United States government (USG) business system audit initiatives

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The defense contract audit agency (DCAA) business system audits

The DCAA is investigating ways to conduct business system audits more efficiently. DCAA highlighted two initiatives to achieve this goal:

  1. DCAA is asking contractors to submit working papers from the Sarbanes-Oxley testing performed as part of its financial statement audit and other internal accounting system audits. 
  2. DCAA is conducting a joint business system audit with Textron Corporation that utilizes both DCAA and contractor staff to perform fieldwork.

The knowledge gained through the joint audit initiative will likely help DCAA expand this practice with other willing contractors.

How will it impact your company?

DCAA published its annual report to Congress regarding activities in Fiscal Year (FY) 2016. The report identifies DCAA’s business system initiative and states, “in recent years, DCAA has focused its limited resources primarily on high-risk forward pricing and incurred cost audits, and, as a result, we performed few business system audits”1. In FYs 2015-2016 DCAA began an initiative for auditing high-risk MMAS and Estimating Systems. In FY 2016, DCAA conducted twenty-one of these audits and issued a total of six reports.

defense contract audit agency, dcaa, investigations

What are the benefits and risks?

We anticipate DCAA will likely look to expand the pilot program by including other contractors with varying US Government (USG) contract portfolios. Contractors should assess their willingness to participate in the pilot program based on the risks and benefits associated and notify DCAA if they are interested in participating.

Benefits

  • Ability to tailor standard audit procedures and methodology
  • Contractor personnel may be better able to identify compensating controls
  • Increase understanding of potential deficiencies
  • Ability to implement real time corrective actions
  • Decrease time period of payment withholds
  • Reduce audit redundancy
  • Streamline internal audit procedures with DCAA audit procedures

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Risks

  • Contractors may not be able to demonstrate independence throughout the audit lifecycle
  • Opportunity cost of having internal resources dedicated to audits and/or having to hire additional resources
  • Participating in the pilot may require the contractor to disclose deficiencies before they otherwise would
  • Potential inability to determine credible evidence prior to sharing an issue
  • A favorable outcome is not guaranteed

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Four things to know from PwC Forensic Services


Renewed focus on business system audits may reshape contractors ability to participate in audits.

Contractors should conduct a risk assessment to determine their level of participation.

Joint audit participation can lead to quicker deficiency identification and shorter periods of withholds. 

PwC’s experience participating in these reviews can aid your organization’s risk assessment. 

How PwC can help

Our Government Contracts professionals have participated in the joint audit approach. Our experience in this effort allows us to demonstrate a level of independence that has been accepted by DCAA. We are capable of directly participating in the joint audit approach and/or training internal resources to help improve contractors economic return on their participation in the joint audit approach. 

Our team will help contractors perform an internal risk assessment to determine if participation in the joint audit pilot program is the best use of internal resources and mitigates risk to an acceptable level to the contractor.

Contact us

John M. May

John M. May

Partner, PwC US

Philip Koos

Philip Koos

Partner, PwC US

Suzanne Roske

Suzanne Roske

Partner, PwC US

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