DCAA issued its long awaited audit programs for accounting system internal controls. In March of this year it issued audit programs for its billing system, and the two facets of its accounting system; the control environment and the accounting system or accounting controls. A significant portion of the control environment audit program is devoted to assessing a company’s “Management’s philosophy and operating style, commitment to competence, and human resource policies and procedures.” DCAA informs its auditors that this is a very subjective area and in conjunction with their risk assessment procedures and attendance at audit entrance conferences and system demonstrations they should be aware of positive and negative signs. Leaving the disclosure and development of these positive and negative signs up to the judgment and discretion of the auditor DCAA, HQs decides not to give any illustrations or examples of either, save one. It very subjectively asserts that excessive turnover may be a possible negative indicator regarding management’s philosophy and operating style. However, it doesn’t provide any type of a benchmark or barometer as to what is excessive. It then instructs the auditors to request a listing of management or supervisory personnel in key functions such as operations and program management, accounting, or internal audit that have either retired, quit, or been terminated. The auditor is then told that if the turnover appears to be excessive, obtain explanations of the reason for management or supervisory personnel leaving the organization.
This is a completely new set of steps to DCAA’s series of internal control related audit programs. At no other time are we aware of a program requiring auditors to obtain this type of data. That being said, why is DCAA requiring it? No new public laws have been passed instructing the agency to obtain it. And we’re not aware of any aspects of GAGAS that would require it. Then this writer can only conclude that the upper Management at DCAA is trying to create a situation where contractors will deny its auditors access to certain data. Knowing full well that its auditors will request this information if instructed to do so, DCAA has probably created a scenario it has been attempting for quite some time. No contractor wants to get into a denial of access situation with DCAA. However, DCAA for several years has pursued situations where it is denied access to data so that it could confirm via the court system its perceived authority to compel contractors to provide denied data. And now it may get its court date.
This turnover data is arguably the most sensitive information a contractor maintains. At least in this writer’s opinion it is even more sensitive than directors’ meeting minutes or internal audit reports. Because of labor or merit protection laws or just common decency contractors probably will have no choice but to deny an auditor access to this information thereby providing DCAA the scenario it has long wanted. One can only hope that a larger defense contractor with the wherewithal to stand up to this intrusive behavior will do so. As with the J.F. Taylor and Metron cases we see another defeat for DCAA and a win for good governance.