Insight by: Craig Stetson, Partner
April 15, 2020
Newly released DCAA MRD – Audit Alert on Limited Contractor Access Due to Coronavirus Disease
Regarding potential scope limitations and resulting qualified audit opinions due to access to records during the COVID-19 national emergency.
This audit guidance addresses situations where the DCAA may encounter challenges re full access to records due to various contractor-imposed restrictions; namely, closure of facilities and limited or no availability of personnel.
This audit guidance is silent on any similar restrictions imposed by the DCAA or other outside parties potentially affecting performance of DCAA’s audit procedures, gathering of sufficient evidence and issuance of an audit report.
- For example, various DCAA offices are closed during this national emergency and many city and state locations have mandated shelter-in-place or stay-at-home orders.
Potential DCAA audit scope limitations arising from the COVID-19 national emergency are the result of restrictions or challenges imposed by multiple parties.
This memorandum provides guidance in response to contractor closures and limited access to contractor records and personnel due to the Coronavirus Disease (COVID-19) national emergency.
Guidance Access to contractor records and personnel may be limited as contractors close their facilities or the Agency and contractors maximize the use of telework in response to the COVID19 national emergency. If audit teams are unable to obtain sufficient appropriate evidence (e.g., audit teams receive electronic documents from the contractor via e-mail and are unable to validate to original records), the audit team should continue with the audit and validate the electronic documents to original records when the Agency and/or contractor resumes normal operations. When normal operations resume, the audit team should validate the electronic data previously accepted and then issue the audit report. Audit teams are reminded to appropriately document the audit evidence received, including the methods used to obtain the evidence.
For priority audits that must be issued before this selective testing to original records can take place (e.g., forward pricing assignments, incurred cost assignments subject to the National Defense Authorization Act one-year requirement), the audit team should assess the impact on the audit opinion and issue the audit report by the original agreed-to date. The lack of access to original documents, lack of access to contractor personnel, or the inability to validate the source of original documents (e.g., contractor records and contractor downloads) will generally result in a reservation about the engagement (i.e., scope limitation). In most cases, this scope limitation will result in a qualified opinion. However, the audit team should assess the evidence collected and use professional judgment in determining whether a scope limitation is necessary. See Enclosure 1 for Scope Limitation Examples.
When an audit report is issued with a COVID-19 scope limitation, the audit team should perform those procedures they were previously unable to perform (e.g., selective testing of the electronic documents to original records) within approximately 90 days of resuming normal operations. The FAO should issue a supplemental audit report if it will serve a useful purpose.
In some cases, it may be prudent to postpone audit effort on certain assignments rather than using alternative means, such as e-mail, to obtain audit evidence. Management should use their professional judgment in determining which audits should be postponed until we return to normal operations.
When a contractor closes its facility or instructs its employees to work from home, the audit team should discuss with the contractor how it plans to support the audit. The contractor and the audit team should come to an agreement on how the contractor will support the audit process remotely (e.g., how the audit team will meet with the contractor points-of-contact, how the contractor will provide supporting documentation, etc.). The audit team should inform the contractor that to the extent possible, other than how the contractor provides supporting information, the expectation is that the process will carry on in a normal fashion. The audit team should immediately inform the FAO Manager of instances where the contractor is unable or unwilling to support the audit.
It is imperative to keep in close communication with the customer. The FAO should explain our limited access to contractor records and/or personnel to ensure they understand the situation and that we are using alternative methods to gather sufficient appropriate evidence to the extent possible. The FAO should also explain the potential impact the limitations will have on the audit report and report opinion. Audit teams should inform customers that we are doing everything possible to continue to deliver a quality report by the agreed-to date. FAO Managers should immediately inform the customer of instances where the contractor is unable or unwilling to support the audit.
When the FAO issues a qualified audit report that includes a scope limitation due to COVID-19, the audit team should conduct a walk-through of the final report with the customer. The audit team should ensure the customer understands the audit procedures performed and that the customer can rely on the audit results. The audit team should also inform the customer of the plan for performing additional testing within approximately 90 days of resuming normal operations.
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