Surviving a Government Audit
If you do business with the government, chances are you will at some point be required to submit to a compliance Government audit. These are typically conducted on-site by government personnel, and usually businesses are given some advance notice of the audit.
Government agencies and departments offer great business opportunities. In many ways, government customers will be the best customers you will ever have. However, serving both commercial and government customers does involve some process complexities and some risks.
Government contracts typically contain numerous terms and conditions that may limit or restrict some of the business practices used in the commercial world.
The assorted regulatory agencies that publish acquisition regulations are many times specifically spelled out but are also incorporated into your agreements and contracts by reference.
It is incumbent upon government contractors to understand and comply with the terms and conditions governing their relationships with customer agencies.
If you do business with the government, chances are you will at some point be required to submit to a compliance audit. These are typically conducted on-site by government personnel, and usually businesses are given some advance notice of the audit.
How you react and behave prior to and during the audit can have a huge impact on the audit results. The key to surviving the audit is preparation. There are simple things you can start doing today to minimize the impact of any future audits. There are also things to do upon receipt of an audit notification and during the audit process.
- Pick a person to be the primary onsite contact to “host” your auditor. This person should have knowledge of the contract involved and knowledge of your business. During the audit, this should be the primary focus of the person chosen to act as host.
- Establish a place for your auditor to “live” during the audit. Pick a place that’s slightly off the beaten path in your office, but don’t put the auditor in a sweat box or in a totally out of the way location. The idea is to avoid putting the person some place where they may overhear internal conversations or shop talk. Provide the basic office needs—whiteboard, phone and WIFI.
- Establish the scope of the audit. Typically auditors are not allowed to go on fishing expeditions. But given free rein, they often will. It is reasonable to establish some scope criteria within the audit. What business years are involved, specific types of businesses, customer types or supply chain partnerships? They will typically provide you with a list of specific transactions or processes they want to review, if they don’t ask them to provide a list. Do not offer information beyond that which is specifically specified.
- Request advance notice of all required materials, records, reports and other needs that you are expected to provide.
- Look at your operation in advance, from the viewpoint of the auditor. What are the areas they are most likely to want access to? Do you know of potential exposures? Can you discuss why these may be justified in terms of mitigating circumstances? If you are confused about a particular deal, you can be assured that the auditor will be confused as well. Be prepared to answer questions. Again, don’t volunteer information, but don’t deceive or hide anything.
- Create a standing audit committee; legal counsel, Finance, Sales and Operations should be represented. The committee can be helpful prior to the audit by helping the company avoid questionable business transactions. The committee should be on standby throughout the audit itself.
- During the audit, be attentive to the auditor’s needs. Make sure that people in your area and throughout the business know who the auditor is. People should be prepared in advance as to how they should interact with the auditor. The audit host or primary contact person should always be involved in one-on-one discussions. Be sure that your people understand that they are not to engage in discussions with the auditor without your participation.
- Ask the auditor to join you in regular, periodic progress briefings throughout the audit, and also participate in a final meeting with your audit team. This will not necessarily include formal findings by the auditor, but it should give the team a good idea of what to expect in response to the audit. Also, it might be a good opportunity to ask the auditor for any input related to how you might better serve them in future audits.
- Do not lie or intentionally mislead the auditor. If you are unsure of an answer, tell the auditor that you don’t know but will find out.
- Prepare a post-audit report for your committee regarding issues uncovered, possible exposures, process problems and anticipated audit results.
Contract or agency audits are not fun, but preparation can make them easier on all parties involved. They can also be helpful in terms of learning things about your business and the relationship you have with other companies, partners and customers.
The audit process requires preparation and understanding of the requirements you agreed to when you entered into your relationship with your customer agency. The better that understanding is and the more effort put into preparation the better the result of your audit.
Source: Manufacturing Business Suite