A recent Defense Contract Audit Agency (DCAA) Policy Memorandum, issued on August 14, 2012, signals a change in policy for the DCAA’s use of internal audits for major contractors. The change in policy comes as a response to a recent Government Accountability Office (GAO) report highlighting areas in need of improvement. The GAO report recommended that the DCAA make efforts to facilitate access to internal audits and periodically evaluate whether additional actions are warranted.

In response to the GAO report, the DCAA Policy Memorandum requires the DCAA Contract Audit Coordinator offices and Field Audit offices at major contractor locations to establish a process and central point of contact to obtain and monitor DCAA’s access to and use of internal audits. As part of establishing the process, the offices must establish a way to track requests for internal audit reports and working papers, as well as the disposition of these requests. The duties and processes have been revised for both the central point of contact and the auditors and supervisors to ensure that access to internal audits are obtained as part of ongoing audits. With regard to non-major contractors, a formal tracking process or central point of contact are not mandatory requirements, but the policy memorandum provides that contractor audit reports “can still be useful in the performance of the audits.”

The full impact of this new policy is a few months away, as the formal training process for accessing contractors’ internal audit reports is expected to be presented in the first quarter of 2013. Setting aside the issue, of cost, this interim period can be useful for many companies to re-evaluate their internal record keeping procedures, as the companies “working papers” are now subject to disclosure under this policy. In addition, companies need to be sure to have procedures in place to ensure that privileged documents do not lose their respective protections due to inadvertent disclosures.