Internal Audit Records - Court Cases

Newport News Shipbuilding (1988)

• Courts have held that DCAA does not have unlimited power to demand access to internal audit reports, however DCAA may demand access to reports that are relevant to carrying out its audit responsibilities.

United States v. ISS Marine Services Inc.

• Involves an enforcement action to enforce compliance with an administrative subpoena duces tecum for an internal audit report.

• The primary question is whether the audit report enjoys the protection of either the attorney-client privilege or the work-product doctrine.

• The Court ruled in favor of the Government and determined the audit report did not qualify for protection under either the attorney-client or work-product privilege.

Quick Facts

• Inchcape employees consulted with a D.C. law firm, which prepared a list of documents necessary to assess the issues and summary of potential civil and criminal laws involved.

• The Company decided that its employees would conduct the investigation and deliver findings of the internal audit to the Inchcape Board of Directors for disposition.

• The final audit report was sent to the D.C. law firm as an attachment to an email marked "Attorney Client Privilege."

• Attorney-client privilege protects confidential communications made between clients and their attorneys when communications are for the purpose of securing legal advice.

• To be privileged, a communication must be for the purpose of securing primarily either:

• • (i) an opinion on law, or

• • (ii) legal services, or

• • (iii) assistance in some legal proceeding.

• The Court used the "but for" standard to determine the primary purpose of the communication.

• Consultation does not qualify the audit report for the protections of attorney-client privilege.