What is Waste? Stakeholders Call for GAGAS Clarity from GAO

July 31, 2017 | By Jerry Ashworth | Post a Comment

seal_2011_12_20Ask anyone who knows me and they’ll agree that I can relate anything in life to an episode of M*A*S*H. One of my favorites was an episode early in Season 3 in which Harry Morgan, prior to returning to play his Col. Sherman Potter role, appeared in an episode as the feeble-brained Gen. Bartford Hamilton Steele. One line I’ll never forget, as minor as it was, was when the general was shown a wooden tongue depressor that had fallen on the ground. Instead of regarding it as trash, he deemed it could be cleaned and reused. “Waste, waste, waste!” he bellowed.

This highlights how different folks define “waste.” This confusion over waste has come to life in the Government Accountability Office’s (GAO’s) exposure draft of proposed revisions to the Government Auditing Standards (GAGAS). GAO issued the draft for public comment in April and received more than 90 comments by the July 5 deadline. (An article on a sample of the comments will be included soon on the grants.complianceexpert.com website and in the September issue of the Single Audit Information Service.)

In Chapter 6.16 of the exposure draft, GAO proposed to add a requirement that as part of a GAGAS audit, if auditors become aware of waste or abuse that could be quantitatively or qualitatively material to the financial statements or other financial data significant to the audit objectives, auditors should perform audit procedures to ascertain the potential effect on the financial statements or other financial data significant to the audit objectives. Also, if auditors become aware of waste or abuse that could be significant to the entity’s operations, they should consider the potential effect on the entity’s operations.

This addition of the word “waste” has made some auditors and accountants cry foul. In its comments on behalf of the Association of Government Accountants (AGA), the Financial Management Standards Board (FMSB) argued that it had a significant concern with the proposed requirement to report “waste” in a financial or attestation engagement, adding that consideration of waste is: (1) outside the scope of a financial or attestation engagement; and (2) highly subjective in nature, such that only a performance audit would provide sufficient, appropriate evidence for a conclusion on waste. “Fraud, abuse and noncompliance have to do with the validity of transactions and are widely recognized as having relevance to financial audits,” FMSB wrote. “In contrast, waste is a judgment regarding the efficiency or effectiveness of transactions and is specifically described as a separate control objective in the [Standards for Internal Control in the Federal Government (also known as the “Green Book”)] and ‘irrelevant’ to financial statement audits in AICPA standards.”

Added Ernst & Young LLP in its comments, “Because of the subjective nature of waste, we believe the GAO should include several examples of situations of waste. This would give auditors a better understanding of the concept and promote more consistent practice.  We also believe that the proposal should make it clear that the auditor has no responsibility to perform procedures to detect waste in financial audits.”

Just like Gen. Steele, the audit community needs a better understanding as to what “waste” exactly is. It may not seem like a critical area in relation to the rest of a GAGAS audit, but GAO shouldn’t, well, waste another chance and making this clear for the audit community.

Let us know your reaction to this proposal in the GAGAS exposure draft. We’d like to hear from you.



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