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Third Party Accounting System Reviews


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Good morning. Despite my best search efforts, I've been unable to find definitive guidance on Government acceptability of third party accounting system review certifications. What is the Government's current stance on the subject? Would a formal certification from an accounting firm that specifically addresses the areas on the SF1408, along with a copy of said SF1408, suffice? Or is the Government accepting only DCAA evaluations/opinions?

Your thoughts and guidance would be most appreciated.

Thank you.

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Let me venture into this. Please note I am NOT an employee of the Federal government and cannot offer you any official policy statements.

Consider:

1. DCAA and third party accounting firms perform "joint audits" on certain entities, notably FFRDCs such as The Aerospace Corporation. I know of at least one DOD IG review (D-2011-6-002) where the third party auditor (Deloitte) received higher marks than DCAA did.

2. DCAA is currently resource constrained and may not be able to perform an SF 1408-type audit in a timely fashion.

3. DCAA is currently quality constrained and may not be able to perform an SF 1408-type audit well.

4. I would suspect that an opinion from a review performed in accordance with GAGAS by an independent third party auditor would be reliable. If the firm was willing to sign its name to a report, that would tell me it was prepared to stand behind it.

All I got.

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rdtmk5, your question is somewhat overbroad when you ask about the government's policy on third party audits. The government is not monolithic and has no single policy on this. Further, the answer depends on the context in which you are asking the question. For example, under some grants, DoT requires grantees to rely upon third party audits to establish final indirect cost rates. This would include determining that the recipient's accounting system is adequate. Also, not all agencies, such as NIH, use DCAA to do their audits. Thus, these agencies may have a greater tendency to permit third party audits in some circumstances. Finally, it must be remembered that not all agencies are subject to the FAR when contracting. Finally, I know of at least one circumstance where DCAA would have been willing to accept a third party audit if DCAA had access to the outsider auditor's workpapers and it the outside auditors followed DCAA audit policies in conducting the audit.

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If the question is how to go about determining if a subcontractor's accounting system can hold up to DCAA or government audits their are firms that specialize in this. I used a good one out of Denver 7 years ago, and it takes time and money but you gotta do what you gotta do. Simply hire a firm that has past work and experience with USG accounting system requirements, that will charge you and the sub a Fee until all the segregation and minimal standards are met to meet and withstand an audit. you gotta pay to play. The Firm you hire should provide a detailed proposal on how they will construct and manage the process and data so that you and the sub(s) are at compliance standards. Negotiating with the Subs that they need to pay to get an accounting system in place - is another thing.

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If the question is how to go about determining if a subcontractor's accounting system can hold up to DCAA or government audits their are firms that specialize in this. ... Simply hire a firm that has past work and experience with USG accounting system requirements ....

The question was not whether there are firms that will do the work, the question was whether the government can or should rely on the output from such firms. I would suggest that "past work and experience with USG accounting system requirements" is one -- but only one -- criterion to use when decided whether or not to rely on the output. GAGAS (the "yellow book") is a good place to start compiling evaluation criteria, should somebody be interested in this project.

H2H

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H2H

I agree, only want to clarify that the USG has no 'approval" or guidance for contractors and subs, when it comes to determination of these systems, its only determining if adequate at the auidt. The only guidance is contained in the regs. The who, how, aspect of meeting GAAC, or CAS, standards is a diligent effort by the Prime.

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  • 2 weeks later...

You have no choice but to instruct the offeror to provide a third party review based upon a firm that understands how DCAA determines the adequacy of the accounting system. DCAA will not conduct a preward accounting system review, only post award on the winning offeror. I included this language in Section L and after award requested a review. The offerors shouldn't be excluded because of Government/DCAA backlog:

Cost Accounting System.

L. 6.5.6.4.1 FAR 16.301-3 Limitations, requires that a contractor's accounting system be adequate for determining costs applicable to the contract prior to the award of a cost reimbursable contract. The offeror shall provide documented evidence to substantiate it has an adequate cost accounting system or will have the system in place prior to award.


L. 6.5.6.4.2 Documented evidence can include but is not limited to:

  • Certified Public Accountant (CPA) audit within the last year (perhaps for IRS purposes) who can provide a certificate that the accounting system that can comply with the requirements for collecting and segregating costs as listed above.
  • Billing rates or evidence of submitting progress payments from a previous government contract(s).
  • Evidence that a CPA is or will conduct a cost accounting system audit and certify compliance prior to award.
  • Documentation/certification from the result of performance of a compliance audit conducted by external consultants/CPAs or internal auditors.
  • Source documents, accounting records, SOPs and policies.
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