Redstone Government Consulting Blog | Redstone Team (18)

On November 12, 2014, the U.S. Government Accountability Office (GAO) issued its report on the results of its review of DCAA actions to comply with section 832 of the National Defense Authorization Act (NDAA) for Fiscal Year 2013, regarding requests for company internal audit reports.   The purpose of the GAO review was to assess the extent DCAA’s revised guidance “(1) complied with the act, and whether selected requests for company internal audit reports were documented in accordance with requirements, and (2) contains safeguards to help ensure that companies’ internal audit reports are used only for authorized purposes.”

Although the details are yet to be determined, there is no question that Republican control of both the Senate and the House could significantly impact government contracting.

The new DFARS business system rule requires audits by CPA’s, with DCAA approving the risk assessment and the audit program and reviewing the working papers afterwards.      

The obvious reason for this proposal is that DCAA is unable to perform the audits themselves.  At least not on a timely basis.  When DCAA was performing the audits, it was taking over 2 years to perform 1 system audit.  This rule requires it to be done within 6 months after the close of the contractor’s fiscal year.  In contrast, DCAA was not completing the risk assessment in that length of time.

So now let’s take CPA firms that are used to performing financial statement reviews in a timely manner and handcuff them to DCAA, an Agency that is notorious for missing due dates.

And THEN let that same Agency, in essence, audit the audit.  And furthermore, there are no provisions to limit DCAA to a reasonable time frame for approval of the risk assessment and audit program. 

I recently delivered a presentation at the National Contract Management Association (NCMA) World Congress on the July 15, 2014 DoD proposed changes to DFARS business system Rules (DFARS Case 2012-042) for contractor accounting systems, estimating systems, and material management and accounting systems (MMAS).  A public hearing on the proposed changes is scheduled for August 18, 2014 and comments are to be submitted on or before September 15, 2014.  As noted in previous blogs, the new rules do not apply to small businesses or to other DFARS defined business systems (purchasing, EVMS, Government property).

Not only do you get to pay for the audit, you get pay for the CPA to support an audit of the audit!

On April 21, 2014, the DAR editor submitted a proposed new DFARS rule (DFARS Case 2012-042) for Business Systems Compliance to OMB’s Office of Information and Regulatory Affairs (OIRA).  Generally, this is the last step prior to the publication of the new rules.  The full body of the proposed rule has not been published; however, OIRA has published the following abstract on May 23, 2014 as part of its semiannual compilation of all pending federal regulations:

Two recent decisions by the General Accountability Office (GAO) and the ASBCA make it clear that the contractor will be held responsible for incorrect assumptions when they fail to follow up on known inconsistencies or missing information with the government, even when the government is responsible for providing the information.

DCAA employees have now received their long-awaited letters proposing an 11 day furlough - one day a week from July through September of 2013.   Since this furlough is cumulatively over 80 hours, employees will also lose an accrual of sick and vacation pay.  In addition, according to Jessica Wright, acting undersecretary of Defense for Personnel and Readiness, furloughs may not end in September.  She stated that looking at the FY 2014 budget numbers suggested by the White House and both sides in Congress, DoD may very well have to plan for another round of sequestration and furloughs.  Under the federal process, once an employee receives a proposal for furlough, an individual can present a case to the deciding official on why they feel like they should be excepted from the furlough. Then the deciding official will make a final decision.  Since this is a DoD initiative and exceptions apply to very few DCAA employees, the furloughs are expected to be upheld.