Reason recently received a request from a state legislative staffer for some information on contracting out auditing services. Some research into the issue turned up the following.
First, the federal government has some experience in this area. There is a discussion of outsourcing auditing services, and a pretty good set of guidelines for doing so, available from the Federal Financial Institutions Examination Council (FFIEC) here. For those unfamiliar with the FFIEC, according to the body's Web site,
The Council is a formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS), and to make recommendations to promote uniformity in the supervision of financial institutions.
Some states have experience with contracting out auditing services as well. The Utah State Auditor's Office sometimes solicits bids from private CPA firms to audit various state agencies (see here). A sample contract can be found here. North Dakota also contracts out auditing services. For those interested in receiving requests for proposals, contact information for the North Dakota Office of the State Auditor is available here. As with Utah, the agency has posted a sample contract for audit services. There are certainly examples from other states ranging from more narrow services like recovery auditing to the auditing of entire programs, agencies, or even the entire state.
Finally, the Massachusetts Office of the Inspector General published "A Local Official's Guide to Procuring and Administering Audit Services," updated as of December 2007, which provides resources for local government officials looking to hire CPA firms and recommends methods for hiring audit firms and managing audit services contracts.