Contractor Notification Letters

Auditors are required by GAGAS (Generally Accepted Government Auditing Standards, aka the GAO "Yellow Book") to communicate certain information regarding their understanding of the services to be performed. This communication is to be in writing and is addressed to both the requester and the contractor to be audited. This is to occur during the planning stage of the audit, before any "field work" begins. Specifically, the GAGAS 6.07 requires the following minimum information;

• The nature, timing, and extent of planned testing and reporting
• The level of assurance the auditor will provide
• Any potential restrictions on the audit report

Often times, Government auditors (especially DCAA) will forgo written communication and simply communicate verbally with contractors during an entrance conference. This does not fully comply with GAGAS requirements and contractors should insist on a formal notification letter. Recently, DCAA issued guidance reminding auditors of the GAGAS requirements to issue Contractor Notification Letters.

A typical notification letter pertaining to an audit of a price proposal might read something like this:

We received a request from the ACO at Wright Patterson AFB to examine your January 1, 2011 CPFF proposal submitted in response to Solicitation No. F1468-11-R-0001 to determine if the proposed costs are acceptable as a basis to negotiate a fair and reasonable contract price.

Our audit will include

• Gaining an understanding of the contractor's internal controls, assessing control risk, and determining the extent of audit testing needed based on the control risk assessment
• Examining, on a test basis, evidence supporting the amounts and disclosures in the proposal
• Assessing the accounting principles used and significant estimates made by the contractor
• Evaluating the overall proposal presentation
• Determining the need for technical specialist assistance

We will evaluate the proposed costs using the applicable requirements contained in the

• FAR
• Agency FAR Supplements
• CAS (if applicable

We will start our audit on or about January 15, 2011 and expect to issue the report expressing an opinion on whether the proposed costs are acceptable as a basis to negotiate a fair and reasonable contract price on approximately February 15, 2011. The audit report will be subject to the following restrictions:

• The contents of the report should not be released or disclosed, other than to those persons whose official duties require access, without the approval of the Contracting Officer
• The report will be subject to the restrictions of 18 USC 1905 which restricts the disclosure of proprietary information and if the information is contractor bid or proposal or source selection information, 41 USC 423 which restricts disclosure of contractor bid or proposal or source selection information
• If the report is on a subcontractor proposal/submission, the release of the report or specific information in the report to the higher-tier contractor will be restricted if the subcontractor objects to the release.

Just to reiterate, if a Government audit organization does not provide you a notification letter, you should request one.