Efficiency of Business System Proposed Rule Has Silver Lining for Contractors

July 21, 2014

In enforcing the business system rule, DoD is addressing DCAA workload challenges by proposing to “entrust contractors with the capability to demonstrate compliance with DFARS system criteria for contractors’ accounting systems, estimating systems, and material management and accounting systems, based on contractors’ self-evaluations and audits by independent Certified Public Accountants (CPAs) of their choosing. Government auditors will perform overviews of the results of contractor self-evaluations and CPA audits.”

On July 15, the Department of Defense issued a proposed rule that would amend the DFARS by shifting responsibility of auditing certain business systems[1] from DCAA to contractors and CPA firms.  Specifically, contractors would be required to (1) submit an annual report on their compliance with the business systems requirements and (2) every three years, obtain a CPA audit on their business systems.

Possible silver linings include:

  • Ability to get your accounting, estimating and material management systems reviewed on demand by third-party CPA firm, not having to wait for DCAA
  • Getting your systems approved provides differentiator for business development
  • Once systems are approved external certification occurs every three years unless off-cycle review is requested

Possible challenges include:

  • ACO and DCAA are not totally out of the picture as they must approve the third-party CPA’s audit strategy, risk assessment and audit plan and they review resulting report and findings
  • Contractor system self-certification requires self-evaluation function which may necessitate contractors to implement internal audit procedures

Aronson will continue to monitor this proposed rule and provide guidance to contractors on how they need to rethink business system compliance.

[1] Accounting System, Estimating System, and Material Management and Accounting System (MMAS)