The House Armed Services Committee (HASC) Panel on Defense Acquisition Reform published its final report recently. The final report was not much different from the interim report we told you about. As it concerned DCAA, the HASC Panel recommended that “The Department [of Defense] should consider shifting the responsibility for certification of contractor business systems to independent teams within or outside of DCAA and DCAA should allocate its audit resources on the basis of risk.”
It should not be a surprise that recently introduced legislation puts forward some of the HASC Panel’s recommendations. It should not be a surprise, but it is—mostly because there have been so many panels and commissions throughout the years, with so many recommendations, that have not made it into legislation. Yet H.R. 5013 – the proposed “Implementing Management for Performance and Related Reforms to Obtain Value in Every Acquisition Act of 2010,” does in fact address many (if not all) of the Panel’s recommendations.
More to our interests, H.R. 5013 proposes to amend Title 10 of the United States Code at § 131 as follows—
Sec. 2222a. Criteria for business system reviews
(a) Criteria for Business System Reviews- The Secretary of Defense shall ensure that any contractor business system review carried out by a military department, a Defense Agency, or a Department of Defense Field Activity--
(1) complies with generally accepted government auditing standards issued by the Comptroller General;
(2) is performed by an audit team that does not engage in any other official activity (audit-related or otherwise) involving the contractor concerned;
(3) is performed in a time and manner consistent with a documented assessment of the risk to the Federal Government; and
(4) involves testing on a representative sample of transactions sufficient to fully examine the integrity of the contractor business system concerned.
(b) Contractor Business System Review Defined- In this section, the term `contractor business system review' means an audit of policies, procedures, and internal controls relating to accounting and management systems of a contractor.'.
(c) Contract Audit Guidance- Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall issue guidance relating to contract audits carried out by a military department, a defense agency, or a Department of Defense field activity that are not contractor business system reviews, as described under section 2222a of title 10, United States Code, that--
(1) requires that such audits comply with generally accepted government auditing standards issued by the Comptroller General and are performed in a time and manner consistent with a documented assessment of risk to the Federal Government;
(2) establishes guidelines for discussions of the scope of the audit with the contractor concerned that ensure that such scope is not improperly influenced by the contractor;
(3) provides for withholding of contract payments when necessary to compel the submission of documentation from the contractor; and
(4) requires that the results of contract audits performed on behalf of an agency of the Department of Defense be shared with other Federal agencies upon request, without reimbursement.
We have, in the past, occasionally complained (or whined?) about PWACs—Persons Without A Clue—who propose legislation or regulation without thinking through the consequences. Looking over H.R. 5012, there is much to applaud. However, with respect to the provision noted above, we are less sanguine. Our objections to the proposed legislation are as follows—
- The DAR Council is already in the midst of the rulemaking process regarding audit and administration of contractor “business systems.” We’ve weighed-in on the proposed rule, ourselves. If this legislation goes forward as-is, then the FAR Councils will need to revise the rulemaking they’ve already done, and make substantive changes to the regulations. This will create confusion in the contracting community, not to mention being wasteful of government resources.
- As we told Mr. Fitzgerald (Director, DCAA) back in January of 2010, not all DCAA audits need to be subject to generally accepted government auditing standards (GAGAS). In particular, audits of contractor internal control systems seem like very good candidates for not being subject to such standards. In general, we oppose Congress telling DCAA which audits should (or should not) be subject to GAGAS. Back off, Legislators!
- Moreover, legislating a requirement that DCAA should perform sufficient transaction sample testing to support its opinion seems both asinine and redundant. As if any of the Congress members could tell a sufficient sample size from an insufficient one!
- We do like making DCAA perform its audits timely, and we even support control system reviews being performed by trained, specialized staff. (After all, the DCMA purchasing system reviewers are trained, specialized staff.) However, we wonder whether DCAA actually can implement the legislative mandate, given its current lack of resources and management acumen.
It would seem to make sense to allow DCAA time to get its house in order, to keep well-intentioned outsiders from meddling in things of which they have little or any first-hand knowledge. Unfortunately, it has been suggested that DCAA’s reform efforts are merely window-dressing, and that the audit agency is resistant to meaningful reform. Perhaps Mr. Fitzgerald has had sufficient time to clean house, and it is now appropriate to “help” him along?
We are not sure this is the right time to “help” DCAA fix itself. We are not sure these are the right fixes. We are not sure Congress is the right “home” for the fixes. And we’re not sure that DCAA reform efforts should be undertaken without the input of the contractors who work hand-in-hand with DCAA auditors, and feel the effects of changes to DCAA audit guidance, every single day.
H.R. 5013 makes us nervous ….
UPDATE: In a shocking display of bipartisanship, the House passed H.R. 5013 on April 28, 2010, 417 to 3.
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