Monday, April 28, 2014

Require Auditors to be Specific when Making Requests

We've used this blog on a number of occasions to advise Government contractors that they have a perfect right to know and understand precisely what a Government auditor's scope of effort entails and how whatever data has been requested will contribute to the satisfaction of the audit objectives. And, it bears repeating. Some auditors do not like to be questioned about their judgment, the data they request or the purpose for which they are requesting it. Some auditors, unless and until pressed, provide vague responses to such questioning.

Contractors and prospective contractors are not obligated to furnish data that does not support the scope of the audit effort nor should they ever feel compelled to provide it out of fear or niceness. If an auditor were conducting an audit of proposed subcontract costs, you would not expect their request to include salaries and wages for engineers. If the nexus between the audit scope and the data requested is not obvious, contractors should require an explanation from the auditor as to the purpose of the request and its intended use. If the auditor's responses are too vague, ask for clarification or for more specificity.

Here are some examples of what we mean.

  1. An auditor's statement that he/she is going to verify the hours you billed under Contract so-and-so is too vague. The auditor needs to be specific regarding the subject matter and state what criteria the billed hours will be verified against. For example, "We're going to compare the hours billed on your last billing to the latest labor distribution report and identify any differences.
  2. An auditor's statement that he is going to review estimates for escalation is likewise too vague and subject. It does not provide the subject matter and criteria. A statement to the effect that he is going to compare proposed escalation rates for direct labor costs with the most recent forecasts from Global Insights would be more appropriate.
  3. An auditor's statement that she is going to compare proposed and actual rates for past years is not specific regarding the subject matter or the criteria against which it will be measured. A statement to the effect that she will compare the proposed indirect rates for fringe benefits, overhead, and G&A to historical rates for fiscal years 2012 and 2013 contained in actual year end cost reports, would be more specific.

Be wary of the words "verify", "check", and "prove". They are vague and ambiguous and provide no insight into the audit procedure being performed.

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