Report | June 30, 2014

Implementation of 2011 Generally Accepted Government Auditing Standards Independence Standards at the DoD Audit Organizations

DODIG-2014-089

Objective 

We conducted this review to determine whether the DoD audit organizations implemented the December 2011 generally accepted government auditing standards (GAGAS) independence standards and whether the standards were being followed. We reviewed 16 of the 21 DoD audit organizations (see Appendix A Scope and Methodology for our rationale).

 
Findings
Of the 16 DoD audit organizations reviewed, 10 had fully implemented, 4 had partially implemented, and 2 had not implemented the 2011 GAGAS independence standards.
 
In addition, four audit organizations performing nonaudit services did not fully assess and document potential impairments to independence as required by GAGAS 3.34. GAGAS 3.34 requires the auditor to assess the skill, knowledge, or experience of the audited entity management’s designated individual who will oversee and accept responsibility for the nonaudit service.
 
Also, some auditors’ statements of independence were either missing or improperly completed. In addition, one audit organization failed to comply with the standards when performing control self-assessments and continuous auditing.
 
Recommendations
We recommend that the specified DoD agencies or audit organizations: 
  • establish internal policies or procedures implementing the December 2011 GAGAS independence standards,
  • create internal policies and procedures detailing how nonaudit service requests will be processed,
  • perform all the required independence analyses and document the results before accepting a nonaudit service,
  • include policies and procedures for performing control self-assessments and continuous auditing, and
  • remove language from agency operational procedures that appears to direct the functions of an internal review office. 
Management Comments and Our Response 
Five of the seven respondents agreed with our recommendations. The Auditor General, Department of the Army agreed with the intent of our recommendation but only partially addressed all the specifics of the recommendation, and the Commander, Naval Supply Systems Command, responding for the Chief Executive Officer, Naval Exchange Service Command, disagreed with two recommendations and did not adequately address one of the four recommendations. We request these two agencies provide comments to this final report. Please see the Recommendations Table on the back of this page.