Although the COVID-19 Pandemic and its impact on everyone is absolutely serious business, the nature of this “special day” blog is not necessarily serious business. At times like these we hope that an element of levity will be accepted for what it is and not be misinterpreted as diminishing the serious nature of the pandemic. We also hope that everyone reading this is safe, healthy and adhering to the federal guidelines to limit the spread of COVID-19.
As of the first of March 2020, federal agencies recognized the need to embrace “social-distancing” but also understood the need to keep performing as many day-to-day functions as practicable under these difficult circumstances. DCAA (Defense Contract Audit Agency) already had policies for teleworking (or working from home); however, telework had been the exception because DCAA Management has always preferred face-to-face meetings between auditors and contractor representatives. Now that teleworking has become the default (sole) method for auditing, DCAA has been forced to reconcile some of its audit strategies with the reality of auditing from afar (not to be confused with auditing with the FAR). Thus, DCAA has resurrected the concept of “Virtual Audits” (we say resurrected because in 2012-2013 DCAA had used “virtual audit teams” to somewhat address the incurred cost backlog). There is one slight difference in that the virtual audit teams meant “dedicated to a specific type of audit”, whereas today’s virtual auditing means auditing through remote forms of communications and data transmittal (internet and telecommunications).
Once RGCI (Redstone Government Consulting, Inc.) first became aware of DCAA’s “Virtual Audits” (via clients whose scheduled face-to-face entrance conferences went virtual), we reached out to a DCAA spokesperson (who insisted on anonymity) to gain an understanding of this new method for auditing. To be honest, this is not entirely new because several DCAA auditors have always preferred to audit from a distance, particularly if getting to the contractor’s office involved driving in heavily congested areas like Washington D.C, or if the contractor’s office failed to provide an environment conducive to efficient auditing (e.g. the auditor had to work in a “bullpen” area versus a private office with a view). At any rate, a few questions and answers (Q&A) from our (RGCI) interview with the “AA” (Anonymous Auditor).
RGCI. Thanks for taking the time for this telephonic interview.
AA: You are welcome and a reminder that I am an anonymous source.
RGCI: Understood, but before we start, how do you spell your last name?
AA: Johnson; J-O-H-N-S-O-N.
RGCI: Is that Mr. or MS. Johnson and is that with a “T” after J-O-H-N?
AA: It is Mr. and no “T”; Johnson, not Johnston.
RGCI: Thanks, and now the first question: Noting that all contractor records are now obtained electronically, how does DCAA reconcile that with auditing standards and the need to validate the source of the electronic records?
AA: Good question. DCAA won’t be issuing any audit reports with audit opinions, instead, we will issue the audit results using an MFR (Memorandum for Record).
RGCI: What’s the difference noting that the substance of the audit testing and the conclusions stated in the MFR will be eerily the same as those in an audit report?
AA: Bad question, the difference is obvious, one is an audit and one isn’t. And the non-audit which concludes with an MFR will have an audit reopener special clause.
AA: Once things get back to normal and DCAA regains physical access to a contractor facility, DCAA will repeat parts of each non-audit in terms of validating the source of the electronic records; that is requiring the contractor to “pull the same records” while an auditor can observe this activity.
RGCI: Isn’t that redundant, inefficient and costly?
AA: No one said that compliance with GAGAS (Government Auditing Standards) comes cheap.
RGCI: Any other significant changes or strategies?
AA: One in particular, noting that auditors won’t be present to observe contractor employees during audit inquisitions, I mean inquiries, the auditor will lose the critical advantage of being able to observe the contractor employee’s body language. To address this, during telecommunications DCAA has added a question that the contractor employee describe his or her body language.
AA: You know, the obvious, when answering a question, is the contractor employee looking away from the phone versus looking at the phone.
AA: A few other important changes, DCAA has restated (expanded) the requirements in FAR 52.215-2(e) as it relates to a contractor’s contractual requirement to provide records during an audit. The part we added is underlined: Availability. The contractor shall make available at its offices or through electronic transmission at all reasonable times, the records, materials, and other evidence….
RGCI: DCAA can’t unilaterally change the FAR and in this case a contractual clause.
AA: Why not, we do it all the time and by the way, I misspoke, we never change the FAR, we just interpret it differently.
RGCI. Suspicions confirmed.
AA: What did you say?
RGCI: Correction confirmed.
AA: One more very important new audit strategy to enhance the reliability of contractor electronic submissions of contractor records, DCAA will now require a contractor certification that the data submitted is in fact the contractor’s cost accounting data extracted from the contractor’s cost accounting records contained in _________ (system name) on _________ (date) at __________ (time) by _________ (employee name). A management level contractor representative will make this certification. Additionally, a third contractor employee will concurrently certify through a separate certification that he/she is not aware of any fraud risks related to the data submitted by the employee as certified by the other certification.
RGCI: Is any of this required by any contractual clause?
AA: No but yes.
AA: Sorry, but I am out of time and I now must go to my next anonymous interview. But one last requirement, I need a certification from RGCI that this interview will be published without any unauthorized changes to my statements.
RGCI: I give you my word.
This blog has been prepared especially for April 1, 2020 (aka: April Fool’s Day)