GAO Release: Recommendation to monitor and ensure contractor business system reviews are conducted in a timely fashion.

CONTRACTOR BUSINESS SYSTEMS: DOD Needs Better Information to Monitor and Assess Review Process

GAO-19-212: Published: Feb 7, 2019. Publicly Released: Feb 7, 2019.

The U.S. Government Accountability Office (GAO) is an independent, nonpartisan agency that works for Congress. Often called the “congressional watchdog,” GAO examines how taxpayer dollars are spent and provides Congress and federal agencies with objective, reliable information to help the government save money and work more efficiently.

We have written a few times recently on the matter of government contractor business systems.  The government’s (DCAA and DCMA) review of the six contractor business systems is expected to rise significantly in the near term based on information we have received from the DCAA and DCMA.  This GAO report released today adds further reality to this renewed focus on contractor business system reviews.

Contractors are encouraged to take the time and make the investment now to perform proper due diligence to ready themselves for these government reviews.

Fast Facts

The Department of Defense uses data from contractors’ business systems—e.g., accounting or purchasing systems—to guard against fraud, waste, and abuse in DOD contracts. For example, reviewing data from a contractor’s accounting system can help keep the contractor from overcharging.

DOD must review contractors’ business systems to ensure that the data from them can be used. We’ve previously found that it was years behind on some of these reviews.

DOD has an ambitious plan to catch up on these reviews in 3 years but has no way to measure its progress. We recommended that DOD monitor and assess whether it’s completing these reviews as planned.

GAO Findings

Since 2011, the Department of Defense (DOD) has implemented several changes to its processes for reviewing contractor business systems—which include systems such as accounting, estimating, and purchasing. Among other changes, DOD clarified the roles and responsibilities of the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA)—the two agencies that are responsible for conducting the reviews; clarified timeframes for business system reviews and established criteria for business systems; and withheld payments from contractors that were found to have significant deficiencies in their business systems.

DOD does not have a mechanism to monitor and ensure that these reviews are being conducted in a timely manner. For its part, DCAA has conducted few business system audits since 2013, as it focused its efforts on other types of audits. DCAA plans to significantly increase the number of business system audits over the next 4 years, but its success in doing so depends on its ability to shift resources from other audits; to use public accounting firms to conduct other, non-business system audits; and DCAA staff’s ability to execute new audit plans in a timely manner.

GAO Chart Businss System Audit

DCMA relies on the three offices responsible for conducting DCMA-led reviews to manage the reviews, but DCMA does not formally monitor whether these reviews are being conducted consistent with policy nor does it monitor DCAA’s efforts to complete the audits for which it is responsible. DCMA is ultimately responsible for approving a contractor’s business systems. DCMA currently lacks a mechanism based on relevant and reliable information, such as the number of reviews that are outstanding and the resources available to conduct such reviews, to ensure reviews are being completed in a timely fashion. Such information could help inform more strategic oversight on whether the current review process is achieving its intended results, or whether additional changes to the timing of or criteria for conducting reviews are needed.

Why GAO Did This Study

Contractor business systems produce critical data that contracting officers use to help negotiate and manage defense contracts. These systems and their related internal controls act as important safeguards against fraud, waste, and abuse of federal funding. Federal and defense acquisition regulations and DOD policies require that DOD take steps to review the adequacy of certain business systems, but GAO and other oversight entities have raised questions about the sufficiency and consistency of DOD’s review process.

The National Defense Authorization Act for Fiscal Year 2018 contained a provision for GAO to evaluate how DOD implemented legislation intended to improve its business system review process. Among other things, this report examines (1) the changes DOD made to its review process and (2) the extent to which DOD is ensuring timely business system reviews.

GAO analyzed DOD acquisition regulations, policies, and procedures for conducting contractor business system reviews and analyzed data on reviews conducted between fiscal years 2013 and 2018.

Read more on this 


DCAA Audits of Government Contractor Business Systems

DCAA Audits of Government Contractor Business Systems – Key Risk Mitigation Strategies to Promote an Adequacy Determination

Craig Stetson, Partner | Capital Edge Consulting, Inc.

The Defense Contract Audit Agency (DCAA) recently indicated as a 2019 agency initiative a significant increase in their 2019 audit efforts around contractor business systems. The DCAA’s renewed focus on performing contractor business system audits, is largely the result of the DCAA’s recent reduction in its prior and long-standing backlog of incurred cost proposal audits. The DCAA is responsible for oversight of three of the six contractor business systems, including accounting, estimating, and material management and accounting. Under this 2019 initiative, the accounting system will be the primary focus with a planned audit activity of nearly 1,000 audits. Estimating and material management and accounting system audits also are planned to increase significantly from the 2018 activity, however, nothing near the planned accounting system amount noted prior.

