by the agency recommends that annual data be used.