Recent DCAA Guidance (MRD) Part 2: New DCAA Audit Guidance on the Business Systems Rule

On March 28, 2012 the Defense Contract Audit Agency (DCAA) issued Memorandum for Regional Directors (MRD) related to revising audit guidance based on the finalized DFARS Business Systems Rule (MRD 12-PPS-009(R)).  This blog post is the second in a three-part weekly series discussing these MRDs. Check back next week for part three.

The final Business Systems Rule was issued on February 24, 2012 and applies to contractors and solicitations covered by the Cost Accounting Standards (CAS). This MRD issues revised guidance for the DCAA audits of contractors’ Accounting, Estimating, and Material Management and Accounting Systems (MMAS). (Note: the Earned Value Management, Purchasing, and Property Management Systems are under the purview of the Defense Contract Management Agency (DCMA)).

DCAA will conduct its audits in accordance with the DFARS criteria established by the Business Systems Rule, with either a clean opinion or a deficiency report being issued. Previously, the DCAA performed internal control audits (ICAPS); however, the procedures from those audits have now been consolidated as follows:

Accounting System

• Labor Accounting System (activity code 13010)
• Indirect and Other Cost System (14980)
• Billing (11010)
• Control Environment (11060)
• Information Technology General System Control (11510)

Estimating System

• Budget and Planning System Internal Controls (11020)

MMAS

• MMAS ICAPS to be updated in the future (12500)

The revised guidance does not appear to change the audit programs. What the new guidance does is focus the existing audit programs on the business systems they pertain to. The DCAA will opine on the criteria to be compliant with the Business Systems Rule, but the determination of whether significant deficiencies exist, and any penalties to be levied, remains with the contracting officer.

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