Audit Of Policies, Procedures, And Internal Controls CAM 5 Chapter 05 Accounting Management Systems

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Chapter 5
Audit of Policies, Procedures, and Internal Controls
Relative to Accounting and Management Systems
Chapter 5 is currently being rewritten. The Defense Federal Acquisition Regulations
(DFARS) was updated, and established a Contractor Business System clause at
DFARS 252.242-7005. This clause defines contractor business systems as the
Accounting System, Estimating System, Purchasing System, Earned Value
Management System (EVMS), Material Management and Accounting System (MMAS),
and Property Management System. DCAA is responsible for audits of the contractor’s
Accounting System, Estimating System, and MMAS. DCMA is responsible for oversight
of the EVMS, Purchasing System, and Property System.
The business system audit programs for the MMAS and Estimating System have been
updated for the DFARS changes and are available on the intranet. The accounting
system audit program is currently being piloted by the Headquarters Business System
Team, and will be made available on the intranet upon completion of the pilot.
If during the course of other audit work, an audit team identifies a significant deficiency
pertaining to any business system (including those DCMA has responsibility for), they
should prepare a deficiency report.
The guidance pertaining to Preaward Surveys of Prospective Contractor Accounting
Systems Surveys was not impacted by the DFARS change, so that guidance is still
included below for reference (5-200) until the Chapter rewrite is complete.
If your office is performing a business system audit, or if you have any questions
regarding business system audits, please contact PAS at DCAA-PAS@dcaa.mil.

5-200 Section 2 - Preaward Surveys of Prospective Contractor Accounting
Systems s **
5-201 Introduction **
This section provides guidance for performing preaward surveys of prospective
contractor accounting systems. The audit programs and report “shell” for the preaward
survey of a prospective contractor accounting system is available on the Agency
Intranet and in the APPS.
5-202 Preaward Survey of a Prospective Contractor’s Accounting System **
a. A preaward survey of a prospective contractor’s accounting system is an

examination of the accounting system at either a large or small contractor before
contract award. The audit is performed at the request of a contracting officer to
determine the acceptability of a contractor's accounting system for accumulating costs
under a prospective Government contract. It is usually requested as part of an overall
preaward survey of a contractor conducted by a contract administration office under
FAR 9.106 or DFARS 209.106 or PGI 209.106. The audit scope should be limited to
obtaining an understanding of the design of the prospective accounting system so as to
appropriately complete Standard Form 1408, "Preaward Survey of Prospective
Contractor Accounting System" (see FAR 53.301-1408) and those procedures essential
to reach an informed opinion on whether or not the design of the prospective
contractor’s accounting system is acceptable for accumulating costs under a
Government contract. It is not necessary to conduct an in-depth evaluation of the
operational effectiveness of the accounting system.
b. When performing the preaward survey of a prospective contractor’s accounting
system, the auditor will determine the acceptability of the design of the contractor’s
system and determine if the system is:
(1) in operation, or
(2) set up, but not in operation,
The SF 1408 also discusses accounting systems which are either anticipated or
nonexistent. It is not possible to perform an examination level engagement under those
circumstances since procedures would most likely be limited to inquiry alone. If
requested to perform an audit for an accounting system that is either anticipated or
nonexistent, the auditor or supervisory auditor should notify the requestor that we are
unable to provide an audit report or SF 1408, but will be available to do so once the
system is set up or in operation.
c. If a prior preaward survey of a prospective contractor’s accounting system has
been performed and is relatively current, it should be provided to the requestor. If the
prior preaward survey is not current, perform an examination of sufficient scope and
depth to evaluate the acceptability of the design of the contractor's accounting system
for accumulating costs under a Government contract. If a recent preaward audit
disclosed deficiencies that are considered material weaknesses, a follow-up audit can
be performed to evaluate corrective actions taken provided the original audit was
completed in the last 12 months and there have been no significant revisions to the
design of the accounting system. The scope of the follow-up audit is limited to verifying
there have been no significant revisions to the design of the system (other than those
required as corrective action to cited deficiencies) and whether the corrective action
adequately addresses the deficiencies. If the follow-up discloses no significant
revisions to the system design and that the contractor corrected the deficiencies, the
report should indicate that the contractor has effectively implemented corrective action
and the accounting system is suitably designed, in all material respects, for award of a
prospective contract in accordance with the criteria contained in FAR 53.209-1(f). A
proforma version of the preaward accounting system follow-up report is available as

other audit guidance.
d. If requested to perform a preaward accounting system audit on a contractor that
has an active Government contract, the auditor should check the files to determine if
prior work has been performed that will provide the contracting officer the information
necessary to fill in the SF 1408 without the completion of the preaward audit (e.g., if a
prior preaward or post contract award accounting system audit has been performed). If
prior information does exist, contact the contracting officer to determine if the prior
report will meet their needs. Additionally, if there are known system deficiencies or
voucher processing problems, this information should be provided to the contracting
officer as well. Auditors should not issue an opinion stating the design is acceptable for
award when there are known deficiencies in the operating effectiveness. If no
information is on file, the auditor should proceed with performing the preaward as
requested.
e. A customer request for a preaward survey of a prospective contractor’s
accounting system should be started as soon as practicable. An untimely response to
such a request could delay the award of a contract. Acknowledge the request in
accordance with CAM 4-104.
f. If the contracting officer also requires an assessment of the company’s financial
condition during the preaward survey of the prospective contractor’s accounting system,
refer the requestor to DCMA (see CAM 14-302). However, in all audit situations,
auditors should be alert to conditions which may indicate unfavorable or adverse
financial conditions or other circumstances which could impede a contractor’s ability to
perform on Government contracts.
5-204 Audit Reports **
Audit reports should be responsive to the specific needs identified by the audit
request and in discussions, if any, with the requestor. The report “shell” is available on
the DCAA Intranet and in the APPS. The preaward survey report provides an opinion
on whether the accounting system design is compliant with the criteria contained in FAR
53.209-1(f), Standard Form 1408 (SF 1408), is not compliant with the criteria contained
in the SF 1408, or compliant with a recommendation that a follow-on accounting system
audit be performed after contract award. The audit report should be appropriately
tailored to the specific circumstances of the audit. Audit reports should also provide
sufficient information (e.g., SF 1408 for the preaward) to support audit conclusions.
Refer to CAM 10-211.2c for guidance in presenting the Statement of Conditions and
Recommendations, if applicable.



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