Wednesday, July 22, 2015

DFARS Proposal to have CPA Firms Audit Contractor Business Systems - Dead

A year ago, we published a seven-part series on the proposed DFARS (DoD FAR Supplement) rules to have contractors go out and procure their own independent audits of certain required business systems including accounting systems, estimating systems, and MMAS (materials management and accounting systems). See "Independent CPA Audits of Contractor Business Systems". This proposal was designed to relieve the Defense Contract Audit Agency of some of its required audit workload until the Agency could get caught up on its incurred cost audit backlog. The independent audits would be performed under DCAA's oversight with the Agency weighing in on the sufficiency of procedures employed by the independent CPA firms to attest to the adequacy of the systems and the related internal controls.

A public meeting was held in August 2014 and the public comment period ended September 15, 2014 with 23 submissions including ones from the AICPA (American Institute of Certified Public Accountants), the American Bar Association, the Aerospace Industries Association, and many other organizations and private individuals. The common theme among the respondents was that the proposal, as written, was unworkable and not viable.

The powers-that-be obviously agreed or had second thoughts themselves because on February 4, 2015, the DFARS Case was quietly closed without further action. That's not the end of the story however. The system reviews still need to be performed and the audit responsibility continues to reside with DCAA. Perhaps someday, DCAA will get around to auditing contractor business systems again.

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