Auditing and the Air Force Audit Agency.

The United States Air Force (USAF), formerly an element of the U.S. Army, was split into its own specialized branch of the Armed Services in 1947. Among many implications, this separation resulted in the need to create a unique agency to audit activities within this newly formed service. Therefore, in 1948, the Air Force Audit Agency (AFAA) was born.

The purpose of this paper is to offer an in-depth look at the AFAA. First, we will present the history of the Air Force and the history of the AFAA itself. Second, we will identify the AFAA's organizational structure, purpose, responsibilities, qualifications, and customers. Next, we will explore the steps that the AFAA takes to conduct an audit. We will contrast and compare the external auditor and the AFAA auditor, pointing out differences and similarities between an external auditor and an AFAA auditor in how to plan, conduct, and report an audit. Finally, we will address the mission and vision for the future of the AFAA, contrasting the mission statement of the Institute of Internal Auditors (IIA) with that of the AFAA. Within this discussion, we will examine the possible effects on external and AFAA auditors from the Sarbanes-Oxley Act of 2002.

History of the Air Force

Prior to World War I, the U.S. Army recognized the need to obtain air-to-ground observation and rapid communication and created a new element of the Army Signal Corps. This new element eventually expanded and developed into the Army Air Corps and then the Army Air Force.

Following World War II, on July 26, 1947, President Harry S. Truman signed into law the National Security Act of 1947, which gave the U.S. Air Force autonomy from the Army. In passing the act of 1947, it was the intent of the Congress that each branch of service would specialize in one kind of warfare, such as air, land, or sea.

Thus, the newly independent Air Force became the Air Age portion of this newly formed national defense organization. The three services' functions were intended to work together as part of "an efficient team under unified control" of the National Military Establishment, later renamed the Department of Defense (DOD). The main purpose of the 1947 act was to establish the most effective combat organization with the greatest economy, preventing unnecessary duplication of effort or gaps in responsibility among the Services. The Air Force's mission, according to the 1947 act, was "to organize, train, and equip forces to conduct prompt and sustained air offensive and defensive operations."

History of the Air Force Audit Agency

Shortly after its formation, the USAF determined that it needed a separate organization to audit its activities. The AFAA originally was established on July 1, 1948, as the 1030th Auditor General Group. The AFAA became a separate operating agency under the Comptroller of the Air Force on December 31, 1971. The AFAA was reassigned to report to the Secretary of the Air Force.

The Goldwater-Nichols DoD Reorganization Act of 1986 initiated significant changes that directly impacted AFAA operations. One of these changes was that the Auditor General of the Air Force would report directly to the Secretary of the Air Force, with no oversight or supervision from other offices within the Secretariat. However, the Auditor General continued to have direct access to the Chief of Staff.

The AFAA's Organizational Structure

The AFAA includes approximately 50 area audit offices located on major Air Force installations worldwide. These area audit offices are established at locations where immediate audit requirements exist. The area audit offices are responsible for responding quickly to the audit needs of managers at supported installations. The AFAA's concept is that by operating local offices, the personnel of those offices will be more familiar with the local operating environment and, consequently, will be better able to respond to management's needs. Locally initiated audits increase visibility for base-level managers, thereby keeping them accountable, since copies of the audit reports are forwarded to major commands for staffing and review.

These locally prepared reports help USAF commands identify any significant or recurring problems that would warrant action on their part. Since the reports are subject to the Freedom of Information Act, congressional staffers, the media, and private citizens have the right to request copies.

Each office is organizationally independent and reports directly to the Auditor General through its respective regions and directorate. Regional offices provide technical supervision, guidance, and support to their assigned area audit offices. There are three regional offices:

* Support and Personnel Audit Region (SPR), Langley Air Force Base (AFB), Virginia

* Financial and Systems Audit Region (FSR), Scott AFB, Illinois

* Acquisition and Logistics Audit Region (QLR), Wright-Patterson AFB, Ohio

The Auditor General is the AFAA's top executive (the individual who reports directly to the Secretary of the Air Force, with direct access to the Chief of Staff). The AFAA also has access to all other USAF organizational units and activities. Reporting directly to the Secretary promotes objectivity, enabling the Auditor General to be independent in selecting audit subjects and reporting results. The Auditor General is physically located in Washington, D.C.

