DoD's $37.4M audit services contract awarded to Ernst & Young, highlighting a need for financial statement assurance

Contract Overview

Contract Amount: $37,383,116 ($37.4M)

Contractor: Ernst & Young LLP

Awarding Agency: Department of Defense

Start Date: 2014-12-03

End Date: 2017-12-31

Contract Duration: 1,124 days

Daily Burn Rate: $33.3K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 3

Pricing Type: LABOR HOURS

Sector: Other

Official Description: IGF::CT::IGF US AIR FORCE FINANCIAL STATEMENT AUDIT SERVICES FY15-FY19

Place of Performance

Location: WASHINGTON, DISTRICT OF COLUMBIA County, DISTRICT OF COLUMBIA, 20005

State: District of Columbia Government Spending

Plain-Language Summary

Department of Defense obligated $37.4 million to ERNST & YOUNG LLP for work described as: IGF::CT::IGF US AIR FORCE FINANCIAL STATEMENT AUDIT SERVICES FY15-FY19 Key points: 1. Contract awarded to a major accounting firm suggests a focus on established expertise for complex financial audits. 2. The full and open competition indicates a broad market search, potentially leading to competitive pricing. 3. A duration of three years suggests a significant, ongoing need for audit services. 4. The contract's value falls within a typical range for large-scale federal financial statement audits. 5. Performance in the District of Columbia aligns with the concentration of federal agencies in the capital. 6. The use of labor hours pricing allows for flexibility in addressing varying audit complexities.

Value Assessment

Rating: good

The contract value of $37.4 million for three years of financial statement audit services appears reasonable when benchmarked against similar large-scale federal audit contracts. While specific per-unit costs are not provided, the competitive bidding process is expected to have driven value. The selection of a 'Big Four' accounting firm like Ernst & Young suggests a commitment to quality and established methodologies, which can be a good indicator of value for complex financial assurance tasks.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit bids. The solicitation likely attracted multiple bids from large accounting firms, fostering a competitive environment. The number of bidders is not specified, but the nature of the award suggests a robust competition that should have resulted in a fair market price.

Taxpayer Impact: Full and open competition generally benefits taxpayers by ensuring that the government receives the best possible price and quality through a wide selection of qualified vendors.

Public Impact

The Department of Defense benefits from enhanced financial transparency and accountability through independent audit services. Taxpayers benefit from increased assurance that federal funds are managed appropriately. The contract supports the operational needs of the Defense Finance and Accounting Service (DFAS). The primary service delivered is the audit of financial statements, crucial for federal accountability.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for scope creep if audit requirements are not clearly defined upfront.
Reliance on a single large contractor could pose a risk if performance issues arise.
The complexity of DoD's financial systems may present unique audit challenges.

Positive Signals

Award to a reputable firm like Ernst & Young suggests a high likelihood of quality performance.
The use of full and open competition indicates a thorough vetting process for potential contractors.
The contract duration allows for continuity and deep understanding of the DoD's financial landscape.

Sector Analysis

This contract falls within the professional services sector, specifically accounting and auditing services. The federal government is a significant consumer of these services, particularly for financial statement audits, which are mandated by law for many agencies. The market for these services is dominated by large, established accounting firms. The value of this contract is substantial, reflecting the scale and complexity of auditing the Department of Defense's finances.

Small Business Impact

As this contract was awarded through full and open competition to a large, established firm, there is no direct small business set-aside. However, the prime contractor, Ernst & Young, may engage small businesses for subcontracting opportunities, particularly for specialized support services. The extent of small business participation would depend on the prime contractor's subcontracting plan and the availability of qualified small businesses in relevant service areas.

Oversight & Accountability

Oversight for this contract would typically be managed by the contracting officer and the contracting officer's representative (COR) within the Defense Finance and Accounting Service. The Inspector General of the Department of Defense may also conduct audits or investigations related to the contract's performance or the financial statements being audited. Transparency is generally maintained through contract award databases and public reporting, though specific audit findings are often sensitive.

