Policy

FEI Board Member John Panetta Offers Insight on Government Audit Practices to Congress

John G. Panetta, Sr., Financial Executives International (FEI) Board member and past chairman of FEI’s Committee on Government Business (CGB), testified before Congress this week to promote efficient government audit practices and recent initiatives to increase the timeliness of contractor audits.
 
“The issues surrounding defense contract auditing have been a matter of concern and discussion both in the private sector and the Government for several years,” Panetta said in his opening testimony. “We have been pleased to see a number of recent initiatives implemented to address issues with respect to the timeliness of [incurred] cost audits and the increasing backlog of contracts awaiting close out."


 
The House Armed Services Committee’s (HASC) Subcommittee on Oversight and Investigations extended an offer to FEI’s Committee on Government Business to testify at an open hearing entitled, Evaluating the Defense Contract Auditing Process. The subcommittee planned to assess the pace, schedule, and costs of defense contract auditing and the Defense Contract Audit Agency (DCAA) standards and processes.
 
In his five minute, prepared opening remarks delivered at the Thursday, April 6 hearing, Panetta noted that the timeliness and backlog of contractor audits, and specifically incurred cost audits, were of particular interest to CGB.
 
“[To] achieve any meaningful reduction in the backlog of contracts awaiting close out not affected by that legislation, significant improvements must be made to the acquisition audit and contract administration process,” Panetta said
 
The current state in the government audit process is due to a series of events that began in 2008 when reports critical of audit practices surfaced and DCAA’s began to stress audit quality and independence above all other considerations. While acknowledging some progress has been made recently, and DCAA has begun to put a dent in the audit backlog through use of multi-year audit techniques, the backlog of audits is merely a symptom of underlying issues. 
 
Panetta testified that the CGB advocates getting back to basics, with DCAA implementing efficient audit management practices and changing how success is measured with respect to oversight would go a long way in addressing the root causes of the issues. Emphasizing audit practices such as establishing materiality thresholds, relying on the work of others, meeting schedule, and using documentation standards that are accepted by other professional audit groups would all help speed up the process without shifting significant risk to the government. 
 
“These approaches, in concert with other recent legislative policies designed to streamline and increase the efficiency and effectiveness of the acquisition process, should serve to increase understanding, reduce administrative operating costs and remove barriers and the unfavorable perceptions with respect to entry into US Government contracting markets,” he concluded.
 
During questioning, Subcommittee Chairwoman, Rep. Vicky Hartzler (R-MO), asked about the practice of multi-year audits that Panetta referenced in his testimony. In his response, he noted that private sector audits are done on a concurrent basis and companies do not see multi-year audits, pointing out that DCAA had done concurrent audits in the past.
 
HASC Ranking Member, Rep. Seth Moulton (D-Mass), inquired about completing a cost benefit analysis on single-year audits versus multi-year audits. Panetta said that more information and a better understanding on the subject would be beneficial and that data-driven, informed decisions work out best.
 
CGB’s full written testimony that was submitted to the HASC can be read on the FEI website here.
 
A video of Mr. Panetta's testimony can be found on below.