Business System Deficiency Reports

Contractors might never see it coming. The auditors are there evaluating a price proposal, reviewing the annual incurred cost proposal, or performing a labor floorcheck when it hits - a Business System deficiency report. What's going on? The auditors were not auditing one of the six DFARS (DoD FAR Supplement) business systems. How can they issue a deficiency audit report?

This month, DCAA released a new audit program that requires auditors to issue audit reports on deficiencies/instances of noncompliance with the DFARS business system criteria when such deficiencies are identified during any routine audit. No longer must the auditors wait until they get around to a full-up audit of a business system. They can now issue reports at any time.

According to guidance,

... the objective is not to evaluate the contractor's compliance with all aspects of the applicable DFARS criterion or criteria but only to establish whether the noncompliance identified in the originating audit represents a significant deficiency/material weakness or is less severe than a significant deficiency/material weakness, yet important enough to warrant the attention of responsible contractor management officials.

According to GAGAS (Generally Accepted Government Auditing Standards), auditors are required to report certain findings identified during an attestation examination engagement even when those findings are related to areas outside the specific objective of the examination. This would include deficiencies in a contractor business system identified during audits of incurred cost, price proposals, or any other non-business system audits.

Be forewarned and be prepared.