Yesterday we alerted you to a recent DCAA policy shift that requires auditors to query contractors about whether they are aware of any fraud or allegations of fraud. We stated that we were unaware of any regulatory, statutory, or contractual requirement that required contractors to respond to that line of questioning and also recommended that contractors pursue legal counsel before doing so.
We now have an example where auditors have taken this to a new level. One office (at least) has prepared a representation letter for contractors to sign and return. This particular example reads as follows:
To [Auditor, DCAA Branch Manager]
We are providing this letter in connection with your audit of the Forward Pricing Rate Proposal (FPRP) Submission for 2013 - 2015 of Company (Co.) as of September 4, 2013 for the purpose of expressing an opinion as to whether the aforementioned proposal and supporting data complies, in all material respects, with the applicable requirements in the Federal Acquisition Regulations (FAR). We confirm that we are responsible for the fair presentation in the Forward Pricing Rates Proposal (FPRP) Submission for 2013 - 2015 of Company (Co.) as of September 4, 2013 in conformity with generally accepted accounting principles.
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.
We confirm, to the best of our knowledge and belief, as of September 4, 2013 the following representations made to you during your audit.
1. The proposal referred to above is fairly presented in compliance with the FAR.
2. We have made available to you all financial records and related data.
3. There have been no additional communications concerning noncompliance with or deficiencies with FAR, DFARS and CAS.
4. There are no material transactions that have not been properly recorded in the accounting records.
5. We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.
6. We have no knowledge of any fraud or suspected fraud affecting the entity involving—
- Employees who have significant roles in internal control, or
- Others where the fraud could have a material effect.
7. We have no knowledge of any allegations of fraud or suspected fraud affecting the entity (that have not been previously discussed) received in communications from employees, former employees, analysts, regulators or others.
8. The company has complied with all aspects of contractual agreements that would have a material effect on claimed contract costs in the event of noncompliance.
To the best of our knowledge and belief, no events have occurred subsequent to the through the date of this letter that would require adjustment to or disclosure in the aforementioned assertion.
The auditors are expecting this representation letter to be signed by both the controller and the CFO (Chief Financial Officer).
As we stated yesterday, there is no FAR requirement that contractors prepare and issue such a representation letter and we caution all contractors to seek counsel on the advisability of doing so.