Government Contract Audits & Investigations

Leading practices for navigating government audits

Though they play a crucial role in ensuring transparency, accountability and compliance, government audits can be an overwhelming and stressful process to navigate for contractors of any size. Whether you are entering into a new contract or confronting a government audit for an existing contract, knowing what to do before, during and after an audit is vital to enhance your decision-making, minimize risk and achieve resolution.

To achieve a successful outcome, contractors must understand the government audit’s purpose, scope and the “standards” to which compliance will be measured. Knowing what the auditors will evaluate—and why—allows contractors to understand and assess the nexus of auditor information requests. Contractors that casually (vs. deliberately) respond to audit requests can find themselves in an unexpected and unfavorable quagmire.

To set the stage for a successful outcome, we help contractors:

• Identify and remediate weaknesses and red flags before an audit
• Train senior managers how to understand and manage the audit process
• Prepare for an entrance conference
• Determine what the auditors need and why they need it
• Eliminate irrelevant audit requests

Before auditors arrive, contractors should pre-audit costs and/or analyze the systems of likely interest to the government. The government’s expectations for compliance are incorporated into one or more of your government contracts. The government’s auditing process and work plans are publicly available. Accordingly, contractors should foresee what questions the auditors will ask. Answering those questions before the audit will reduce surprises and improve chances for a favorable outcome.

Prior to an audit, an experienced third party can help:

• Conduct a proactive risk assessment to determine audit
• Evaluate costs, analyze systems and review policies and procedures to ensure compliance with contract requirements
• Identify, quantify and remediate potential risk areas
• Identify and resolve unintended red flags

Before an audit begins, we help contractors identify internal and external resources to work with the auditors and respond to information requests. Audits can last anywhere from several weeks to months (or even years), which can create significant strain on contractor resources. In this regard, we:

• Establish a disciplined audit liaison and audit request management protocol

• Provide full- or part-time “surge support” during the audit
• Provide ad-hoc support to client audit response teams and facilitate communications with government auditors
• Identify and resolve audit issues in real time
• Coach client personnel working with the government audit team
• Manage the audit process

Clients often retain us to either review or prepare responses to government audit reports that allege cost accounting non-compliances (i.e., questioned costs) and business system deficiencies. We also draft direct communications to Administrative Contracting Officers (ACOs) where government auditors fail to provide adequate or appropriate context within their audit reports (which is a pervasive problem). Our team includes contracting experts who have spent significant time within DCAA and DCMA, providing unique insight in the development of an audit response.

Our approach to addressing contentious audit matters begins with gathering the facts and understanding the client’s unique circumstances – a critical step often inadequately performed or communicated by government auditors.

We ask specific questions and request detailed supporting documentation surrounding each particular issue. After gathering relevant information, conducting exhaustive regulatory research, and consulting with other knowledgeable members of our Baker Tilly team, we work closely with our clients to draft a persuasive and detailed response designed to withstand the scrutiny of Review Boards or other dispute resolution venues. Our audit responses are carefully designed to allow our clients to manage the dialogue involving auditors and contracting officers, thus improving our client’s chances of avoiding or quickly resolving audit issues.

Underlying facts and circumstances are critical to most accounting matters under investigation concerning government procurement regulations. Rarely are these facts and circumstances obvious and easy to find. Although we are experts in interpreting the accounting nuances of government procurement regulations, perhaps our most valuable qualification is our extensive forensic accounting skills.

Client management and outside counsel often recognize they’re missing one or more pieces of a challenging accounting or compliance puzzle.

So they entrust us, often jointly with outside counsel, to investigate, reconstruct and analyze the details. While we routinely participate with and assist counsel during interviews and document reviews, our most significant contribution to an investigation typically involves reconstructing and distilling large quantities of disheveled and/or incomplete accounting data, organizing unkempt supporting documents and parsing complex financial transactions.

Our clients depend on us to provide objective, analytical expertise to investigate and resolve a wide variety of claims, disputes, alleged wrongdoings and other business problems outside of the government contracting arena, too. For example, we offer expertise in:

• Consultation on complex accounting, financial reporting and disclosure, regulatory and auditing matters
• Forensic investigations of commercial item contracts
• Forensic investigations of accounting/financial reporting improprieties
• Independent assessment of causation and damages

• Assistance with regulator issues and investigations
• Assistance with purchase price disputes
• Consultation on litigation strategy as it relates to accounting, financial reporting, and auditing

We often perform our forensic accounting services in anticipation of quantifying claims and damage calculations. Time and again, we successfully defend our claims and damage assessments against the intense scrutiny of auditors and experts during the negotiation and litigation process. Because we, too, are auditors and experts, we anticipate what the opposition will do. Therefore, we subject our own work to a rigorous quality assurance process that ensures that our claims withstand scrutiny by the most formidable critics.