Many auditors tend to play it close to the vest and not show their hand. You will need to use every means to become aware of negative findings that are often quite visible throughout the audit process – during question and answer sessions, requests for data, informal discussions, more formalized communications of preliminary findings, distribution of draft reports, exit conferences, discussions with contracting officials and issuance of a Form 1.
Recent DCAA guidelines in the form of “Rules of Engagement” has significantly expanded the opportunity of contractors to learn preliminary audit positions (see the Nov-Dec 2010 issue of the GCAREPORT for more information). Now there is more explicit responsibility of auditors to divulge information to contractors than ever before about their findings. Initiated as guidelines to have auditorscomply more with auditing standards, the new guidelines (1) allude to general requirements to haveeffective communications with both parties during an audit to understand a proposal and all pertinent facts and seek out contractor’s views of audit conclusions
(2) renewed emphasis on both entrance and exit conferences (they were often a disliked formality that auditors tended to avoid or provide only cursory communications) where preliminary audit findings arediscussed to ensure a complete understanding of relevant facts are made and (3) except for forward pricing proposals auditors are told they must now provide, at a minimum, draft audit reports including opinions and exhibits and notes or statements of conditions and recommendations. Nonetheless, many auditors tend to shy away from any form of confrontation so you will need to use clever means to find out audit positions.
No matter when the finding surfaces audit positions generally become more hardened as the process continues so the “earlier the better” is the best advice to reverse an adverse audit position. Once a problem surfaces, it will be much easier to persuade the auditor to accept your point of view before they have expended a lot of effort developing their adverse position. You will also want to have as much time as possible to ascertain the facts and review the appropriate regulations, opinions and decisions and decide how and when to present your position.
Findings During the Exit Conference. If problem area shave not surfaced before hand, the Audit Exit Conference is the last best time to identify audit positions. The level of detail divulged depends onthe type of audit. For audits of incurred costs, the results should be discussed in detail. Often draft reports have been prepared before the Exit Conference so attemptsto receive copies of them should be made. Also, if needed to understand their position, the contractor is entitled to receive copies of the audit workpapers
(e.g. Allied Materials and Equip. Co., ASBCA No 17318 established DCAA audit workpapers are notprivileged) but, in practice, certain auditors may be uncertain of their authority so judgment about pressing the issue if refused needs to be made. For initial pricing proposals auditors will generally not disclose results of audit on the rationale the government negotiator does not want to “tip their hand.” The auditor should be willing to disclose what factual data they relied on and discuss in general terms the areas of questioned costs especially under the new Rules of Engagement. For example, they should be able to tell you they disagree with your proposed labor hours or rates without disclosing their specific recommendations. For defective pricing audits the auditor should discuss any factual indication thatcost or pricing data was defective and a draft copy of the report with exhibits and footnotes should be supplied and the contractor given the opportunity toreview the matter and provide any additionalinformation. For equitable adjustment requests andtermination settlement proposals, the ACO frequently instructs auditors to not disclose audit results - they are, in effect treated like initial pricing proposals –but when historical data is used to price the priceadjustment the contractor should request the ACO to authorize DCAA to openly discuss cost issues.Most other reviews (e.g. CAS Compliance,Accounting, Estimating, Billing, Purchasing, etc.)require full disclosure by DCAA. Sometimes auditors will try to avoid an exit conference but this should be adamantly rejected since some audit reports can windup as fraud investigations and it is quite common forlast minute problem areas to emerge when the auditor is compiling their workpapers and writing their report. (An exit conference by phone is acceptable if there are no major cost disallowances or all issues have been surfaced and they are clearly understood.)
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