One Client’s Initial Assessment of DFARS Proposed Rule Allowing IPAs to Handle Business System Audits

Contractors who have analyzed the proposed rule released July 15, 2014, which places the responsibility on contractors to support the adequacy of certain business systems via utilization of Independent Public Accounting (IPA) CPA organization audits, have mixed reactions to the rules requirements: reactions ranging from total agony due to added and redundant audit oversight plus administrative strife in dealing with those redundancies, to a real opportunity to achieve some control over obtaining a reasonable and objective analysis of their systems the outcomes of which just might be completed timely. 

Certainly there is a high probability that IPA audits will be completed within a reasonable period after the audits have commenced, beating DCAA’s miserable track record of taking up to three years to perform the audit, the results of which are often outdated by the time a DCAA report was issued.

This author has communicated only with one client to obtain his thinking on the new rule—will there be inherent benefits to government contractors or does the rule only complicate the process with long-term consequences of placing contractor professionals under medication therapy and psychiatric care?  Here are a few thoughts the client passed along (excluding certain vulgar commentary):

• Contractors should have a leg up if allowed to choose its own IPA firm, at least in ensuring that the firm’s employees are qualified to perform the work, will maintain objectivity, produce a reasonable outcome that is supported fact-based findings, and will be completed timely—professional standards of which DCAA has been unable to demonstrate.
• Not surprisingly, this client considers the authority of government auditors (DCAA) to not only evaluate the CPA audit plan, but also to second-guess the outcome of the IPA report, to produce delays and likely disputes with ACOs.  Nonetheless, the company believes such DCAA objectives can be more easily overcome with ACOs—after all, government auditors did not do the work, and therefore a thinking that ACO’s will more likely brush off DCAA second guessing motives.
• Government access to the CPA’s audit plan and working papers will be a problem; hence, concern that choosing IPA firms to perform these reviews will be a rigorous task.
• Increase expense to the company, not only to engage IPA auditors, but also internal administrative effort to overcome problems raised government auditor review of audit plans and work product. 

Bottom line for this client:  Client believes the IPA approach is more beneficial and cumbersome.  Client sees more control in choosing qualified professionals to certify business systems, and therefore circumventing a never-ending DCAA audit of internal controls, reducing possibility of unsupported “significant” deficiencies, and mitigating possibilities of delayed government contract awards until alleged such deficiencies were corrected.