Publicly Released: June 15, 2020
Objective
The objective of this evaluation was to identify and summarize systemic deficiencies reported during the most recent cycle of peer reviews of DoD audit organizations and determine whether improvements were made since the last summary report we issued in Report No. DODIG-2016-031, December 14, 2015. This report covers the most recent cycle of peer review reports on DoD audit organizations issued from April 4, 2017, through January 15, 2020.
Observations
As the Government Auditing Standards require, DoD audit organizations receive a peer review on a 3-year cyclical basis. During a peer review, the review team follows up on previously reported peer review recommendations to determine whether the recommendations were implemented. Common recommendations in peer review reports involve the areas of auditor independence, attestation engagements, nonaudit audit services, planning, supervision, and reporting. The recommendations can serve as lessons learned, providing the audit organizations with an understanding of why deficiencies occurred and highlighting the improvements needed for their quality control systems. The deficiencies presented in this summary report can be corrected when the DoD audit organization implements the peer review team’s recommendations. We do not provide additional recommendations in this report.
Of the 21 audit organizations that were peer reviewed during the most recent cycle, 16 received a rating of pass, 4 received a rating of pass with deficiencies, and 1 received a rating of fail.
Five audit organizations improved their peer review rating since their previous peer review, and one audit organization’s peer review rating declined.
Four audit organizations also made improvements in the areas of policies and procedures for nonaudit services. Also, three audit organizations took corrective actions before and during the peer reviews to improve their systems of quality control. Additionally, one audit organization requested an off-cycle peer review to demonstrate that corrective action it took sufficiently addressed a condition which resulted in the audit organization receiving a fail rating during its previous peer review.
We encourage all the DoD audit organizations to prioritize the correction of systemic deficiencies identified in their quality control systems.
Best Practices Were Observed During a Peer Review
A peer review observed best practices at one DoD audit organization and included the best practices in the peer review report. Best practices were observed in the areas of policies and procedures and the areas of training and continuing professional education. Implementing best practices can enhance the audit organization’s quality control system or help it correct the deficiencies identified during peer reviews.
Result of the Compilation of Peer Review Report Deficiencies
We compiled the reported deficiencies using the appendixes contained in the Council of the Inspectors General for Integrity and Efficiency “Guide for Conducting Peer Reviews of Audit Organizations of Federal Offices of Inspector General,” which contain the specific requirements established in the Government Auditing Standards that are required to be reviewed as part of the peer review.
Policies and Procedures
The peer reviews reported policy and procedure deficiencies at three DoD audit organizations in the general standards areas of independence, quality control and assurance, and attestation engagements.
Adherence to General Standards
The peer reviews reported deficiencies on adherence to general standards at eight DoD audit organizations in the areas of independence, competence, and quality control and assurance. A common deficiency involved audit organizations not ensuring that auditors maintained their professional competence through continuing professional education. Other common deficiencies involved audit organizations not evaluating independence prior to performing nonaudit services and not documenting their consideration of the audited entity management’s ability to effectively oversee a nonaudit service. Attestation Engagements
The peer reviews reported attestation engagement deficiencies at four DoD audit organizations in the general standards areas of professional judgment and agreed-upon procedures engagements. For example, two DoD audit organizations did not follow requirements established by the American Institute of Certified Public Accountants and did not include all the required report elements in reports for agreed-upon procedure engagements.
Performance Audits
The peer reviews reported performance audit deficiencies at 14 DoD audit organizations involving issues related to independence, professional judgment, planning, evidence and documentation, supervision, reporting, and quality control policies and procedures.
Monitoring of Audit Work Performed by an Independent Public Accounting Firm
The peer reviews reported deficiencies at two audit organizations which involved monitoring the audit work performed by an independent public accounting firm. Specifically, the audit organizations’ documentation for the review of the work performed by independent public accounting firms was not prepared in a timely manner.
Management Comments and Our Response
We do not require a written response to this report.
This report was the product of Proj. No. D2020-DEV0SO-0033