GAO Report: Unmet Professional Standards in DCAA Audits

Stephen D. Knight Smith Pachter McWhorter PLC GAO Report:Unmet Professional Standards in DCAA Audits Thursday, November 20, 2008 11:40am – 12:40pm

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 GAO Report 08-857 Findings

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 DCAA’s 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 DCAA’s participation on auditor independence” DCAA’s Response

FY 2009 Audit Performance Measures “Keys for Success” include: At no time should FAO change an audit opinion at request of requestor Enforce contractor’s 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 DCAA’s 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 DCAA’s 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.” DCAA’s 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 Effect of DCAA’s Response?

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.” DCAA’s Proper Role

GAGAS § 2.08 “Integrity” “[C]ommunications 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.” DCAA’s 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 . . . “ DCAA’s 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 DCAA’s Proper Role

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 Untenable Situation

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. Recommendations

GAO Report: Unmet Professional Standards in DCAA Audits