What is the Energy Department's "Cooperative Audit Strategy"

DOE (Department of Energy) contractors are subject to more audit oversight than the typical Government contractor and that includes DoD (Defense). And there is good reason for that - DOE awards massive cost-type contracts to operate its facilities and clean up its nuclear messes. To ensure that the taxpayers interests are protected, DOE has developed a "Cooperative Audit Strategy" with these guiding principles:

• The creation and maintenance of rigorous business, financial, and accounting systems by the contractor is crucial to ensuring the integrity and reliability of the cost data used by officials of the Office of the Chief Financial Officer, the Office of the Inspector General, and the office of the Director, Office of Acquisition Management
• To ensure the reliability of these systems the Department requires each contractor to maintain an internal audit activity to support the Office of the Inspector General as part of the Cooperative Audit Strategy. The internal audit activity is responsible for performing operational and financial audits (including allowable cost reviews) and assessing the adequacy of management control systems.

This strategy allows DOE augment its own staffing by relying on the work of contractor internal audit activities. Its not free to the Government however. The cost of these internal audit departments are fully reimbursed by DOE under the cost-type contracts.

Contracting officers, the DOE Inspector General and DOE's Chief Financial Officer provide oversight and review of contractor's internal audit plans including the design of the organization, the annual audit plan, the annual audit report, and the results of its review of incurred costs.

The "design" of the internal audit organization gets plenty of attention. Contractor's must submit a report that describes (i) the placement of the Internal Audit activity within the contractor's organization, (ii) its size and the experience and educational standards of the audit staff, (iii) its relationship to the corporate parent, (iv) the audit standards to be used (v) an overall audit strategy, (vi) the intended use of external audit resources, (vii) the plan for pre-award and post-award audit of subcontracts, and (viii) the schedule of peer review of the Internal Audit Activity.

After DOE approves the design of the internal audit department (and we don't want to understate the rigors of that process), the Internal Audit Departments are required to submit annual reports comparing what they stated would be accomplished with what was actually accomplished. This is more than a statistical summary of progress since it is required to include summaries of specific contractor practices that resulted in unallowable costs.

Most non-public Government contractors do not have internal audit departments. Those that do are often reluctant to share information with the Government because they are afraid that the information will be misused in some fashion. DOE contractors however are required by the terms of their contracts to provide unfettered access to their internal audit departments.