Apathy and the Business Systems Rule

DOD proposed a major change to the Business Systems Rule (and GovCon compliance in general) and it has received very little industry attention. A proposed change to the Defense FAR supplement published in the Federal Register on July 15th would make some government contractors responsible for audits of their own accounting, estimating and material management accounting systems, including engaging and paying a CPA firm to perform the audits.

Click here to read the proposed changes to the rule.

When the original Business Systems Rule was first published in 2011 as a notice of proposed rule-making, there were thousands of comments from industry, advocacy groups and individuals. When the comment period ended for this latest proposed change to the rule in July, the tally stood at 23.

The proposed changes will require contractors to self-assess and report the status of their own systems and also to engage (and pay) a CPA firm to audit their systems. An examination of DCAA’s work plan for Fiscal 2015 reveals they are counting on this change to relieve them of the burden of those audits. Of course, the proposed rule change applies only to contractors subject to the Cost Accounting Standards (CAS). These contractors seem resigned to paying for their own audits. They may even be relieved in the face of a backlog of system assessments.

The problem resides with contractors who are not subject to CAS. The absence of any audits by DCAA at all for these companies could mean that ONLY contractors subject to CAS will have approved accounting systems. Because these companies were not addressed in the proposed language, they potentially will have no mechanism for getting their systems examined or approved unless they hire their own CPA firm as well.

This would be fine if it were not for one thing.

When only large businesses have approved accounting systems, any solicitation with a provision in it requiring an approved accounting system to bid will effectively become a “large business set-aside.” We are seeing more and more of those and GAO has denied every single protest of that requirement.

And, what about the companies in the no-man’s land between small business and CAS-covered? They can’t participate in the small business set-asides and, without an approved system, won’t be able to play in the new “large business set-asides” either!

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