Audits of Federal Programs:
Reasons for Disparities Between Costs Questioned by Auditors and Amounts Agencies Disallow
AFMD-84-57: Published: Aug 8, 1984. Publicly Released: Aug 8, 1984.
Additional Materials:
- Full Report:
Contact:
(202) 275-5200
contact@gao.gov
Office of Public Affairs
(202) 512-4800
youngc1@gao.gov
Pursuant to a congressional request, GAO determined the reasons for disparities between the amount of contract and grant costs questioned by auditors and the amount eventually disallowed by program managers.
GAO generally found that proper procedures are used in reaching decisions to allow costs. However, GAO questioned procedures used in instances representing $163 million in allowed costs at six agencies. Program managers are partially responsible because they do not: (1) hold auditees accountable for correcting program deficiencies identified by audits; (2) adequately address issues raised by auditors; or (3) adequately justify decisions in writing. Questionable procedures identified by GAO include: (1) allowing questioned costs because of a proposed future audit; (2) allowing questioned costs because the auditee submitted a plan to correct identified deficiencies; (3) using special provisions to allow questioned costs; (4) allowing questioned costs on the basis of administrative actions; (5) allowing questioned costs on the grounds the auditee provided certification that costs were appropriately incurred; and (6) allowing questioned costs without providing, as required by Office of Management and Budget (OMB) guidelines, written justification as to why program officials disagreed with auditors. GAO also found: (1) some problems with audit quality, but it was unable to determine the extent of auditing errors; (2) that auditors do not always follow up on audit recommendations; and (3) that auditors do not always provide accurate and complete information to Congress regarding audit resolution.
Recommendations for Executive Action
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Department of Education
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Department of Health and Human Services
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Department of Transportation
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Department of Labor
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should implement policies and procedures that: (1) ensure that administrative actions and special procedures or waivers, used to allow questioned costs, are used with discretion, in compliance with the law, and not used to merely expedite the resolution of the case without considering the issues raised by auditors; (2) where reaudit is required to make determinations, consider questioned costs unresolved until the reaudit can be completed and a final determination made; (3) eliminate the use of corrective action plans to allow costs when these costs represent the auditee's liability for past deficiencies; (4) consider questioned costs as being unresolved, rather than allowing them, when related to a deficiency requiring remedial action by the auditee, pending implementation if a corrective action plan addressing the deficiency; (5) limit auditee certifications to circumstances where the auditee could not be expected to have the necessary supporting documentation; and (6) ensure that program officials, in accordance with OMB Circular A-50, document in writing their decisions to allow costs.
Agency Affected: Environmental Protection Agency
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The head of each federal department and agency with an internal audit organization or inspector general should review that agency's audit resolution procedures and, where the aforementioned deficiencies exist, implement policies and procedures to correct them.
Agency Affected: Heads of Federal Agencies
Status: Closed - Not Implemented
Comments: OMB believes that Circular A-50 currently requires agencies to do what GAO recommended; therefore, OMB does not believe that A-50 needs to be revised.
Recommendation: The Director, OMB, should ensure that these recommendations are incorporated into OMB Circular A-50.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Department of Agriculture
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Department of Education
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Department of Health and Human Services
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Department of Transportation
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Department of Labor
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The Secretaries of Agriculture, Education, Health and Human Services, Labor, and Transportation, and the Administrator, EPA, should ensure that disagreements between program officials and auditors over the resolution of questioned costs are considered by the audit followup official, as required by OMB, before a final decision is made on the case.
Agency Affected: Environmental Protection Agency
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: The head of each federal department and agency with an internal audit organization or inspector general should determine whether a similar problem exists in that agency, and if it does, should take the same corrective action.
Agency Affected: Heads of Federal Agencies
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: Inspectors general and heads of internal audit organizations should: (1) ensure that the requirements in the Comptroller General's audit resolution standard for following up on findings and recommendations are met; and (2) ensure compliance with OMB Circular A-50 requirements for reviewing program officials' responses to audit reports and reporting disagreements to the audit follow-up official.
Agency Affected: Statutory Inspectors General
Status: Closed - Not Implemented
Comments: OMB does not agree since its definition of resolution, according to OMB, is in agreement with the definition of resolution as contained in P.L. 96-304.
Recommendation: The Director, OMB, should revise the definition of audit resolution in OMB Circular A-50 to conform with the Comptroller General's standard.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Closed - Not Implemented
Comments: OMB believes that Circular A-50 currently requires agencies to do what GAO recommended; therefore, OMB does not believe that A-50 needs to be revised.
Recommendation: In order to provide Congress with more complete and uniform audit resolution data, the Director, OMB, should revise OMB Circular A-50 to: (1) establish standard definitions of questioned cost and savings for reporting purposes; and (2) assign responsibility to agency audit followup officials for providing Inspectors General with the results of collection action taken on audit-related debt.
Agency Affected: Executive Office of the President: Office of Management and Budget
Status: Closed - Implemented
Comments: Please call 202/512-6100 for information.
Recommendation: In accordance with standard OMB definitions, Inspectors General should: (1) report all information requested by the Senate Committee on Appropriations contained in their report on the Supplemental Appropriations and Rescission Act of 1980; and (2) clearly state that reported disallowed cost is subject to reduction.
Agency Affected: Statutory Inspectors General
Explore the full database of GAO's Open Recommendations
»
Feb 18, 2021
-
Financial Audit:
Federal Deposit Insurance Corporation Funds' 2020 and 2019 Financial StatementsGAO-21-284R: Published: Feb 18, 2021. Publicly Released: Feb 18, 2021.
Nov 16, 2020
-
Financial Audit:
Bureau of Consumer Financial Protection's FY 2020 and FY 2019 Financial StatementsGAO-21-174R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020. -
Financial Audit:
Federal Housing Finance Agency's FY 2020 and FY 2019 Financial StatementsGAO-21-201R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020. -
Financial Audit:
Securities and Exchange Commission's FY 2020 and FY 2019 Financial StatementsGAO-21-192R: Published: Nov 16, 2020. Publicly Released: Nov 16, 2020.
Nov 10, 2020
-
Financial Audit:
IRS's FY 2020 and FY 2019 Financial StatementsGAO-21-162: Published: Nov 10, 2020. Publicly Released: Nov 10, 2020. -
Financial Audit:
Office of Financial Stability's (Troubled Asset Relief Program) FY 2020 and FY 2019 Financial StatementsGAO-21-173R: Published: Nov 10, 2020. Publicly Released: Nov 10, 2020.
Nov 9, 2020
-
Financial Audit:
Bureau of the Fiscal Service's FY 2020 and FY 2019 Schedules of Federal DebtGAO-21-124: Published: Nov 9, 2020. Publicly Released: Nov 9, 2020.
Nov 6, 2020
-
FY 2020 Excise Tax:
Agreed-Upon Procedures Related to Distributions to Trust FundsGAO-21-163R: Published: Nov 6, 2020. Publicly Released: Nov 6, 2020.
Oct 13, 2020
-
DOD Financial Management:
Continued Efforts Needed to Correct Material Weaknesses Identified in Financial Statement AuditsGAO-21-157: Published: Oct 13, 2020. Publicly Released: Oct 13, 2020.
Sep 30, 2020
-
Financial Management:
DOD Needs to Implement Comprehensive Plans to Improve Its Systems EnvironmentGAO-20-252: Published: Sep 30, 2020. Publicly Released: Sep 30, 2020.
Looking for more? Browse all our products here