Most long-time Government contractors have faced situations where over-zealous contract auditors or contracting officers make spectacularly wild conclusions based on little or no evidence to back it. It happens way too often and once the Government has dug in its heels on a matter, it takes a lot of time and energy to resolve.
This shouldn't happen. For audits performed by DCAA (Defense Contract Audit Agency), auditors are required by GAGAS (Generally Accepted Government Auditing Standards, aka Yellow Book) to obtain sufficient, appropriate evidence to provide a reasonable basis for their findings. Appropriateness is the measure of the quality of evidence that encompasses its relevance, validity, and reliability while sufficiency is the measure of the quality of evidence used to support the findings and conclusions (GAGAS 6.57).
The DoD Inspector General has, from time to time, called into question the sufficiency of the audit evidence used by DCAA to back up its findings. In fact, in its latest peer review of DCAA, the DoD-IG criticized DCAA because of a lack of documented supervisory review of the sufficiency of audit evidence. Seemingly, no one in the supervision and management chain of command was validating the sufficiency of auditors' work to support their conclusions and recommendations.
Thankfully, DCAA has now amended its internal procedures to require supervisors to make affirmative statements that the audit evidence gathered during the audit is sufficient to support the objectives of the audit and the resulting conclusions and recommendations. Perhaps this change will reduce the occurrence of audit findings that have no merit.
The new guidance can be viewed or downloaded here.