Thursday, March 20, 2014

Contractors Might Soon Have to Pay for Contract Audits

There's a new proposal from DoD about to be published as in DFARS (DoD FAR Supplement) as a proposed rule that will have a significant impact on contractors subject to the "business system" rules (estimating, material management and accounting, earned-value, property, purchasing, and accounting systems).

Although the proposed rule has not been published and is not yet available on the internet (as far as we know), there have been snippets of information flowing from DoD sources as to what is being considered. This proposed rule will require contractors to hire CPA firms to audit and express opinions on the adequacy and sufficiency of business systems. This would no doubt cost contractors a lot of money - costs that were not included in forecasts and budgets and estimates of future costs. It would significantly impact DCAA (Defense Contract Audit Agency) who now spends a significant portion of its resources auditing contractor business systems. Perhaps these soon-to-be unemployed auditors can go work for CPA firms who will get this new workload.

The contracting community will most likely be in favor of the proposed rule. Contractors will insist on timely audits and reports. After all, they're paying for the service. DCAA on the other hand, takes months and sometimes more than a year to issue a business system audit report. Additionally, as is characteristic of CPA internal control audits, they won't find any material weaknesses anyway. That means the contracting officers' jobs get a whole lot easier because they don't have to resolve any audit findings.

Sadly, yet another nail in DCAA's coffin.

Keep your eyes open for DFARS Case No. 2012-D042. It's coming soon.

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