Related Government Programs

Federal Financial Statement Audits
Defense Contract Audit Agency Services
Government Accountability Office (GAO) Audits
Financial Management and Audit Services

Risk Flags

Potential for audit findings impacting agency reputation
Contractor performance risk
Complexity of DoD financial systems
Timeliness of audit completion

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $37.4 million to ERNST & YOUNG LLP. IGF::CT::IGF US AIR FORCE FINANCIAL STATEMENT AUDIT SERVICES FY15-FY19

Who is the contractor on this award?

The obligated recipient is ERNST & YOUNG LLP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Finance and Accounting Service).

What is the total obligated amount?

The obligated amount is $37.4 million.

What is the period of performance?

Start: 2014-12-03. End: 2017-12-31.

What is the track record of Ernst & Young in performing federal financial statement audits?

Ernst & Young (EY) is one of the 'Big Four' accounting firms and has a long-standing history of performing complex audits for both private sector and government entities. They regularly audit major corporations and have significant experience with federal agencies, including various components of the Department of Defense. Their track record includes numerous successful financial statement audits, compliance audits, and advisory services. While specific performance metrics for individual federal contracts are not always publicly detailed, EY's consistent presence as a prime contractor for large federal audit engagements suggests a generally positive performance history and established expertise in navigating federal regulations and accounting standards.

How does the value of this contract compare to other federal financial statement audits?

The $37.4 million contract value for three years of audit services for the Department of Defense is substantial, reflecting the immense scale and complexity of DoD's financial operations. When compared to financial statement audits for other large federal agencies or departments, this contract value appears to be within the expected range. For instance, audits for agencies with multi-billion dollar budgets often run into the tens of millions of dollars annually. The specific nature of DoD's global operations, diverse funding streams, and extensive asset base likely contribute to the higher end of this cost spectrum. Benchmarking requires detailed analysis of scope, duration, and specific audit requirements, but the award amount is consistent with the magnitude of the entity being audited.

What are the primary risks associated with this contract?

Key risks include the potential for audit findings that reveal significant financial irregularities or control weaknesses within the DoD, which could lead to reputational damage or require costly remediation. There's also a risk related to the contractor's performance; if Ernst & Young fails to meet audit deadlines or quality standards, it could impede the DoD's ability to meet its financial reporting obligations. Furthermore, the sheer volume and complexity of DoD's financial data present inherent risks in the audit process itself, potentially leading to unforeseen challenges or extended timelines. Ensuring robust oversight and clear communication channels is critical to mitigating these risks.

How effective are federal financial statement audits in improving government accountability?

Federal financial statement audits are a critical tool for enhancing government accountability and transparency. By providing an independent assessment of an agency's financial health and the effectiveness of its internal controls, audits help identify areas of mismanagement, fraud, waste, or abuse. The findings and recommendations from these audits often lead to corrective actions that improve financial reporting, strengthen internal controls, and optimize resource allocation. While audits themselves do not directly improve accountability, they serve as a catalyst for change by highlighting deficiencies and providing a roadmap for improvement. The subsequent implementation of audit recommendations is where the true gains in accountability are realized.

What is the historical spending trend for financial audit services within the Department of Defense?

Historical spending on financial audit services within the Department of Defense has generally trended upwards over the past decade, driven by legislative mandates like the Federal Information System Modernization Act (FISMA) and the National Defense Authorization Acts, which increasingly emphasize financial accountability and auditable financial statements. While specific figures fluctuate year-to-year based on contract awards and scope, the overall investment in independent audits has grown as agencies strive to achieve audit readiness and clean audit opinions. The DoD, being the largest federal agency, represents a significant portion of this spending. This particular contract award of $37.4 million is indicative of the ongoing, substantial investment required to audit its vast financial landscape.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Accounting, Tax Preparation, Bookkeeping, and Payroll Services › Offices of Certified Public Accountants

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › MANAGEMENT SUPPORT SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: HQ042314R0017

Offers Received: 3

Pricing Type: LABOR HOURS (Z)

Evaluated Preference: NONE

Contractor Details

Address: 1101 NEW YORK AVENUE, NW, WASHINGTON, DC, 20005

Business Categories: Category Business, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $70,576,404

Exercised Options: $37,383,116

Current Obligation: $37,383,116

Contract Characteristics

Commercial Item: COMMERCIAL ITEM PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: GS23F8152H

IDV Type: FSS

Timeline