Download your copy of Key Risk Mitigation Strategies to Promote an Adequacy Determination below:


Loudoun Hunger Relief – Volunteer Initiative

Capital Edge opened the Many Hans Make an Impact Program with an initiative supporting Loudoun Hunger Relief.

Team members Bob, Karen, and Jennifer supported Loudoun Hunger Relief and packed bags of perishable and non-perishable food for 200+ families at a pop-up market on January 24, 2019.  This market is open to support people impacted by the partial government shutdown as well as others in need the local community.

Additional pop up markets are planned for the duration of the shutdown.

For 26 years, Loudoun Hunger Relief (LHR) has served as Loudoun County’s primary emergency food pantry, providing food assistance to the hungry and food insecure. Their ultimate goal is to ensure that no one in Loudoun County goes hungry. Several Capital Edge team members worked with community volunteers to pack bags of perishable and non-perishable food for 200+ families at a pop-up market to support people impacted by the partial government shutdown as well as others in need the local community.

Learn more  on how to support Loudoun Hunger Relief – visit them online 


The 809 Panel January 2019 Report Released

The 809 Panel released yesterday their final report

Volume 3 of the Final Report represents the culmination of more than 2 years of collective brainstorming, engagement, and intense research about how to change defense acquisition from an outdated, industrial bureaucracy to a more streamlined, agile system able to evolve in sync with the speed of technology innovation.

Our Thoughts

A lot of good recommendations in Section 6 – Streamlining and Improving Compliance. Top of the list is revision to the current 18 DFARS Accounting System adequacy criteria. The proposed revision would eliminate the 18 subjective criteria and replace with 7 new objective criteria. Section 6 also includes a DoD Professional Practice Guide with several important auditing standards and concepts that would align the government contract auditing process more with traditional financial statement auditing methods and generally accepting auditing standards industry practices.

Read the Reports here:

Volume 3 Report – Part 1

Volume 3 Report – Part 2

Volume 3 Summarized Recommendations

Business Systems Compliance for 2019

Business Systems Compliance Update for 2019 – the DCAA indicated recently a current initiative to significantly increase their audit efforts in 2019 of contractor business systems (accounting, estimating and MMAS).

2018 Reports showed the following data for Business Systems Audits:

  • Accounting Systems: 447
  • MMAS: 7
  • Estimating: 11

2019 Planned Business Systems Audits:

  • Accounting Systems: 995
  • MMAS: 19
  • Estimating: 40

Connect with our experts to learn more about due diligence, self-assessments and gap analyses to ready for these potential audits.

DoD Class Deviation Issued On Use of Fixed-Price Contracts

SUMMARY: Award of cost-reimbursement contracts exceeding $50M now requires the head of contracting activity approval. Further, this threshold decreases to $25M applicable to contracts awarded on or after October 1, 2019. We would expect further guidance on the implementation as related to options, mods, IDIQ TOs / DOs, etc.

SUBJECT: Class Deviation-Use of Fixed-Price Contracts Effective immediately. contracting officers shall first consider the use of fixed-price contracts. including fixed-price incentive contracts. in the determination of contract type and shall not award the following cost-type contracts unless the contract is approved by the head of the contracting activity:

• Cost-reimbursement contracts in excess of $50 million to be awarded after October I. 2018, and before October l, 2019. • Cost-reimbursement contracts in excess of $25 million to be awarded on or after
October l. 2019.

DETAILS: This class deviation implements section 829 of the National Defense Authorization Act for Fiscal Year 2017 (Pub. L. 114-328). which directs establishment of a preference for fixed­price contracts, including fixed-price incentive contracts. in the determination of contract type and establishes the requirement for higher-level approval for certain cost-type contracts. The Under Secretary of Defense for Acquisition and Sustainment has determined that the use of cost-type contracts is approved for research and development valued in excess of $25
million. if the contracting officer executes a written determination that the level of program risk does not permit realistic pricing and it is not possible to provide an equitable and sensible allocation of program risk between the Government and the contractor. 

Read more:


Compliance Roundup – What Government Contractors Should Know – Compliance Updates to be aware of now and through 2018

Various federal agencies during the first half of 2018 have issued final and proposed rules or agency direction related to regulatory compliance requirements associated with U.S. federal government contracts. Specifically, the Department of Defense (DoD), the National Aeronautics and Space Administration (NASA), the General Services Administration (GSA), and the Office of Federal Procurement Policy (OFPP) have all issued specific Agency rules pertaining to performance and compliance under government contracts.

