Government Access to Internal Audits - Part I

DCAA significantly revised its audit procedures for accessing internal audit reports and associated working papers of contractor internal audit departments. The latest guidance can be found in the Contract Audit Manual at 4-200. While acknowledging that internal (and external) auditors' final audit objectives are not the same as DCAA's the information contained in their reports may be useful to DCAA in the course of its audits. DCAA further stated that auditors should be aware of the potential for increased opportunities in reviewing these audits as part of their audit responsibilities (whatever that means).

The theory is good. Internal audit departments, like Governmental audit activities, are concerned about the effectiveness of internal control systems. To the extent that DCAA or other Governmental audit organizations can rely on the work performed, they can reduce the level of their own oversight. The problem is that there is a big gap between theory and reality. As we've stated here before, we have a lot of experience reviewing internal audit plans and reports and there just wasn't much there that was of any use in helping us reduce the scope of our own audit activity. The control objectives most important to contractors are not the control objectives most important to Government auditors.

When we were auditors, access was not usually an issue. We would sit down with the internal auditors annually, review their plans, look at a few reports that, on the surface, sounded like something we might be interested in. But this was all more of an intellectual exercise rather than one that proved useful. This didn't change when Sarbanes-Oxley came along either. The notable exception came one year when both the contractor's internal audit department and DCAA planned to review the purchasing system. We consolidated audit programs and divided up the procedures and consolidated the results into one report when finished. In retrospect, that worked pretty well but in today's environment, with acute emphasis on independence, the practice is no longer acceptable.