Contractors Need Not Worry About Cited Business System Deficiencies

The Department of Defense, Office of Inspector General (DoD-IG) issued its report last week on how well the Defense Contract Management Agency (DCMA) has complied with DFARS (DoD Federal Acquisition Regulation Supplement) requirements when business system deficiencies are reported at DoD Contractors. The six contractor business systems that are of the most interest to the Government are Accounting (obviously), estimating, material management, purchasing, earned value management, and government property. The focus of the DoD-IG report was on accounting system deficiencies identified by the Defense Contract Audit Agency (DCAA).

The DoD-IG reviewed 21 audit reports issued by DCAA that identified deficiencies in contractors' accounting systems. In every single case, the DoD-IG found that DCMA contracting officer actions did not comply with one or more DFARS requirements when deficiencies were reported. For example, the audit found that DCMA contracting officers did not

• Issue timely initial determinations,
• Issue timely final determinations,
• Obtain contractor responses,
• Adequately evaluate contractor responses, and
• Withhold a percentage of contractor payments.

In 17 of 21 cases, the contracting officer did not issue final determination letters within 30 days as required. On average, contracting officers took 252 days to issue final determinations. In 8 of 21 cases, contracting officers did not withhold a percentage of contractor payments as required by regulation. 

It didn't take a DoD-IG audit to tell us there are systematic deficiencies in DCMA's resolution process. Talk to just about any DCAA auditor and they'll have stories about how seriously audit reports sent over to DCMA are taken. "Like shooing flies off the dinner plate", according to one former DCAA auditor. There are many reasons for contracting officer ambivalence toward contractor business system deficiencies. For one thing, contracting officers do not usually appreciate the importance of sound internal controls to the extent that auditors do. It is not intuitively obvious to them that strong internal controls will result in cost savings and reduced oversight. Second, contracting officers have a lot on their plates. The listing on contract administration functions in FAR 42.302 is 71 items long.

DCMA's response to DoD-IG's cited deficiencies was to hold more training. Yep, we're sure that will take care of the problem. You can read the entire DoD-IG report by clicking here.