When Communicating with an Auditor, be careful what you say

Not long ago, we were told of a CEO of a company who opined with a bank auditor about a particular aspect of the company's financial statements. The CEO's opinion led to a line of questioning by the auditor that resulted in the bank to declining a major line of credit facility for his company.  You should understand that an auditor is a gatherer of information upon which they will develop a professional opinion.   That professional opinion is many times relied on by an affiliate.

Therefore, the auditor has an inherent “power” that may materially affect your company.   That power is based on the authority of the interested parties who have employed the auditor to make an assessment based on the professional opinions that guide the auditor's actions.

We naturally communicate differently based on the situation we are in at a particular time.   Whether attending a ball game with friends, attending a business networking event, or communicating within the business arena, competent communication is a fundamental to the achievement of good outcomes. In particular, understanding the role we play in an audit is extremely important.

With a DCAA audit, we have seen cases where failure to communicate to the DCAA auditor properly, or to not make available the precise information requested by the DCAA auditor  impacted the contractor in a negative way.

DCAA auditors provide an advisory role to a contracting officer who has a contract award decision to make. Although the DCAA auditor's role is fact based and guided by the Federal Acquisition Regulations, your communication and responses to their information requests must be guided by a “just the facts” response.    The auditor's misunderstanding of your communications may lead to an auditor inadvertently introducing a biased slant in their report to the contracting officer.

That said, you must understand the confines of the auditor's role and purpose.   Just as you should know your Miranda Rights when questioned by a law enforcement officer; you should know the DCAA Auditor's scope is largely guided by the Federal Acquisition Regulations.   Thus knowing the Federal Acquisition Regulations and the DCAA Audit Guidelines (Contract Audit Manual) should be a prerequisite before you have direct communications with a DCAA auditor.

As a takeaway, remember to follow these 4 guidelines when communicating with an auditor or other government official:

aAsk for Clarification: If you don't have a full understanding of what the auditor is asking, don't answer the question. It is in your right to request further clarification on anything that may be ambiguous.

b. Stick to Your Expertise: Answer only questions that you're sure of the answers. It will not be to your benefit to rush through or guess on questions outside of your expertise. Everything you say will be noted and you may not get a second chance to re-answer. Instead ask that they submit a question or inquiry in writing that you can discuss with a more knowledgeable staff member. The smartest people in life are those who know what they don't know.

cBe Concise: Always stick to the facts. As the aforementioned CEO should have learned from the experience with the bank auditor, speak when spoken to and answer questions within the context of fact-based communication. Never get into a situation where you need to defend or justify what you have stated.

d. Employ Expertise based on the type and scope of audit being performed.  Do not assume you are the smartest person in the room when communicating with an auditor.  Understanding that the inherent authority of the auditor is dictated by the interested party they are advising.  Their ability to influence a decision (that may have significant impact on your company) is the foundation of a desired outcome for you.

Understanding the inherent “power”  in the communication of results of their audit work to a Contracting Officer, you must know the best way of preparing for the arrival of an auditor and the subsequent interaction that will occur.

Written by G. Chris Brown

View all posts by: G. Chris Brown

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