Disposing Accounting System Deficiency Audit Findings

Contractors receiving cost reimbursable contracts, incentive type, time-and-material, labor-hour, or contracts which provide for progress payments based on costs or a percentage or state of completion, must maintain adequate accounting systems. Sometimes, contract awards are conditional upon demonstration that the accounting system is adequate. In some cases even, prospective contractors cannot even bid on a job unless they have adequate accounting systems.

We have discussed the attributes that make up an adequate accounting system on these pages several times so we need not review them again (see for example this article from last November). Its not all that difficult for a contract auditor (or a contracting officer's "functional specialist" to find inadequacies in contractor accounting systems. Any auditor so predisposed, can find a deficiency or two. Sometimes those deficiencies rise to the level where they are "significant" and the Government loses confidence that the accounting system can produce reliable cost and billing data.

One of the problems when a deficiency has been identified and cited is the length of time it takes the Government to review corrective actions and corrective action plans. Sitting around waiting for the Government to act can result is lost opportunities. There is nothing more frustrating to a contractor than having to wait around for the Government (i.e. the contracting officer) to act or make a decision. Yet, the DFARS (DoD FAR Supplement) doesn't intend it to take so long. The DFARS policy for resolving identified accounting system deficiencies (found in DFARS 42.7501) is replete with word "promptly"; e.g. promptly notify the contractor of a deficiency, promptly review corrective actions, promptly notify the contractor that the deficiencies are resolved, promptly advise the procurement community that the system is acceptable. In reality however, no one on our side of the table ever thinks the Government acts promptly in resolving system deficiencies. Some contractors have good communications with their contracting officers but sadly, that is not the norm.

So, if you find yourself in the position of trying to resolve system deficiencies and its not going as quickly as necessary, refer to DFARS 242.7501, 2 and 3 and see if the Government is keeping to its own obligations by following the policies and procedures for resolving issues. If not, it wouldn't hurt to bring it to their attention.