History of the Business Systems Rule

Government audits of processes and various “systems” have been around for a long time.  However, standard regulatory guidance was not categorized as they are now, known as the 6 “Business Systems”:  1. Accounting, 2. Estimating, 3. Purchasing, 4. Property Management, 5. Material Management & Accounting, and 6. Earned Value Management.  Here’s a short history about how this collection of criteria came to fruition.

The catalyst:

During the war in Iraq and Afghanistan, audits revealed many instances of mismanagement, waste, abuse and fraud.  

Investigation:

As part of the National Defense Authorization Act, the Commission on Wartime Contracting (CWC 2008-2011) was set up.  This was an independent, bipartisan, legislative commission consisting of 8 members.  Its purpose was to study wartime contracting in Iraq & Afghanistan.

Results:

On September 21, 2009, Special Report 1 was issued, stating: “Defense agencies must improve their oversight of contractor business systems to reduce waste, fraud and abuse.” “(the) Department of Defense (DoD) needs to ensure that the government speaks with one voice to contractors.”  The following findings were cited:

• Unreliable data from business systems produced billions of dollars in contingency-contract costs that government auditors often could not verify. 

• The government’s ability to detect contract cost errors and material misstatements was seriously impeded by contractors’ inadequate internal controls over their business systems. 

• The two primary government agencies involved, the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA), were not effectively working together to protect government interests.

Solution:

The commission decided there needed to be a set (or sets) of standard requirements to which the government agencies could measure contractors’ compliance.

To a work in progress…

Developing what is now required for business system compliance, took 4 years from concept to completion and the final publication in the Federal Register and FAR.

deClermont Consulting can help develop, evaluate or establish monitoring of  your Business Systems.