Proposed DFARS Business Systems Compliance Rule – Dead on Arrival

The proposed DFARS Business Systems Compliance Rule DFARS Case 2012-D042 has been closed. It’s an interim rule that never made it to final. Surprised? Read on!

The July 22, 2014 ruling was conceived in response to a Government Accountability Office Report (GAO-12-83) issued November 3, 2011, which recommended “the Secretary of Defense work with DCMA and DCAA to identify and execute options, such as hiring external auditors, to assist in conducting audits of contractor business systems as an interim step until DCAA can build its workforce enough to fulfill this responsibility.” Due to this sentence above, a 14-page Notice of Proposed Rule Making emerged on July 15, 2014 to amend the original DFARS ruling to require certain contractors (rather than the DoD) to hire independent CPAs to perform triennial business system audits.

The proposed rule corrected on July 22, 2014, faced a public meeting on August 18, 2014, and public comments ended September 15, 2011. The public commentary pointed out that the modest recommendation had become inflated to include, among other things:

• Strict DCAA oversight of the independent CPA audit process;
• DCAA access to records to which the agency had not previously had access, potentially including privileged records;
• Requirement that contractors, rather than the DoD, had to procure and pay for the audits and the potential that subsequent DCAA review of the audits could result in the cost of the audits being deemed unreasonable;
• Imposition of standards on the independent CPAs that were in direct violation of existing professional standards; and
• Timing requirements that exacerbated, rather than relieved, the Government’s workload.

Finally, on February 4, 2015, the beast that had grown out of that simple GAO Report recommendation was put to bed, and without fanfare, the case was closed without further action.

Contact CohnReznick if you want more information and guidance on Business Systems in general. We welcome the conversation with you.

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