MRD 08-PAS-043(R) - Audit Guidance on Significant Deficiencies Material Weaknesses and Audit Opinions

DEFENSE CONTRACT AUDIT AGENCY DEPARTMENT OF DEFENSE8725 JOHN J. KINGMAN ROAD, SUITE 2135 FORT BELVOIR, VA 22060-6219 IN REPLY REFER TO PAS 730.3.B.2.4 December 19, 2008 08-PAS-043(R) MEMORANDUM FOR REGIONAL DIRECTORS, DCAA DIRECTOR, FIELD DETACHMENT, DCAA HEADS OF PRINCIPAL STAFF ELEMENTS SUBJECT: Audit Guidance on Significant Deficiencies/Material Weaknesses and Audit Opinions on Internal Control Systems Summary This guidance clarifies what constitutes a significant deficiency/material weakness and establishes new guidance on reporting audit opinions on contractors’ internal control systems. Effective immediately, audit reports on contractors’ internal controls that report any significant deficiencies/material weaknesses will include an opinion that the system is inadequate. DCAA will no longer report inadequate in part opinions. In addition, the audit report will identify the portions of the system affected by the deficiencies and recommend that the contracting officer disapprove the system (if applicable) and pursue suspension of a percentage of progress payments or reimbursement of costs. (APPS audit report shells have been revised to reflect the appropriate recommendation depending on the system involved and should be used for any in-process assignments.) Further, suggestions to improve the system will no longer be reported in internal control audit reports. This guidance has been communicated to DCMA Headquarters. ...