The AFAA's Purpose and Responsibilities

Over the years, the AFAA's role of performing internal auditing in the Air Force has evolved from reviewing financial data to operational audits of highly complex weapon systems and equipment. The AFAA's audit potential is limited only by its ability to plan and perform within [available funding and] the scope of responsibilities set forth by directive. The AFAA's audit responsibility is clearly defined in the following publications:

* DoD 7600.7-M, Internal Audit Manual

* Air Force Policy Directive 65-3, Internal Auditing

* Air Force Instruction 65-301, Audit Reporting Procedures

Additionally, the AFAA's role and mission are presented in the Air Force Mission Directive 15.

The purpose of an audit by an external auditor is to determine whether the financial statements of a company are presented fairly in accordance with generally accepted accounting principles (GAAP). The users of financial statements include lenders, current and potential investors, management, and other interested third parties. In contrast, the purpose of an AFAA audit varies based upon who requested the audit (that is, whether the audit was centrally directed, management-requested, commander-initiated, or area office-initiated).

These audits determine the effectiveness and efficiency of the management of major Air Force programs, systems, or functions. They can be either single-site or multi-site audits. With multi-site audits, the audit manager prepares the standard audit programs, which simultaneously are performed at several bases by auditors from the various area audit offices involved.

The AFAA also performs Management Advisory Services, which are reviews initiated at the request of commanders/ senior managers. This type of review requires a quick response to a specific command/management concern or question. The normal completion time is 1 to 2 months, and the results are provided to the commander/manager in either a briefing or a letter format. These reviews are internal and are not subject to the Freedom of Information Act. Therefore, the findings are not provided to outside parties.

The AFAA also performs audit follow-up activities to ensure that recommendations made to resolve previously identified problems have been implemented and that the problems have been resolved. The follow-up results are detailed in formal audit reports, which document whether management actually adopted and executed the AFAA's recommendations. The audit follow-up that the AFAA performs can be compared to the definition of audit follow-up performed by internal auditors, as defined by the Institute of Internal Auditors:

Follow-up by internal auditors--A process by which they determine the adequacy, effectiveness, and timeliness of actions taken by management on reported issues and recommendations, including relevant findings made by external auditors and others. (1)

The AFAA also allocates resources to the Commander's Audit Program (CAP). This program enables local commanders to request personalized, independent, and professional audit consulting services related to their missions and functions. The results of these audits normally are reported only to the requester, although CAP reports are subject to the provisions of the Freedom of Information Act; therefore, anyone may request the reports.

Other possible purposes of an AFAA audit include:

Finding deficiencies that would have a significant impact on the performance of a unit's mission

* Finding potential monetary benefits and cost savings

* Recommending internal controls that prevent the unauthorized use or disposition of resources

* Ascertaining the accuracy of a unit's financial statements

* Finding potential violations of the Anti-Deficiency Act (Title 31, United States Code, sections 1341, 1342, and 1517)

The Anti-Deficiency Act (ADA) is unique to the Executive Branch of the federal government. All agency Inspectors General and Service Audit Agencies review potential ADA violations. The ADA, among other provisions, states that it is a criminal offense for a government agency to spend more than the amount that the Congress authorizes that agency to spend.

The AFAA has significant responsibilities and functions that encompass far more than mere problem identification. Its goal is to identify the root causes of problems and also to make recommendations for resolving these problems.

The AFAA employs highly qualified professional auditors, all of whom hold at least a bachelor's degree; however, approximately 40 percent hold master's degrees. Furthermore, over one-third have professional certifications such as Certified Public Accountant, Certified Internal Auditor, Certified Fraud Examiner, or Certified Information System Auditor.

Customers of the AFAA

The AFAA exists to serve its customers. These customers are categorized into three primary groups: the Air Force--primary audit customer; AFAA members--primary resource for delivery of services; and other government agencies and the private sector--all others who use or have an interest in its services. The latter category of customers includes the Congress, other audit organizations (such as the Congress' General Accounting Office), the public, and the media. Among the AFAA's customers are those who use the USAF's financial statements (wherein the auditor gives an opinion as to the accuracy of the financial statements).

