GAO Report: Unmet Professional Standards in DCAA Audits

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(No Transcript)
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GAO ReportUnmet Professional Standards in DCAA
Audits

• Stephen D. Knight
• Smith Pachter McWhorter PLC

Thursday, November 20, 2008 1140am 1240pm
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GAO Report 08-857 Findings

• GAO investigated 13 cases at 3 contractor
  locations
• Impairment to auditor independence 3
• Working papers did not support reported opinions
  13
• Draft audit opinions changed without sufficient
  documentation 9
• Auditor did not perform sufficient work to
  support conclusions 10

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DCAAs Response

• Discontinue DCAA Participation in IPTs
• Audit Alert on Working Paper Documentation
• Audit Alert on Handling Disagreements on Audit
  Findings
• Audit Guidance on DCAA Audit Services Performed
  in Support of IPTs
• Auditors will not provide input to contractors
  on, e.g., draft proposals, draft
  policies/procedures, draft CAS DS
• Auditors required to report significant
  deficiencies discovered during audit even when
  contractor corrects during audit

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DCAAs Response

• Audit Guidance on In-Process IPT Assignments and
  Other Teaming Arrangements Involving Contractor
• Audit reports related to contracting officers
  IPTs or similar teaming arrangements involving
  the contractor . . . should be qualified for the
  impact of DCAAs participation on auditor
  independence

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DCAAs Response

• FY 2009 Audit Performance Measures
• Keys for Success include
• At no time should FAO change an audit opinion at
  request of requestor
• Enforce contractors responsibility to provide
  timely supporting data 3 days?
• Lack of timely data should result in costs
  questioned or unsupported
• Significant questioned or unsupported costs
  should result in flash estimating system
  deficiency

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DCAAs Response

• Keys for Success include
• The decision on whether an incurred cost
  proposal is adequate for audit is made by DCAA.
• Lack of adequate incurred cost proposals or
  timely support of proposal indicates serious
  accounting system deficiency flash accounting
  system deficiency report

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DCAAs Response

• Keys for Success include
• Maximize the issuance of the Form 1 during audit
  to help expedite timely resolution of audit
  issues.
• Question costs as appropriate regardless of the
  probability of sustention by the contracting
  officer.

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Effect of DCAAs Response?

• Isolation, not Independence
• No more team efforts
• Cut off communications with contractors on drafts
• Proceed regardless whether CO sustains position
• Polarization
• DCAA Adopting Draconian Methods
• Audit Process Becomes End to Itself rather than
  Support to Acquisition System

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DCAAs Proper Role

• GAGAS 2.08 Integrity
• Public confidence in government is maintained
  and strengthened by auditors performing their
  professional responsibilities with integrity.
  Integrity includes auditors conducting their
  work with an attitude that is objective,
  fact-based, nonpartisan, and nonideological with
  regard to audited entities and users of the
  auditors reports.

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DCAAs Proper Role

• GAGAS 2.08 Integrity
• Communications with the audited entity, those
  charged with governance, and the individuals
  contracting for or requesting the audit are
  expected to be honest, candid, and constructive.

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DCAAs Proper Role

• GAGAS 2.10 Objectivity
• The credibility of auditing in the government
  sector is based on auditors objectivity in
  discharging their professional responsibilities.
  Objectivity includes being independent in fact
  and appearance when providing audit and
  attestation engagements, maintaining an attitude
  of impartiality, having intellectual honesty, and
  being free of conflicts of interest . . .

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DCAAs Proper Role

• DCAM 1-102 Providing accounting and financial
  advisory services, in connection with the
  negotiation, administration and settlement of
  contracts and subcontracts, to all DoD
  procurement and contract administration
  activities
• Contracting Officer is Decisionmaker
• DCAA does not operate in vacuum

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Untenable Situation

• GAGAS requires DCAA to be independent, objective,
  impartial, nonpartisan, nonideological,
  intellectually honest
• DCAM sees DCAA as part of acquisition process
• GAO/Congress require DCAA to be aggressive, based
  on belief contractors seek to take advantage of
  government
• Tends to push DCAA outside acquisition system

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Recommendations

• Recognize DCAA for what it is aggressive, not
  impartial, and not always correct
• Since DCAA is not impartial, and not always
  correct, CO must exercise authority and
  discretion to determine merits of DCAA position
• Do not let the audit tail wag the procurement
  dog.