Download your copy of Compliance Roundup below



2018 Government Contract Accounting and Regulatory Update October 17-18, 2018

The Capital Edge Team invites you to the 2 for 1 Registration – 2018 Government Contract Accounting and Regulatory Update October 17-18. Register online and bring a colleague free. Reference promo code 2FOR1ARU2018. 

October 17-18, 2018
The Westin Washington D.C. City Center
Washington, DC
$495 for two registrations!!!!
*Register now and bring a colleague at no charge. Reference promo code 2FOR1ARU2018. 

A professional seminar on government contractor finance management, contracting accounting and audit issue year in review and outlook.

This 1.5-day conference will address the emerging issues related to government contract finance, accounting, compliance, and regulations.  You will have the opportunity to hear from leading financial executives, Defense Contract Audit Agency representatives, Defense Contract Management Agency representatives, practicing attorneys and consultants. Topics will include:

  • Cost, accounting, pricing, estimate audit and regulatory issues
  • Update on Section 809 Panel related to CAS
  • Cybersecurity regulations – current state and how companies address the compliance strategies
  • M&A and due diligence
  • Government contract ERP issues
  • Legal issues and case law updates (CAS, cost allowability, statute of limitation, and more)
  • DCMA review update
  • Third party audits
  • Federal Supply Schedule (GSA Schedule) update
  • DCAA Matters (presented by representatives from DCAA HQ)
  • and much more.

Who Should Attend?
This seminar is intended for professionals from large, medium and small government contractors, financial and consulting organizations, federal agencies and non-profits:

  • CFOs/CEOs/Presidents
  • VPs of Finance, Accounting, Compliance
  • Directors of Finance, Compliance, Business
  • Development, Procurement & Acquisitions
  • Financial Analysts & Accounting Professionals
  • Legal Professionals

The 2018 Government Contract Accounting and Regulatory Update is co-chaired and sponsored by Capital Edge Consulting.

Capital Edge consultants combine their unique backgrounds and experience in consulting, public accounting, industry, and DCAA to provide you with unmatched government contracting expertise. Learn more at


UPDATE -Performance-Based Payments and Progress Payments (DFARS Case 2017-D019)

UPDATE to Proposed Rule by Defense Acquisition Regulations System on 09/10/2018 Performance-Based Payments and Progress Payments DFARS Case 2017-D019

Due in large part to the opposition voiced by Contractors and Industry Associations, the Department of Defense has rescinded the Department of Defense’s (DoD) supplement to the Federal Acquisition Regulation (DFARS) proposed rule that would have brought significant change to the progress payments and performance-based payments process for DoD contractors. As proposed, the new rule would have significantly reduced interim payments from 80 percent of incurred cost to 50 percent.
Earlier this week, Deputy Secretary of Defense Patrick M. Shanahan released a statement that the “proposed amendments to the Defense Federal Acquisition Regulation Supplement (DFARS) were prematurely released, absent full coordination. As a result, the Department will rescind the proposed amendments. In coordination with industry, the Department will create a revised rule to implement section 831 of the FY2017 NDAA.”

The DoD has now committed to work with industry to implement the recommendations contained within Section 831 of the FY2017 National Defense Authorization Act (NDAA) which called for a preference for performance-based payments and imply a desire to move away from progress payments. As stated within the NDAA, Performance-based payments are “not conditioned upon costs incurred in contract performance but on the achievement of performance outcome.” It is clear that a change to progress and performance-based payments is coming, but hopefully ,the DOD can team with Industry to make changes that will work for all parties and avoid the significant impact to cash flow that would have resulted from the original proposed rule.

12 Essentials to a Successful DCMA Contractor Purchasing System Review

12 Essentials to a Successful DCMA Contractor Purchasing System Review
By Stephen ‘Chase’ Kunk, J.D. – Vice President, Contracts & Procurement

Chase Kunk of Capital Edge Consulting has considerable industry and consulting experience in supporting organizations through the CPSR process. His approach to purchasing system compliance has always been “one size does not fit all;” rather, make the public laws and regulatory requirements work for your business model and processes. This practical approach has become the cornerstone of his reputation and yields positive results for contractors.

With the benefit of his experience, he has identified 12 purchasing system essentials that every company must consider as they evaluate their system and prepare for their next CPSR. 

Got your copy of 12 Essentials to a Successful DCMA Contractor Purchasing System Review