The Steps in Conducting an AFAA Audit

This section of the paper identifies the steps an AFAA auditor would employ when conducting an audit, contrasting them with those steps used by an external auditor. The auditing standards are first identified, followed by a discussion that contrasts and compares the differences and similarities between an AFAA audit and an external audit in terms of planning, inbriefs (meetings with management that briefly identify responsibilities), field work, and reporting.

Auditing Standards Auditing standards are broad statements of an auditor's responsibility. In planning, conducting, and reporting a financial statement audit, external auditors follow the 10 generally accepted auditing standards (GAAS) issued by the AICPA and the statements on auditing standards (SAS) issued by the Auditing Standards Board. Both GAAS and SAS are considered to be minimum standards of performance for external auditors.

AFAA auditors follow the Comptroller General Auditing Standards listed in Government Auditing Standards--1994 Revision issued by the Comptroller General of the United States. These auditing standards 'are often referred to as the "Yellow Book" or General Accounting Office (GAO) Standards. This manual incorporates all of the SAS issued by the AICPA, unless specifically excluded, and generally follows the AICPA's lead. The AFAA essentially follows GAO guidelines in planning and conducting its audits. It stands to reason that the AFAA would follow specific procedures of the GAO for reporting because the users of its audits are not usually the general public but, rather, mostly those government personnel who are responsible for the audited programs.

Audit Planning The engagement letter between an independent auditor and the client establishes the responsibilities of both parties and prevents misunderstandings. The auditor plans an audit based on the requirements from the engagement letter. In planning an audit, the auditor:

* Determines the audit staffing requirements

* Assesses independence

* Obtains knowledge of the client's business and industry

* Establishes materiality and audit risk and assesses inherent risk

* Assesses a preliminary level for control risk

* Assesses the possibility of errors, fraud, and illegal acts

* Identifies related parties

* Conducts preliminary analytical procedures

* Develops an overall audit strategy and prepares audit programs

* Considers additional value-added services

Each AFAA area audit office has an annual plan that details the number and type of audits that will be conducted in that year. Within allocated resources, the AFAA office chief specifies in the annual plan how many hours the assigned auditors will spend accomplishing audits.

In planning an audit, AFAA auditors use an audit planning program that is detailed in the Air Force Audit Agency Instruction 65-101. That program tells auditors to:

* Perform preliminary research by looking up prior audits and reports on that agency, become familiar with applicable Air Force directives on that agency, and review the national AFAA audit report register for relevant audit reports

* Gather basic information of the audited function in order to:

-Identify the primary and secondary mission and functions of the organization

-Identify the budget and magnitude of resources used by the organization

-Calculate the number of personnel slots required, authorized, funded, and needed to be filled

-Determine the organizational chart and lines of responsibility

* Consider the program's magnitude and determine whether this audit topic is sufficiently material to continue

* Identify recommendations from prior audit reports and the agency's self-inspection checklists

* Flowchart the operation, and test the flowchart with sample transactions

* Identify key management indicators and compare those to command/ local goals and standards

* Identify any organizations that support or receive assistance from the audited function

* Make a preliminary assessment as to whether the internal controls in operation achieve management's objectives for these controls

After the AFAA auditor obtains an initial understanding of the audited organization, he or she completes the audit program plan. The written audit program should be completed before any in-depth audit work is accomplished. When constructing the plan, the auditor is told to consider:

* The audit objectives and scope

* The number of tests to ensure that management controls are consistently applied

* The accuracy, adequacy, and sufficiency of the key management indicators

* A plan to determine if the unit is accomplishing its mission effectively

* Any potential fraud issues.

The finished audit program plan should identify a systematic series of audit procedures, tests, or steps that will satisfy the audit objectives. Supervisors review the program for adequacy and must approve the program before the auditor starts audit-testing.

In general, requirements for audit planning by the AFAA auditors and external auditors are similar. Both are required to obtain an understanding of the entity being audited, the sufficiency of internal controls, and the creation of an audit plan.

Audit Inbriefs External auditors are not required to communicate with a client before commencing an audit, but it generally is a very good idea for them to meet with the audit committee before the engagement starts in order to discuss the auditors' responsibilities. This also enables both sides to go over the engagement letter, thereby reducing the possibility of misunderstanding between the two parties. The external auditors can also expedite their audit by getting the assistance of the audit committee to serve as a liaison between the external auditors and the employees/ divisions being audited.

