Monday, August 26, 2013

Auditor Access to Contractor Employees

We're going to take a break form the CAS working group guidance and catch up on some current events. So far, we've discussed ten of the twenty guidance papers that are still current, according to DoD. We will resume the series in the near future.

Today we want to discuss an audit alert memorandum that was issued by DCAA (Defense Contract Audit Agency) last July but just recently posted onto their website. The subject of this audit alert concerns auditor (specifically DCAA) access to contractor employees.The question they are attempting to resolve is whether or not contractual language gives them the right to access contractor employees or limits access to "records" only. The complete memorandum can be accessed here.

The memorandum begins by stating that DCAA Headquarters recently received feedback from various offices that some contractors are challenging DCAA's right to interview and observe employees during performance of their audits by arguing that FAR 52.215-2 (Audit and Records - Negotiation) limits the Agency's access to records only, and does not include access to their employees. In other words, DCAA (or any contract auditor for that matter) cannot perform floorchecks to determine the propriety of labor costs charged to Government contracts.

Obviously, DCAA does not and will never agree with such a position. And, contractors are not going to win that battle. Its been tested many times before and ultimately, the Government wins. Parenthetically, we might warn contractors that any attempt to restrict access to employees will simply increase the auditor's suspicions that the contractor has something to hide.

There are valid professional auditing reasons for requiring access to contractor employees. First is the professional auditing standards (Generally Accepted Government Auditing Standards or GAGAS). These standards require auditors to inquire with management and others withing the contractor organization that, in the auditor's professional judgment, have information pertinent to successful planning of their audit (see GAGAS 5.06).

Another GAGAS requirement, found in 2.09a, requires auditors to obtain sufficient, appropriate evidence to provide a reasonable basis for the conclusions expressed in a report. Performing inquiries and observations of contractor employees and their processes (floorchecks) provides auditors with the evidence needed to formulate an opinion and is a fundamental part of the contract audit process. Interviews allow the auditor to evaluate compliance with labor charging policies and procedures and internal controls designed to ensure the reliability of the timekeeping records and the contractor's compliance with the terms and conditions of its Government contracts. Observations confirm that the employee is at work, performing in the correct job classification, and charging time to the appropriate cost objective.

The guidance concludes by telling auditors to consider any attempts by contractors to restrict access to employees a denial of access to records.

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