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Vern Edwards

Adequacy of Accounting System

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Questions about the rules concerning adequacy of contractor accounting systems for cost-reimbursement contracting come up all the time in this forum. See, e.g., http://www.wifcon.com/discussion/index.php...ng+system\.

Last October GAO decided a bid protest in which it included an interesting discussion of a review of accounting system adequacy by DCAA. Some of you may find it interesting. See KMS Solutions, LLC, B-405323.2, 2011 CPD ? 209. You can get it by Googling <B-405323.2>.

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Systems - - A very interesting topic and a very important topic.

What I see occurring is that at major companies, DCAA is not even attempting to do System audits. They are creating something new referred to as "Limited Scope" accounting system audits. I think to myself why would DCAA create this "new assignment" and what does "limited scope" mean. We are not getting a clear message from DCAA nor its website but I think it is a way for them to skirt GAGAS in order to allow them to get out a report at a major company on time. As most of you know, DCAA no longer is able to issue system reports at most majors in under 2 years, if that.

I am hoping that these 'limited scope' audits do not cause an influx of "Reckless" reports being issued stating major systems are not adequate. DCAA seems to be rated on how much they attack private industry, so this could be a problem. GAGAS requires DCAA to use representative samples of the whole system, I hope this is followed under these "limited scope" audits.

Right now, the DFARS changes requires a mandatory 5% withhold on inadequate accounting systems [DFARS 242.75, Clause 252.242-7006, PGI 242.7502], but the DFARS was predicated on audits, not the newly invented "limited scope" audits. So if my potential doomsday scenario occurs with bunches of reckless 'limited scope' audits.., it will take a while for DCMA (and other Contracting offices) to adapt to this latest wave of DCAA craziness.

If anyone has any input or experience with the new "limited scope" system audits, I would love to read what you have to say.

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DCAA's "limited scope" audits were designed to confirm or refute prior audit findings that indicated that one (or more) "business system" control objectives (now called adequacy criteria) were not functioning. If the limited scope audit confirmed a non-functioning control objective, then DCAA would recommend system disapproval. This has been happening since early 2010.

However, current DCAA policy is to perform full-scope audits on the business systems for which it has "ownership". Too bad everybody who knows anything--including GAO--believes the agency lacks adequate resources to perform full-scope system audits with the kind of detail necessary for the CO to make an informed decision. Expect DCAA to be unable to fulfill its side of the business system bargain.

I'm not going to address your other comments on DCAA. However, I will suggest that you need to review and undestand DCMA's business system implementation approach. It goes a long way to reducing my apprehension that DOD Contracting Officers will simply rubber-stamp poor quality DCAA audit reports. My understanding is that the contractor will have opportunities to rebut DCAA audit findings. Moreover, I believe that any CO decision to disapprove a contractor's system will need to be Boarded.

So while I share some of your concerns about DCAA's abilty to fulfill its roles and responsibilities, I think DCMA has charted a pretty good path (at least in writing).

Hope this helps.

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