The AFAA is required to issue a written announcement letter of an audit to the applicable agency commander and to the installation/major command, as appropriate. Major commands are groupings similar to a division in a corporation. The typical Air Force major command has around 40,000 personnel (both military personnel and civilian employees). Within each major command, there is an office that serves as a liaison between units being audited and the AFAA auditors. These offices can help the AFAA auditors gain access to the required data in an expeditious manner, thus avoiding any scheduling difficulties between the audited organizations and the AFAA auditors.

Typical items identified in the announcement letter are organization to be audited, audit start date, audit objectives, assigned auditors, preliminary information to assist in audit planning, request for a focal point for the audit, and an offer to schedule an inbrief. For audits where surprise is essential, such as cash counts, the AFAA is not required to provide advance notification.

The AFAA does not require that an audit inbrief be performed, but it is highly recommended. This inbrief should be held between the AFAA auditors and the commander/senior manager of the audited organization. The inbrief should detail the objective and scope of the audit and the estimated time frame of the audit. The auditors should request command/management concerns that could be addressed in the audit and identify any scheduling conflicts. The inbrief can be very helpful in gaining command/management cooperation for the audit.

Limitations on Access to Information Auditing standards require that an external auditor obtain enough evidence to conclude that the financial statements are free of material misstatement before issuing an unqualified opinion. Management may limit the scope of the auditor's procedures; however, if the external auditor cannot satisfy himself or herself that the financial statements are free of material misstatement, he or she is likely to issue an adverse audit opinion. The external auditor can issue either a qualified report or a disclaimer of opinion on the financial statements and explain the scope limitation in the audit report.

Air Force policy directives require commanders to cooperate with the AFAA auditors and give ready access to all organizational records, documents, locations, and personnel. However, to access classified data, AFAA auditors must possess proper security clearances and special access authorizations. Should a commander refuse to give AFAA auditors requested information, that refusal is passed up the chain of command and, if not resolved at a lower level, will be adjudicated by the Secretary of the Air Force (who is the presidentially appointed civilian chief of the Air Force). The Secretary of the Air Force will decide whether the commander is required to give the requested data to the AFAA auditors. The AFAA also can request the Inspector General of the Department of Defense to issue subpoenas to obtain any contractor-owned information, documents, reports, and other data.

Field Work--Documentation and Evidence Statement on Auditing Standards No. 41 states that working papers have two functions: to aid in the conduct and supervision of the audit and to provide support for the opinion reached in the external auditor's report. The evidence that supports the conclusion reached by the external auditor should be documented in the working papers. Working papers are the property of the external auditor and contain confidential client data. The AICPA's rules of conduct state that these working papers cannot be shown to others, except under certain circumstances, without the client's consent.

The AFAA auditor uses working papers in a similar fashion. The AFAA auditor is required to prepare working papers for every assigned audit project. The guidelines for the working papers state that they are to be complete and accurate, clear and understandable, legible and neat, and relevant. The AFAA internal audit procedures state that working papers provide documentation of the work performed to support significant conclusions and judgments, documentation of the supervisory review of the work performed, and documentation of auditor explanations, if required.

AFAA working papers follow a specific format that includes a "FOR OFFICIAL USE ONLY" designation on unclassified working papers and the appropriate security classification for working papers that contain classified data. The AFAA is required to keep working, papers for 3 years for normal audits, 1 year for CAP audits, and 6 years for audits that involve fraud or other illegal activity.

Working papers are the property of the AFAA, but they can be subpoenaed by the courts for cases and may be subject to Freedom of Information Act disclosure. Classified working papers are treated differently and will be revealed only to those with the need to know who have the appropriate security clearance.

Audit Reporting and Disagreements with Managenent Assertion External auditors are paid to express an opinion on the fairness of the assertions stated in the audited organization's financial statements. If the external auditors feel that they have accumulated sufficient competent evidence that the financial statements are in conformity with GAAP, they should express an unqualified opinion.

