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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:

 

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.

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