Waste is the act of using or expending resources carelessly, extravagantly, or to no purpose. Waste involves the taxpayers not receiving reasonable value for money in connection with any government-funded activities because of an inappropriate act or omission by parties with control over or access to government resources. Importantly, waste can include activities that do not include abuse and does not necessarily involve a violation of law. Rather, waste relates primarily to mismanagement, inappropriate actions, and inadequate oversight.
Abuse is behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances, but excludes fraud and noncompliance with provisions of laws, regulations, contracts, and grant agreements. Abuse also includes misuse of authority or position for personal financial interests or those of an immediate or close family member or business associate. Because the determination of abuse is subjective, auditors are not required to perform procedures to detect abuse in financial audits. Auditors may discover that abuse is indicative of fraud or noncompliance with provisions of laws, regulations, contracts, and grant agreements.You can see that there is a fair amount of subjectivity in determining whether waste or abuse exists, more so for abuse than waste. That is why there is no specific reporting requirement for Government auditors for situations involving abuse unless that abuse also involves fraud or noncompliances with laws, regulations, and contracts. The reporting requirements for instances of waste however is another matter.
The 2017 Exposure Draft for the Yellow Book update will require that auditors perform audit procedures to ascertain the potential effect on the audit objectives if they become aware of waste that could be quantitatively or qualitatively significant to the audit objectives.
Then, based on these expanded audit procedures, the audit is required to report findings of waste when they conclude, based on sufficient, appropriate evidence that instances of waste have occurred. If the waste is not significant to the audit objective, the auditor is still required to communicate the information back to the contractor person charged with governance.
Since contract auditors will now have an affirmative duty to design audit procedures to determine whether "waste" exists, once the Exposure Draft becomes final, Government contractors will no doubt experience a significant uptick in the efforts by contract auditors to determine whether waste exists and, if so, whether it is significant. It will be interesting to see how DCAA (Defense Contract Audit Agency) or other contract auditors will implement this new requirement.
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