Publicly Released: March 19, 2020
The objective of this quality control review was to determine whether the Defense Contract Audit Agency (DCAA) and Deloitte & Touche (D&T) LLP performed the FY 2016 single audit of the Aerospace Corporation (Aerospace) in accordance with auditing standards and Federal requirements.
Public Law 104-156 (Single Audit Act) was enacted to promote sound financial management of Federal awards administered by non-Federal entities and to establish uniform requirements for audits of Federal awards. The Uniform Guidance in the Code of Federal Regulations sets forth the standards for obtaining consistency and uniformity among Federal agencies for the audit of non-Federal entities expending Federal awards.
Aerospace is a nonprofit corporation that was created to meet special long-term research and development needs in the nation’s military space program. In FY 2016, Aerospace spent $904.4 million in Federal funds on one major program referred to as the research and development cluster. The $904.4 million included $834.7 million in DoD awards. D&T and the DCAA performed the Aerospace FY 2016 single audit.
The DCAA did not comply with auditing standards related to audit documentation when performing the FY 2016 single audit of Aerospace because the DCAA auditors did not document professional judgments they made to support the audit report opinion that they issued. As a result of DCAA’s audit documentation not supporting the qualified audit report opinion, we had to obtain extensive explanations from the DCAA auditors to understand the professional judgments they made to support the opinion and to determine that the opinion was appropriate.
D&T generally complied with auditing standards and Uniform Guidance requirements when performing the Aerospace FY 2016 single audit. However, D&T auditors did not:
- consider the entire population of equipment, purchased with Federal funds, when they verified that Aerospace properly safeguarded and maintained equipment; or
- clearly document the audit procedures planned and performed when testing the operating effectiveness of Aerospace’s internal controls over compliance with Federal requirements.
D&T’s audit documentation was not sufficient to allow an experienced auditor with no ties to the audit to understand the work performed and reach the same conclusions. We had to obtain additional explanations from the D&T auditors and perform further analysis to determine that the audit procedures resulted in sufficient evidence to support the overall opinion on Aerospace’s compliance with Federal requirements.
We recommend that the DCAA Branch Manager, Los Angeles South Branch Office, prepare audit documentation that provides a clear and accurate description of the professional judgments made in the FY 2016 single audit to support the audit report opinion that was issued.
For future single audits, we recommend that the D&T Managing Director:
- identify and document consideration of the population of all equipment purchased with Federal funds when designing the audit procedures to test that equipment is adequately safeguarded and maintained; and
- prepare audit documentation that clearly describes the planned internal control testing and the audit procedures performed to conclude on the operating effectiveness of internal controls over compliance with Federal requirements.
Management Comments and Our Response
The DCAA Assistant Director of the Integrity and Quality Assurance Directorate agreed with our recommendation and the DCAA auditors prepared supplemental audit documentation for the FY 2016 single audit. We verified that the supplemental audit documentation provided a clear and accurate description of the professional judgments the DCAA auditors made to support the qualified audit report opinion. As a result, we closed the recommendation for DCAA.
The D&T Managing Director agreed with our recommendations and stated that D&T will enhance audit procedures and documentation in accordance with our finding and recommendations. Comments from the D&T Managing Director addressed the specifics of the recommendations; therefore, the recommendations are resolved but remain open. We will close the recommendations once we perform followup procedures to verify that D&T’s corrective actions fully address our recommendations.
This report is a result of Project No. D2019-DEV0SO-0167.000.