(Editor’s Note.  For various reasons, DCAA often does not conduct full audits requiring adherence to detailed audit steps but, instead, uses cursory steps following so-called agreed upon procedures (AUP) where not only the scope of effort is different but also the  conclusion reflected in the report differs. It’s a good idea to know what requirements auditors are following to know what efforts to expect and what audit conclusions they may reach.)

DCAA issued guidance on appropriate and inappropriate AUP scope of work and resulting reports.  Based upon their internal reviews, DCAA concluded that certain AUP have been based upon inappropriate procedures and reports have included inappropriate conclusions and audit opinions.  Examples of inappropriate AUP reviews include “unclear” and “vague” objectives such as evaluating reasonableness of direct or indirect rates, evaluating computer center savings or reviewing marketing costs for allowability, allocability and reasonableness.  Examples of inappropriate opinion-like statements include proposed rates appear reasonable, proposal is in non-compliance with CAS 403, accepted contractor’s classification of certain production costs or concurred with their proposal methods.

The guidance stresses that AUP must be mutually agreed to in advance with requesters, be specific, subject to measurable criteria and most importantly, auditors must not express an audit opinion. Not only are audit opinions prohibited but there should also be no opinion on significance or materiality of costs where examples of inappropriate opinions would include we disclosed no significant errors, no material discrepancies between reported or actual costs or actual rates do not indicate significant increases compared to baseline rates.

When auditors are requested to perform an AUP they are told to reach an agreement on specific procedures to be used, reject an agreement that includes procedures that may be overly subjective that allow for varying interpretations or may include opinion-like conclusions.  Examples of appropriate AUP might include comparing indirect expense rates in a specific proposal with a specific forward pricing rate agreement or verifying direct rates in a proposal to books and records.  The audit report should express the specific procedures taken and offer no audit opinion or negative assurance and must report all findings with no consideration of materiality unless the agreed-upon instruction provided limitations.  Example of appropriate conclusions would be we compared proposed indirect rates to the forward pricing rate agreement and found no exceptions or we verified indirect labor rates to direct labor bid rates and found no exception (04-PSP-033(R).

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