Major Changes at DCAA May Risk Your Company’s Survival – Are You Prepared?

In mid-2008, GAO issued an audit report accusing DCAA of a lack of independence, being too close to the contractors they audit and not adhering to accepted standards in their reports.
(GAO-08-857) Their response to that report was to change the grading scale for audit reports. The old scale provided for degrees of compliance and non-compliance. The new scale is “pass/fail.” And failure carries a death sentence.

This is the most extreme position DCAA has taken in twenty years. It is not only polarizing, it WILL result in contractor failures and bankruptcies. Contractors that have cost accounting and internal control systems that DCAA understands and trusts will be probably be OK. Those with systems built on generic software tools with extensive workarounds are at risk - serious risk. And some of them won’t survive.

The change in DCAA audit policy (they refer to it as “audit guidance”) was distributed in the form of a memorandum from the Director of the Agency to all Regional Directors and Field Detachments dated December 19th, 2008. (08-PAS-043) The memo makes three major changes in policy with respect to audit reports issued by the Agency on contractors’ internal control systems:

1. The memo states that DCAA will no longer report “inadequate in part” opinions.
2. It forbids auditors to make suggestions for improvement in the contractor’s system in audit reports.
3. And, finally, when a system is found to be deficient, the auditor is required to recommend to the contracting officer that payments be suspended on affected contracts. Therein lies the death sentence. In today’s credit environment, few contractors could survive even a short suspension of payments.

Be Prepared – And Survive the Changes

Deltek GCS Premier and Costpoint are purpose-built for the Government contracting environment. While it’s true that an accounting system is much more than just software tools, only purpose-built solutions like GCS Premier and Costpoint provide the functionality to enable, support and enforce the internal controls a Government contractor requires. More than 2,500 Government contractors trust their internal control environments to a Deltek software solution including 92 of the top 100. That literally means that DCAA auditors see and audit the internal control environments of Deltek’s GovCon clients more often than those of all other software companies combined. They understand how Deltek solutions implement internal controls. They trust those environments and Deltek clients approach their audits with confidence as a result.

Are you willing to bet your company’s survival on the results of your next audit? Don’t wait for a weakness to surface in your organizational workarounds and manual processes that supplement your generic accounting system.

Does your enterprise management solution safeguard your organization against DCAA Audit Risk? Deltek has the solution.