DCAA Access to Contractor Internal Audit Reports

Yesterday we wrote about how the conference committee eliminated a provision in the Senate's version of the 2013 National Defense Authorization Act (NDAA) that would limit the reimbursement of compensation paid to contractor employees to that of the US Vice President. Today we want to highlight another change the conference committee made to the NDAA. This one involves access to contractor internal audit reports.

Under the Senate's version of the 2013 NDAA, contractors would have been required to grant access to internal audit reports and failure to do so, could render a particular business system deficient and subject the contractor to billing withholds.

Under the conference committee's version (expected to pass), the requirement to provide internal audits has been eliminated. Instead, the Act will require that if DCAA needs internal audits, it will request them, document the request, and document the contractors' response to the request. That's it. End of story. If the contractor denies access, there are no ramifications.

If the contractor does provide access, the internal audit reports can only be used by DCAA to evaluate the efficacy of contractor internal controls and the reliability of associated contractor business systems. A determination by DCAA that a contractor has a sound system of internal controls shall provide the basis for increased reliance on contractor business systems or a reduced level of testing with regard to specific audits, as appropriate. Internal audit reports provided by a contractor pursuant to this section may be considered in determining whether or not a contractor has a sound system of internal controls, but shall not be the sole basis for such a determination. This also means that the reports cannot be used as a basis for withholding billings.

Contractor's can breathe easier, for awhile. They will not be required to turn over internal audits if they so choose.