ECT-208Government Contract Audits: A Strategic Approach for a Successful Outcome
May - 2011
Presented byBrent Calhoon
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Project Management
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Introduction
Backroundit Process Prerequisites for Success Impediments to Success Strategy Points Dispute Resolution Avenues
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Government Auditors
Defense Contract Audit Agency Civilian Agency Auditors Independent Accounting Firms Government Accountability Office Prime Contractors Others
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Definition of “Successful Outcome”
Requestor/Customer (Contracting Officer) Unbiased audit opinion(s) with sound basis in regulatory requirements,
facts, and circumstances Timely Places risk in perspective
Auditor (DCAA) Compliance with professional auditing standards Useful to customer
Auditee (Contractor) Fair and objective analysis of facts and circumstances with reasonable
interpretation of contractual/regulatory requirements given the business environment
Audit findings presented with context/perspective
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Audit Guidance – Generally Accepted Government Auditing Standards (GAGAS)
Competence – all personnel assigned to the audit collectively have the technical knowledge, skills, and experience to perform the audit
Integrity – conduct of audit work with attitude that is objective, fact-based, nonpartisan, and non ideological
Independence – free from personal and external impairments to ensure their opinions, conclusions, judgments, and recommendations are impartial.
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Audit Guidance – Generally Accepted Government Auditing Standards (GAGAS)
Professional Judgment – exercising reasonable care and professional skepticism
Quality Control and Assurance – reasonable assurance that the organization and its personnel comply with professional standards and applicable legal and regulatory requirements; external peer review at least once every three years
Suitable Criteria – evaluation against criteria that are suitable and available (e.g., FAR, CAS, DFARS)
- Objective - Complete- Relevant - Measurable
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DCAA Audit Manual
Audit Process:- Risk Evaluation
- Audit Procedures
- Audit Techniques
- Reporting Procedures
Professional Standards
Generally Accepted Government Audit Standards (GAGAS):- Most misunderstood element of DCAAM
- Applies to all audit and attest engagements
Technical Standards:- Specific Contract Requirements
- Federal Acquisition Regulation (FAR)
- Cost Accounting Standards (CAS)
- Agency Supplements (e.g., DFARS)
Relationships with Other Parties:- Contracting Officer
- Contractors
- Office of the Inspector General
- Other Auditors
- Technical Experts
- etc.
Defense Contract Audit Agency
Contract Audit Manual (DCAAM)
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Audit Sequence
Pre-Audit Audit request Audit Planning Entrance Conference
Field Work Audit Testing Formation of preliminary conclusions and draft report
Exit Conference & Post Audit Contractor response to audit findings Audit follow up Final audit report
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Audit Sequence – Key Participants
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SalesPre-Audit
Contracting OfficerAuditorContractor
Entrance Con-ference
AuditorContractor
Field Work
AuditorContractor
Exit Confer-ence & Post-Audit
Contracting OfficerAuditorContractor
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Strategic Prerequisites to Success
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SalesContracting Officer
AuditorContractor
Successful Audit
Outcome
Open communication between all parties
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Strategic Prerequisites to Success
Show professional respect (no back-channeling or jumping ranks)
Check emotions and pride at the door
Pick battles carefully – minimize conflict
Ask “so what?”; be prepared to answer “so what?”
Form opinions based on facts and reasoned, objective analysis rather than assumptions (i.e., resist judging a book by its cover)
Document discussions
Review FAR Guiding Principles (FAR 1.102)
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Impediments to Success
Checks and balances out of balance
- DCAA circling the wagons – reaction to recent congress/GAO scrutiny and criticism
- Thinly-veiled threat to COs [(MRD) 09-PAS-004(R)] Agree with us or we’ll report you to OIG Tempered somewhat by new guidance on resolving contract audit
recommendations [(MRD) 10-PAS-015(R)] - “Materiality” generally interpreted as anything greater than zero
No cost/benefit considerations At odds with Gates/Carter efficiency initiative
DCAA opinions are pass/fail – no flexibility for COs or Contractors [(MRD) 08-PAS-043(R)]
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Impediments to Success (cont’d)
Contractors generally viewed negatively within the DC beltway (political pariah)
Increasing regulatory burden and new compliance requirements Political intolerance for noncompliance (i.e., anything less than perfection
given current view of materiality) DCAA: fear of favorable audit opinions COs: growing reputational/professional risk
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Strategy Points for Contracting Officers
Do –
Know what you need and why
Discuss communication expectations (e.g., frequency, content, etc.)
Set expectations regarding quality and usefulness of audit report
Arbitrate grievances raised by either contractor or auditor
Understand the gravity of incorrect conclusions
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Strategy Points for Contracting Officers (cont’d)
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Don’t – Cede regulatory authority to auditors
Presume the auditor is always right
Be reluctant to hold both auditors and contractors accountable to you
Impair auditor independence
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Strategy Points for Auditors
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Do – Understand the contractor’s business and competitive environment
Perform audit according to auditing standards - Independent- Objective- Sufficient evidence
Assess materiality/impact; frame findings in fair context
Understand contractor’s audit policies
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Strategy Points for Auditors (cont’d)
Don’t – Undermine the contractor/CO relationship
Be a crusader in the name of the taxpayer
Become invested in outcomes – focus on the process
Let personal opinion cloud professional judgment
Stop pursuing the facts because they’re hard to find
Leap to conclusions before asking questions
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Strategy Points for Contractors
Do – Be prepared for potential audits
- Perform self-assessments- Findings/issues should not be surprises
Assign a qualified and dedicated audit liaison Establish policy for audit process
- Require audit requests in writing
- Define “reasonable” response times for info requests
- Set policy for conduct of employee interviews
- Define communication schedule Establish database to track/monitor requests
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Strategy Points for Contractors (cont’d)
Do – Help inexperienced auditors learn
Ask questions rather than make statements – chance to learn what auditor needs to reach reasonable conclusion
Encourage senior-level finance/accounting managers to build rapport with auditors
Showcase internal control procedures and evidence of continuous improvement
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Strategy Points for Contractors (cont’d)
Don’t – Be a victim
Make excuses; instead, provide reasons or mea culpas
Break commitments/your own audit policy
Provide information without verifying accuracy
Make the audit process inefficient
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Contractor/DCAA Dispute Resolution
Resolve with DCAA auditor and contracting officer
Resolve with DCAA regional manager
Resolve with DCAA regional director
Resolve with DCAA headquarters
Go to Board of ContractAppeals or Claims Court(long, involved, difficultand expensive process)
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CO/DCAA Dispute Resolution
DCAA Director/Director
Defense Procurement and Acquisition Policy
Auditor/ Contracting Officer
• “Significant disagreement” when CO sustains less than 75% of DCAA findings
• DCAA has 3 days to elevate
• Any issue can be elevated by DCAA Director
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Questions, Comments, Banter?
Baker TillyGovernment Contractor
Advisory Services
Vienna, VA
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Presenter Contact Information
Brent Calhoon, Partner, Baker Tilly• 703.923.8311• [email protected]
Katrina Karaan, Manager, Baker Tilly• 703.923.8441• [email protected]
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