Can a private entity audit and find acceptable an accounting system for a federal contract?

[ContractSpecialistTJohn]

Good Day All:

Is it at all possible to have a private firm or CPA audit and find acceptable an accounting system of a prospective federal contractor?

Far Part 42 states " Normally, for contractors other than educational institutions and nonprofit organizations, the Defense Contract Audit Agency (DCAA) is the responsible Government audit agency. However, there may be instances where an agency other than DCAA desires cognizance of a particular contractor. In those instances, the two agencies shall agree on the most efficient and economical approach to meet contract audit requirements. For educational institutions and nonprofit organizations, audit cognizance will be determined according to the provisions of OMB Circular A-133, Audits of Institutions of Higher Education and Other Non-Profit Institutions."

[Old-Dog]

I have been performing audits for Primes and one Agency for approximately 12 years. In my opinion the answer is yes.

[here_2_help]

TJohn,

The answer is "it depends." It depends on whether the cognizant Prime or government CO accepts the conclusion of the independent CPA firm.

As I type this, the DAR Council is considering revising the DFARS Business System regime to mandate such audits for 3 of the 6 Business Systems. Actually, I thought the public comments on the proposed rule were especially cogent and incisive; I hope the DAR Council listens to the input. Regardless, my point is that most policy makers have concluded that the DoD cannot rely on DCAA to perform timely reviews of the Business Systems ... and so they are looking elsewhere. If the DAR Council and other policy makers think an independent CPA can perform at least as well as DCAA -- and do so more timely -- then why wouldn't a CO take the same position?

Hope this helps.

[general_correspondence]

SpecialisIT

I agree with H2H, that it depends, so choose an outside CPA firm with past experience developing accounting systems aligned with Federal government expectations and systems. There are many out there.

[Retreadfed]

CJohn, conducting such an audit is not listed as an inherently governmental function in FAR 7.503. Further, I see nothing to prevent an agency from using private CPAs to do this.

In accordance with its charter, DCAA is the only contract audit agency in DoD. However, nothing in the DCAA charter requires a component to rely solely on DCAA for audit services. In fact, DoD has an Instruction that tells components what they must do in order to contract for audit services.

As for other agencies, the IG Act states that IGs are responsible for the conduct of audits within their agencies. However, most IGs do not have the staffing to perform contract audits. For that reason, they enter into memoranda of agreements with DCAA for DCAA to conduct audits for them on a reimburseable basis. The IG Act does not prohibit an IG for a civilian agency from contracting for those services if it wanted to instead of using DCAA.

[joel hoffman]

Retreaded, I haven't been able to find wording in the Inspector General Act of 1978 where Civilian Agency IG's are responsible for conducting contract audits for their agencies. Can you point out where that can be found? Thanks.

[Guest Vern Edwards]

5 U.S.C. Appendix, Inspector General Act of 1978, §4(a)(1), (3), and (4):

(a) It shall be the duty and responsibility of each Inspector General, with respect to the establishment within which his Office is established—

(1) to provide policy direction for and to conduct, supervise, and coordinate audits and investigations relating to the programs and operations of such establishment..

(3) to recommend policies for, and to conduct, supervise, or coordinate other activities carried out or financed by such establishment for the purpose of promoting economy and efficiency in the administration of, or preventing and detecting fraud and abuse in, its programs and operations;

* * *

(4) to recommend policies for, and to conduct, supervise, or coordinate relationships between such establishment and other Federal agencies, State and local governmental agencies, and nongovernmental entities with respect to

(A) all matters relating to the promotion of economy and efficiency in the administration of, or the prevention and detection of fraud and abuse in, programs and operations administered or financed by such establishment,

[Emphasis added.]

[joel hoffman]

Yes, I saw that wording, thanks Vern. I didn't know that the Civilian IG's perform or oversee contract audits. I thought that they audit government programs and operations as does the DoD IG. The DOD IG website under "organization" refers to such audit responsibilities, which are not contract audits, to my knowledge.

The USACE Civil Works Program under Title 41 used to have their own agency auditors. They were not under the USACE IG or Internal Review organizations. Now, the USACE must hire DCAA or may hire outside auditors for CW contract audits. It is very difficult to get DCAA audit support for CW these days (as of 2012 for my last personal experience on a large CW request for equitable adjustment).

[Retreadfed]

Joel, look at Section 8© of the IG Act for special responsibilities of the DoD IG. I worked for DCAA when the IG Act was being considered. Congress proposed moving the contract audit function to the IG and away from DCAA. However, DoD objected and different language was used in regard to the powers of the DoD IG when compared to the powers of most of the other IGs.