On the other hand, if the auditors do not feel that sufficient competent evidence has been accumulated, they should issue a qualified opinion, a disclaimer, or an adverse opinion. Reasons for the departure from the unqualified opinion will also be placed in the audit report. The auditors also include explanatory paragraphs if they feel there is substantial doubt about the entity's ability to continue as a going concern or other items that the auditors wish to emphasize.

Along with expressing an opinion on the financial statements, the external auditor is required by SAS No. 60 to convey any reportable conditions to the audit committee or to a similar level of authority if the entity does not have an audit committee. Reportable conditions are significant deficiencies in the design or the operation of internal control that could adversely affect the organization's ability to record, process, summarize, and report financial data consistent with management's assertions. This information may be communicated orally; however, the auditor should document the communication in the working papers.

AFAA audits are designed to review the effectiveness and efficiency of operations. The main goal is to evaluate programs and aid management in achieving intended results. These audits are not intended to criticize responsible management decisions. Instead, they are intended to correct inefficient operations and avoid future errors.

The AFAA auditor can also suggest potential monetary benefits (PMB) in the audit report. These are estimated dollar values that the federal government can save if management implements the specified audit recommendations. The auditor can recommend better ways to use funds. He or she can also question costs that are unnecessary or unreasonable for the intended purpose or a cost that is not supported by adequate documentation or a cost that is an alleged violation of a law or a regulation.

After an AFAA audit is complete, the auditor will complete a draft report and send it for comments to the responsible commander/senior manager at the lowest management level. Commander/senior managers provide comments for inclusion in the final report. Those comments should either concur or state nonconcurrence for each finding, each recommendation, and the PMB suggested by the AFAA auditor. The commander/senior manager can describe corrective actions, taken or planned, for deficiencies noted and may propose other ways to correct reported deficiencies. Responses should include an actual or an estimated completion date for corrective action.

The AFAA auditor can revise the draft report after discussions with management. The auditor will also evaluate management comments to determine whether corrective actions, taken or proposed, are adequate and timely.

A final report is issued once all these steps are completed. If management does not provide comments within the required time, the AFAA auditor may issue the final report without management comments and so note the absence of such comments in the report. The final report will be distributed to the responsible management officials and to the applicable major command.

The final audit report is a historical document for use by internal and external organizations. Along with the Air Force, other governmental agencies (such as the General Accounting Office and the Congress) have access to most final audit reports. Classified reports have special access requirements as previously identified. Unclassified final reports are also available to the public when requested under the Freedom of Information Act.

Visions for the Future of the AFAA--The Strategic Plan

In January 2000, the AFAA presented a new Air Force Audit Agency Strategic Plan, which was subtitled as the "Vision for the Future." As part of the plan, the Auditor General included a letter explaining why the plan was being implemented. He noted that the focus of the internal auditing profession has been and will continue to change and evolve. Therefore, the AFAA also is evolving to keep up with these changes.

As a result, in addition to traditional audit services, the AFAA will provide the USAF a variety of innovative services that are conducive to these changes.

Mission of the AFAA--Vision for the Future

The AFAA's mission is to provide all levels of USAF management with independent, objective, and quality audit services. These include the following:

* Review and promote economy, effectiveness, and efficiency of operations

* Evaluate programs and activities and assist management in achieving intended results

* Assess and improve the Air Force fiduciary stewardship and the accuracy of financial reporting

The AFAA's mission statement contains much of the same content that the IIA uses to define internal auditing:

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. (2)

The AFAA seeks motivated professionals to provide a world-class audit service to its customers through dedication, innovation, and teamwork that will help to build a better Air Force. The Air Force core values consist of integrity, service before self, and excellence. The AFAA is committed both to those core values and to additional values such as support for customers, support for members, and professionalism.

The IIA Code of Ethics promotes an ethical culture surrounding the profession of internal auditing, which was defined previously. Many of the values required by the AFAA are also required in the IIA Code of Ethics, although the latter document refers to them as principles rather than values. The IIA principles consist of integrity, objectivity, confidentiality, and competency.

These principles are further defined under the Rules of Conduct, which describe the behavior expected from internal auditors and are designed as an aid to interpret the principles into practical application. The IIA principles are intended to guide the ethical conduct of internal auditors.

