Defense Acquisition Research Journal #91

January 2020

as a remedy for federal audit failings appears an easy suggestion that may warrant further deliberation in light of the millions of dollars recently paid for audit failure by the most prestigious accounting frms: a $335 million Price Waterhouse professional negligence settlement in 2019 (Johnson & Schroeder, 2019), a $12 million Ernst & Young failed-audits settlement in 2016 (Securities &Exchange Commission, 2016), and a recent consideration by General Electric to fire KPMG after a 109-year relationship due to signifcant undisclosed liabilities and other accounting issues (Gryta & Lublin, 2018, pp. B.3, 3). In fact, some government acquisition ofcials have already expressed concern that public accounting frmsmay lack “sufcient understanding” of federal contractor business systems (GAO, 2019a, p. 29). Commercial auditors may not be prepared for the complexity of subject matter with which the federal auditor deals. In March 2019, a GAO review identified more than $3.4 billion in subcontract costs incurred over a 10-year period that had not been audited due, in part, to complex ownership relationships among contractors and subcontractors (GAO, 2019b). Likewise, in November 2018, in connection with its audit of the Internal Revenue Service (IRS) 2017–2018 fnancial statements, the GAO noted that the complex statistical process the IRS uses to estimate the amounts of taxes receivable contributed to material weakness in internal control over unpaid assessments (GAO, 2018b). Private sector auditors may be less familiar with these complexities than their federal counterparts. Auditor Competencies Research Promoting the use of nonfederal auditors may suggest that federal auditors perceive the importance of competencies differently than their private sector colleagues. However, recent research conducted by the author fnds federal auditors agree with the professional core skills identified by the American Institute of Certified Public Accountants (McClure-Nelson, 2013). The American Institute of Certifed Public Accountants (AICPA) publishes a listing of core competencies needed to enter the accounting profession—a listing that hasn’t signifcantly changed since the AICPA 2011 “Horizons 2025” report, or AICPA 1999 competency listing (AICPA, 2018a). For the federal auditor, many of whom are certified public accountants (CPAs), the AICPA competencies are largely compatible with the proficiencies identifed by the GAO generally accepted government auditing standards (GAGAS) in its Yellow Book. (See Table 1 for a crosswalk of the majority of these competencies.)

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Defense ARJ, January 2020, Vol. 27No. 1 : 2-26

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