Report | Oct. 17, 2013

Hotline Allegation Regarding the Follow-up Audit of a Contractor's Material Management and Accounting System

DODIG-2014-002

Results in Brief:

Hotline Allegation Regarding the Follow-up Audit of a Contractor’s Material Management and Accounting System

Objective

We reviewed a DoD Hotline complaint alleging that during a follow-up audit of a DoD contractor’s Material Management and Accounting System (MMAS), a Defense Contract Audit Agency (DCAA) auditor:

  • concluded that numerous outstanding deficiencies were corrected without obtaining sufficient evidence and
  • reported the entire MMAS system adequate.

Findings

We substantiated the allegation that DCAA reported several MMAS deficiencies as corrected without obtaining sufficient evidence to support the opinion. The Gathering Sufficient, Appropriate Evidence section of generally accepted government auditing standards requires that auditors obtain sufficient evidence in support of their conclusions. Of the 28 deficiencies DCAA reported as corrected, the auditor did not obtain sufficient evidence to conclude that 10 of them were corrected. As a result, the contractor might not have corrected the deficiencies and the Government could be incurring unnecessary material costs. In addition, we found that the DCAA field audit office (FAO) did not conduct a second follow-up of the remaining deficiencies in a timely manner. We did not substantiate a second allegation that DCAA reported the entire MMAS system as adequate. DCAA reported the MMAS as “inadequate in part” based on two deficiencies which the contractor had not adequately corrected.

Recommendations

DCAA should rescind the MMAS follow-up audit report because the auditor did not obtain sufficient evidence in support of the reported opinion. In accordance with DCAA policy, DCAA needs to initiate a full audit of the MMAS rather than a limited audit of the remaining MMAS deficiencies. Further, DCAA should assess whether auditors agency-wide are conducting follow-up audits of business system deficiencies in a timely manner.

Comments and Response

In an August 9, 2013, memorandum, the Director of the Defense Contract Audit Agency agreed with the findings and adequately responded to one of two recommendations. The Director did not agree to conduct an agency-wide assessment on the timeliness of follow-up audits. Therefore, we request additional comments on this recommendation. Please see the recommendations table on the following page.