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.