DCAA to get tougher (again) and may become more influential.

Many of us recall the memo issued last December by the DCAA director instructing auditors to only issue "pass or fail" criteria as a result of the audit (Reference our blog titled: "DCAA 2008 year End Guidance - Happy Holidays, Government Contractors").  We have seen the results of this memo in "tougher" audits from the DCAA this year and many contractors feeling pain that they have not felt before.  Now, for the second time, investigators at the Government Accountability Office (GAO) have found widespread deficiencies in DCAA audits.  The current rumor is that there will be a further tightening of audit standards by the DCAA as a result.  This will not only increase the amount of "pain" that contractors feel but it will have other impacts as well.  There is speculation that this will increase the time spent by auditors during an audit.  Previously a typical DCAA audit might have been half a day but now the audit may stretch into multiple days with much more supporting documentation required.  With auditors taking more time it will only stand to reason that they will uncover more deficiencies and there will be more failed audits.  There will be a premium placed on making your accounting system compliant, reliable, documented, traceable, repeatable and accurate.  In addition, this will put more pressure on the DCAA.  Already overloaded with work, increasing the amount of time spent on each audit will not only increase the lead time for each audit, it will increase the chances of the contractor making mistakes today that will be uncovered later that could require significant adjustment.  The DCAA will have to hire more auditors but that takes time and training them takes time as well.  In the meantime, contractors will suffer.  There is also feelings in the GAO that the DCAA is important enough that the agency may become independent from the Department of Defense in the future.  If that happens, the agency will gain power within the government and most certainly act more independently.  This will further put pressure on the small government contractor.  The bottom line is this.  The government wants to increase the amount of purchases it makes from Small Business.  At the same time, it is becoming more complicated for Small Business to know how to operate an accounting system to meet the requirements.  Small Business will need to rely on independent consultants to help them with these systems or they will be faced with the reality of not being able to complete their government contacts and get paid accurately and on time.