Thursday, November 5, 2015

Audits of Business Systems at DoD Contractors - Update

This is a follow-up to a posting last July concerning DoD's decision to kill the proposed rule that would allow Government contractors to go out and hire independent auditors to perform reviews of the three business systems that DCAA normally audits (i.e. accounting, estimating, and material management and accounting). Under Generally Accepted Government Auditing Standards, DCAA has not been able to keep pace with demands and needs some help to maintain currency. (See DFARS Proposal to have CPA Firms Audit Contractor Business Systems - Dead.)

The proposed rule received many comments. While some supported the idea, many were wary of the implementation. Supporters liked the idea that their systems could get audited in a timely manner but the implementation appeared onerous with too much involvement and oversight by DCAA. DCAA for its part, considered that the design of the oversight process would result in fewer audit resources expended then if it were to perform the audit themselves.

While the proposal has been withdrawn, DCAA is not giving up. The rule was withdrawn so that the Agency could consider the comments received and determine a path forward. Its possible that the proposed rule will be resubmitted with modification or some other alternative will be pursued.

In the meantime, DCAA is experimenting with an Agency-wide Business System Audit Team that will be performing business system audits at high risk contractors. High risk contractors are generally the largest contractors. The team is comprised of experienced auditors who are specifically trained to perform business system audits. As they travel from contractor to contractor, the teams will be augmented with local audit staff who are familiar with the particular contractor business systems. DCAA admits that this team approach is not the ultimate answer. It only covers the highest risk contractors and will not cover all the business system audits that need to be performed.

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