Both the AFAA and the IIA require their members to display integrity, that is, performing their jobs with honesty, diligence, and responsibility. However, the AFAA simplifies the definition of integrity as doing the right thing even when nobody is watching. Integrity is extremely important because it establishes trust and thus provides the basis for reliance on the auditor's judgment, whether he or she is a member of AFAA or the IIA.

The AFAA value of service before self can be compared to the IIA Code of Ethics section on objectivity. This AFAA value requires that the individual place the needs of the nation above his or her personal needs. The IIA code has a somewhat lesser standard; it requires that internal auditors not be unduly influenced by their own interests or by others in forming judgments. IIA auditors shall not participate in any activity or relationship or accept anything that would impair or appear to impair their unbiased assessment or professional judgment.

Both the AFAA and the IIA expect their members continuously to improve their proficiency and effectiveness, as well as the quality of their services. The AFAA value refers to this as professionalism, whereas the IIA principle refers to this as competency.

The IIA requires that internal auditors possess confidentiality with respect to the stewardship of information that they receive, that is, not disclosing information without appropriate authority unless there is a legal or a professional obligation to do so. Air Force commands are required to cooperate with AFAA auditors and to provide the information that auditors need to perform their duties. However, AFAA auditors must possess the proper security clearance and special access authorizations that are required.

They also must comply with security regulations when handling classified material, even though the audit reports may be written to avoid classified subjects so that the reports are releasable under the Freedom of Information Act. Conversely, AFAA auditors may write classified reports that are not available to the general public through the Freedom of Information Act.

As a consequence of recent, high-profile incidents of corporate fraud at publicly held entities (such as Enron and other firms registered with the Securities and Exchange Commission--the SEC), President George W. Bush signed into law the Sarbanes-Oxley Act of 2002. This act mandates the most extensive accounting reform and corporate accountability legislation in decades. Among the key provisions within the Sarbanes-Oxley Act are:

1. Establishment of audit committees by affected public corporations that are directly responsible for retaining and supervising external auditors; CEOs, CFOs, and other management executives of the affected corporations cannot be members of these committees,

2. Attainment of a higher standard of financial reporting by affected public corporations; for example, a public corporation's CEO and CFO must certify in each annual report of their corporation that they have reviewed the report and that it does not contain any untrue statement of a material fact or a material omission, and

3. Establishment of rules by the SEC that require affected public corporations to disclose whether they have adopted a code of ethics for their senior financial executives, and if not, why not.

Since the Sarbanes-Oxley Act governs external auditors and their work activities for those public corporations affected by the act, some have questioned the effect, if any, that the legislation will have on AFAA auditors. At the present time, not-for-profit organizations (which could encompass the USAF and its AFAA auditors) are not subject to the provisions established within the Sarbanes-Oxley Act. However, we believe that--in order to maintain the credibility of AFAA auditors--it is only a matter of time before these auditors will also come under the provisions of the Sarbanes-Oxley Act.

There is a need to raise the bar of auditor independence for both the external auditor and the AFAA auditor so that the public will have greater confidence in the work output of these auditors. One of the important goals of the Sarbanes-Oxley Act is to raise the bar of independence for the external auditor. The logical extension is to include AFAA auditors under the act's provisions to raise their bar of independence. It was mentioned earlier in this paper that AFAA auditors, in performing their work, follow the Comptroller General Auditing Standards listed in Government Auditing Standards--1994 Revision.

Recently, the General Accounting Office finalized a strict new auditor independence standard for audits conducted under government auditing standards. This new standard was effective January 1, 2003. Its intent is that in all matters associated with the audit work, both the organization under audit and the specific auditor should be free in fact and in appearance from personal, external, and organizational impairments to independence. The terms organization and auditor are used broadly to include both governmental and public organizations and auditors.

The preceding brief discussion of the stricter independence standard established by the General Accounting Office will definitely affect the role of the AFAA auditor. The next logical step would have the AFAA auditor come under the provisions of the Sarbanes-Oxley Act. The possible effects on AFAA auditors from the Sarbanes-Oxley Act should be the subject of follow-up research.

