Communications with Auditors - The Exit Conference

Interaction with auditors is unavoidable if you have any kind of Government contract. There are many audits that need to be performed, especially pertaining to cost-reimbursement contracts. Before contract award, there might be a preaward accounting system audit, a financial capability audit and of course, evaluation of the proposal you submitted. During contract performance, there could be floorchecks, billing rate, public voucher, progress payment, and EVMS-type audits. After contract completion, there is likely an incurred cost audit and final closing audit. Peppered throughout these periodic reviews might be a defective pricing review, other internal control adequacy reviews, and CAS compliance reviews.

When auditors perform these audits, they are required by Generally Accepted Government Auditing Standards (GAGAS) to communicate throughout the review with the contractor. Yesterday we discussed communications that occur during the entrance conference and throughout the fieldwork stages. Today we will discuss the communication that occurs once the audit is complete. This is called the exit conference.

Upon completion of the field work, the auditor will discuss the audit results and obtain the contractor’s views concerning the findings, conclusions, and recommendations for inclusion in the audit report as required by GAGAS. For other than audits involving forecasted costs subject to negotiations, the auditor will provide the contractor a copy of the draft report, or at a minimum, the results of audit section of the draft report (including the opinion and any exhibits and notes, or statement of conditions and recommendations). To facilitate the discussion of the audit results and obtaining the contractor’s views of the results, this information is sometimes provided prior to the exit conference.

If the audit report includes forecasted costs that are subject to negotiations, such as forward pricing audits the auditor will not provide the contractor a copy of the draft report or results and will limit the discussion to factual matters/differences. Auditors should not disclose conclusions or recommendations on projected costs or rates. For example, the auditor would discuss with the contractor why a proposed raw material factor was based on history from the development phase of a particular contract when the contractor has more current and relevant history from follow-on production contracts. In this case, the auditor would not disclose the audit conclusion (e.g., that audit results were based on the history for the follow-on productions contracts) or the overall questioned cost, the questioned cost by cost element, or how much of a specific rate/factor was questioned unless specifically directed to do so by the requestor.