Disclosure
The government has options when it comes to audits that have traditionally been performed by DCAA. You might think that completion of an official “Standard Form” 1408 would be limited to government employee. However, the 2018 NDAA language permits contractors to engage independent CPAs to perform audits of contractors’ claimed incurred costs in their proposals to establish final billing rates. The use of independent CPAs to perform audits of a contractor’s accounting system is becoming more prevalent.
As you seen in the CIOSP4, a Request for Proposal (RFP) may provide four options for verifying an adequate accounting system: DCAA audit, DCMA audit, a federal civilian agency audit, or a third-party CPA audit. The first two options demonstrate that the agency was seeking substance in its verification of an adequate accounting system. A DCAA or DCMA audit would be performed according to a standard that would assure the government that the offeror could adequately track and account for its costs under a cost reimbursement contract.
Three caveats on having independent CPA firms perform an adequacy review of your accounting system (or any business system).
First, Independent means that the same CPA firm that does your bookkeeping and/or taxes cannot perform that review. It means that the same CPA firm that “attests” that your accounting system is adequate cannot help you remediate any internal control deficiencies or issues identified during that review. If you decided to engage an independent CPA firm to review your accounting system for adequacy, you must go find a new firm, one that has both the necessary skills and qualifications, and you must pay them to objectively assess the adequacy of the accounting system using the government’s criteria.
Second, the government’s criteria are not entirely objective and they are tiered. The lowest tier is the Standard Form (SF) 1408 criteria. Thus, in a pre-award situation you would want to focus your independent CPA reviewers on the SF 1408 criteria, because it would be a more focused (and less expensive!) audit, and it would be easier on them. That said, if you have the DFARS accounting system clause in your contract, you might want to engage somebody to look at your system using those criteria because you should want to know if there are any concerns or issues before DCAA shows up.
Third, the format of the independent CPA “attestation” report is very important. When DCAA issues a report, it does so using its impressive government letterhead, using a standard format. You should want the report of your independent CPA firm to look similarly official. Letterhead, sections, signature. You get it. The point is that the outside firm is substituting for DCAA, and they need to be as official as possible. That creates some measure of credibility in the eyes of contracting officers who need to find that somebody has found your accounting system to be adequate. If you do not get an official-looking attestation report on letterhead, the value of that outside review decreases dramatically.
In the end, it is important to note that regardless of what your third party CPA says, DCAA or the agency’s contracting officer is the only that can really make the final determination that your accounting system is compliant. You therefore hold us harmless when DCAA or an agency’s contracting agency reached an adverse conclusion your system is not adequate.