Conclusion

The AFAA is unique in that it conducts audits for the United States Air Force. In contrast to the external auditor, the AFAA auditor actually is an internal auditor for the Air Force who follows the GAO standards. The GAO incorporates the AICPA's SAS, unless specifically excluded. Consequently, the AFAA auditor follows basically the same standards, planning process, evidence accumulation guidelines, and procedures as does the external auditor, with the exception of any unique rules that the AFAA's auditing standards may contain. The main differences occur in instances specific to the AFAA, such as classified matters (in which case the AFAA has its own audit procedures) and those audits conducted to ensure compliance with the Anti-Deficiency Act.

Endnotes

(1) The Institute of Internal Auditors, www.theiia.org.

(2) The Institute of Internal Auditors, www.theiia.org.

References

Albrecht, et al. A Common Body of Knowledge for the Practice of Internal Auditing. The Institute of Internal Auditors, 1992.

Air Force Audit Agency New Auditor Handbook. The Department of the Air Force--Air Force Audit Agency, 1998.

Air Force Policy Directive 65-3, Internal Auditing. The Department of the Air Force--Air Force Audit Agency, 1993.

Air Force Policy Directive 65-301, Audit Report Procedures. The Department of the Air Force--Air Force Audit Agency, 2000.

Air Force Policy Directive 65-403, Follow-Up on Internal Air Force Audit Reports. The Department of the Air Force--Air Force Audit Agency, 1994.

Crawford, Jackie R. The Auditor General, Air Force Audit Agency Strategic Plan. The Department of the Air Force--Air Force Audit Agency, 2000.

Melancon, Barry C., "A New Accounting Culture," Journal of Accountancy, October 2002, pp. 27-30.

O'Hare, Patrick K., "Sarbanes-Oxley Raises Red Flag for Not-for-Profits," Healthcare Financial Management, October 2002, pp. 42-44.

The Institute of Internal Auditors, www.theiia.org.

Format of an AFAA Audit Report

* Cover--Standard AFAA cover page with the report number.

* Introduction--A one-paragraph description of the type of audit, the audit subject area, and why this area was selected for review. Deficiencies noted in prior audits are included.

* Overall Evaluation--A one-paragraph overall evaluation based on the audit objective. Specific findings and evaluative comments are to be placed in report tabs further in the report.

* Management Information--A one-paragraph statement of which base official received the report and whether management agreed or disagreed with the findings in each report tab.

* Report Tabs--Each major finding or group of related findings will be in a single report tab. Each report tab is further broken down as follows:

-Introduction--A one-paragraph description designed to provide pertinent background information concerning the area reviews to aid readers in understanding findings contained in the tab.

-Audit Results--A description of the condition(s) found, detailing the nature, extend, and frequency of the deficiencies; an identification of the root cause of the deficient condition; a statement of the impact of the deficiency, in quantitative terms if possible.

-Audit Comments--A section detailing significant discrepancies disclosed and corrected during the audit along with an explanation of corrective action(s) taken.

-Recommendation--Recommendation actions that eliminate the root causes of the deficiencies, as well as correct the specific deficiencies commented on in the report. The auditor can also recommend that the commander consider initiating an investigative action to fix responsibility and take disciplinary action.

-Management Comments--Management indicates its responses to the findings that state either a concurrence or a nonconcurrence with the findings and recommendations.

-Evaluation of Management Comments--The auditors states whether management comments addressed the issues raised in the findings and recommendations and whether management actions planned or taken should correct the problem.

* Report Attachments--Audit objectives, audit test, sampling criteria, statutory or regulatory requirements, prior audit coverage, internal/management control weaknesses, discussions with responsible officials, major contributions to the report, report distribution, Freedom of Information Act notice.

Richard G. Brody earned his doctorate degree in accounting from Arizona State University and is currently associate professor of accounting at the University of New Haven. He also held faculty positions at the University of Nevada, Las Vegas, and Central Connecticut State University. Dr. Brody has numerous publications in professional accounting journals and has also presented many research papers at professional accounting conferences.

Stephen A. Moscove earned his doctorate degree in accounting from Oklahoma State University and is currently professor of accounting at the University of New Haven. He also held faculty positions at the University of Hawaii, the University of Nevada, Reno, and Central Connecticut State University. In addition to many publications in professional accounting journals, Dr. Moscove has also written textbooks in the areas of accounting information systems and cost accounting.