Due to the scrutiny and criticism DCAA received from the Government Accountability Office in 2008 and 2009, DCAA took a number of steps to address the problems identified by GAO, many of which were intended to address the finding that DCAA auditors lacked independence. The emphasis in resulting DCAA audit guidance on auditor independence has created consternation both within the contracting community and among DCAA auditors as familiar avenues of communication among contractors, auditors, and contracting officers appeared to be shut down and fundamental questions were raised: Could an auditor have an entrance or exit conference with a contractor? Could a contractor have discussions with the auditors about an on-going audit? Could a contracting officer invite an auditor to attend a pre-proposal conference with the contractor?
This fall, DCAA released its Audit Guidance on Auditor Communications (“The Rules of Engagement”) (.pdf) in an apparent effort to address concerns about the extent and nature of communications that are permissible and do not affect auditor independence. This guidance addresses auditor communications in all stages of an audit. Key guidance includes the following:
- Auditor communication with the contractor and contracting officer is consistent with GAGAS (Generally Accepted Government Auditing Standards), essential to conducting a proper audit, and does not necessarily result in impairment of auditor independence.
- Auditor participation in pre-proposal meetings does not, per se, impair independence, and while auditors cannot advise the contractor on how to develop its proposal, they can advise what the proposal should contain to be considered adequate.
- An entrance conference should be held with the contractor, in which an explanation of the purpose and overall plan for conducting the audit should be provided.
- During the audit, the auditor should discuss matters with the contractor to gain a full understanding of the contractor’s basis for each area under audit, and should discuss preliminary audit findings to ensure conclusions are properly based on all pertinent facts.
- An exit conference should be held with the contractor to discuss the audit results and obtain the contractor’s reactions and responses to the audit findings. Except for certain types of audits involving costs subject to negotiation, auditors should provide the contractor with a copy of the draft report, or at least the “results of audit” section of the draft report.
Fundamentally, this guidance recognizes the importance of ensuring that auditors understand the contractor’s submission, the pertinent facts, and the contractor’s viewpoints. Further, auditors must understand the scope of the audit requested by the contracting officer and ensure the contracting officer understands the audit protocol to be followed and the resulting audit findings. To achieve all of this, there must be substantive and regular communication among DCAA auditors, contractors, and contracting officers.
Whether this guidance will be followed by DCAA to its fullest extent remains to be seen, particularly given the agency’s current heavy audit load and overburdened resources. However, contractors should be aware of this guidance and press DCAA to engage in communication to the fullest extent possible.