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Taking Care of Business (Systems): DoD Proposes to Change the Definition of a Business System Deficiency

Client Alert | 1 min read | 06.28.24

The Department of Defense (DoD) recently announced that it seeks public comments on a proposed change to the contractor business systems regime.  The proposed rule would amend the Defense Federal Acquisition Regulation Supplement (DFARS) by replacing the phrase “significant deficiency” with the new defined term “material weakness,” to mean “a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis.”  In addition, the term would provide that a “reasonable possibility exists when the likelihood of an event occurring is— (1) Probable; or (2) More than remote but less than likely.” 

Comments are due no later than August 26, 2024.  The full text of the notice is available here. 

The National Defense Authorization Act (NDAA) for Fiscal Year (FY) 2011 requires that the DFARS business systems clauses implement criteria for contractors’ accounting, cost estimating, material management & accounting, earned value management, purchasing, and property management systems.  The clauses allow the government to temporarily withhold payment on a covered contract if a significant deficiency in a business system is identified.  Currently, the DFARS contractor business systems clauses define “significant deficiency” as “a shortcoming in the system that materially affects the ability of officials of the [DoD] to rely upon information produced by the system that is needed for management purposes.”  

Over the past few years, DoD has increased its focus on reviews of contractor business systems, leading to an uptick in findings of significant deficiencies.  Indeed, DCAA’s FY 2023 Report to Congress identified business systems reviews as one of DCAA’s top three priorities.  The proposed rule change, required by the FY 2021 NDAA, purports to create consistency with generally accepted auditing standards and reduce DoD and contractor confusion about the seriousness of deficiencies. 

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Client Alert | 1 min read | 07.08.26

CAS Board Publishes Final Rule Rescinding CAS 404, 408, 409, and 4117

As part of its ongoing effort to conform the Cost Accounting Standards (“CAS”) to generally accepted accounting principles (“GAAP”), the CAS Board published a final rule rescinding CAS 408 (Accounting for costs of compensated personal absence) and CAS 411 (Accounting for acquisition costs of material).  The CAS Board also rescinded CAS 404 (Capitalization of tangible assets) and CAS 409 (Depreciation of tangible capital assets) but retained certain requirements of CAS 404 and 409, which will be located in new paragraphs of CAS 405 (Accounting for unallowable costs).  Specifically, the CAS Board retained the requirements currently located at CAS 404-50(d)(1), CAS 409-50(e)(5), CAS 409-50(j)(1), and CAS 409-50(j)(4), which the CAS Board explained are necessary to protect the Government’s interests.  Otherwise, the CAS Board determined that the requirements of CAS 404, 408, 409, and 411 overlapped with GAAP such that GAAP “may be applied reasonably as a substitute for CAS to support contract cost and pricing.”...

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