[joel hoffman]

Joel, look at Section 8© of the IG Act for special responsibilities of the DoD IG. I worked for DCAA when the IG Act was being considered. Congress proposed moving the contract audit function to the IG and away from DCAA. However, DoD objected and different language was used in regard to the powers of the DoD IG when compared to the powers of most of the other IGs.

Thanks, Retread. However, section 2. (2) of the IG Act of 1978 as amended states that one purpose is to conduct and supervise audits and investigations of the programs and operation of the establishments listed in Section 12 (2), which includes DOD as well as various other agencies, administrations, authorities, etc.

Section 8 lists "additional provisions" with respect to the DOD IG, not "special responsibilities". The various other sub paragraphs under Section 8 didn't mention contract audits for other organizations. So I didn't see where the other agencies' IG's would be responsible for contract audits but not DOD IG. Like I said above, I thought that the wording in Section (2) 2 refers to internal audits not contract audits.

[overclock]

The DoD IG published a revised instruction on Audit Policies last month.

http://www.dtic.mil/whs/directives/corres/pdf/760002p.pdf

The instruction says "DCAA provides contract audit functions for all DoD Components." Although the instruction goes on to state:

The DoD Components will contract for audit services when applicable expertise is unavailable within the DoD audit organization, augmentation of the DoD audit organization’s audit staff is necessary to execute the annual audit plan, or temporary audit assistance is required to meet audit reporting requirements mandated by law or a DoD issuance. Such contracts must comply with section 237.270 of the Defense Federal Acquisition Regulation Supplement (Reference (s)).

So if DCAA can't get the job done then the DoD component can get someone else to do the audit.

It would be best to see if you can get the DoD component to hire the external auditors to maintain the appearance of independence. If you hire the external auditors be sure to have them state in their audit report they are independent and the audit was done in accordance with GAGAS. Essentially have the auditors GAGAS up their audit report like DCAA does, although the DoD IG stated that DCAA doesn't follow GAGAS. (But that's a different post for a different day.)

Disclaimer: The views expressed in this post are mine and do not represent the views of my employer. They probably don't represent the views of DCAA either.

[joel hoffman]

Thanks, overclock.

Looking through the various references in your DOD Instruction "Audit Manual", I found this on page 129 of the DCAA Contract Audit Manual

"1-404 Relationship with DoDIG and Other Executive Branch Internal Audit Organizations

"1-404.1 Organizations for Government Internal Audit
a. The DoD Inspector General is responsible for DoD level internal and oversight au­dits and investigations. Responsibilities of the DoDIG include (1) evaluating activities relating to contract audits; (2) investigating fraud, waste, and error; (3) monitoring adher­ence to contract audit principles, policies, and procedures; and (4) monitoring actions tak­en by DoD components in response to contract audits.
b. Internal audit, oversight, and investigative services are performed by the offices of the Assistant DoDIGs for Auditing and Investigations and the Director for Departmental Inquiries. DoD component internal audit organizations include the Army Audit Agency, the Naval Audit Service, and the Air Force Audit Agency. The various Military Services also have additional internal review and audit groups such as the Inspector Generals of the Army, Navy and the Air Force. Most non-DoD agencies have similar activities for the performance of internal audit within their organizations. The following guidance also ap­plies to non-DoD executive agencies..."

In 1-404.5 Oversight Reviews on page 131, the CAM discusses OIG overviews of DCAA audits.
So, the DOD IG is responsible for internal audits and for oversight of and audits of DCAA's contract audits, among other things.

Do any of the other OIGs for civilian agencies directly perform contract audits?

[here_2_help]

Joel, in response to your question, yes.

For example, the EPA OIG performs contract audits, though it calls them financial management reviews.

Hope this helps.

[joel hoffman]

Thanks, H2H. Yes, it is a start.

[Retreadfed]

USAID performs contract audits and Energy performed some at one time, but I don't know if they still do. DCAA performs most contract audits for the civilian agencies. At last count, DCAA had 32 MOA's with the IGs of other agencies to do contract audits for their agencies.

[joel hoffman]

USAID performs contract audits and Energy performed some at one time, but I don't know if they still do. DCAA performs most contract audits for the civilian agencies. At last count, DCAA had 32 MOA's with the IGs of other agencies to do contract audits for their agencies.

Thanks, Retreadfed.

[Old-Dog]

The DOE uses KPMG for their contract audits.