The DFARS business system rule is in full swing for 2012, clause DFARS 252.242-7005 is now included on all CAS covered contracts. The rule was written to cover the following business systems:
- Earned Value Management
- Material Management and Accounting
- Property Management
This clause dictates withholds of 5% if there is a significant deficiency in a business system. The 5% is per system and a maximum of 10%. Therefore if a contractor has deficiencies in the accounting and purchasing the withhold is 10%, if they also receive a deficiency in the Estimating system the withhold on the 3 systems would remain at 10%. Withholds can be reduced based on a corrective action plan and removed upon correction and review of the deficiency(s).
If you are a small business, you are exempt from the rule by default because you are exempt from CAS. You can now breathe a small sigh of relief, there will be no withholding BUT your organization is not exempt from the standards set in the clause. We are entering a new world of compliance.
This blog is not really a discussion of the rule itself, but how to prepare for the rule. I am not going to argue the cost, the benefit, or the “gaps” in the rule. I just want to provide a quick priority list on how I would approach preparing so that my cash flow in 2012 is not “cramped:”
- Read the rule, understand the rule, know the rule
- Detect which contracts contain DFARS clause 252.242-7005
- Identify which business systems are required for performance on the contracts subject to DFARS 252.242-7005
Once the magnitude of the rule within your organization has been identified, next categorize:
- Systems reviewed and deemed inadequate, HIGHEST PRIORITY
- Systems that have not been reviewed and are required, next priority
- Systems reviewed and deemed adequate within the last three years, lower in priority but still up for grabs if you receive another review
Next, prepare for a review. Either engage an independent review of the business system or engage your own team to review the relevant business system. This serves two purposes, first to identify any deficiency and correct before a DCAA review and next to prepare for a DCAA review.
For questions, concerns or comments contact Nicole Mitchell, CPA MBA at (301)222-8231 or email@example.com.
About the author: Nicole Mitchell, CPA, is a Partner in Aronson LLC’s Government Contract Services Group, where she provides consulting and accounting services to government contractors, including financial regulatory compliance, contract pricing, and complex cost accounting structures.
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