What should you know about the Section 809 Panel Volume 3 Report?

On Jan. 15, 2019, the Section 809 Panel announced the release of its Volume 3 Report, the third and final set of recommendations to Congress for streamlining DoD acquisition. The report recommendations are designed to simplify the U.S. Department of Defense's (DoD's) buying practices and improve the speed and efficiency with which the government accesses the commercial market.

For more than two years, Baker Tilly worked closely with the Panel, most recently participating in a Panel working group that included talented representatives from DCAA, DCMA, GAO, AICPA and industry.  This working group collaborated to develop the audit and compliance recommendations included in the Volume 3 Report. Below is a brief overview:

Ground-breaking auditing guide

The Volume 3 Report contains a ground-breaking new guide that provides information on how to interpret and apply specific auditing concepts to audits of government contract costs and compliance-related internal controls. Until now, these topics have lacked clarity and consistent application. This guide will assist government auditors, private sector auditors, contracting officers, contractors and other stakeholders better understand the contract auditing process.

• Chapter 1 of the guide recognizes that a more robust risk assessment process will allow DoD to deploy its limited resources more effectively when auditing costs incurred by contractors on flexibly-priced defense contracts. This chapter implicitly acknowledges that (1) DCAA is an important element of DoD’s system of acquisition internal controls, (2) DCAA does not have sufficient resources to audit every DoD contractor, and (3) adding additional oversight resources would likely produce diminishing returns relative to the increased cost. The risk assessment process also incentivizes larger contractors to achieve or maintain compliant cost accounting and effective accounting system internal controls, so that they can reduce their assessed risk profile and thus, audit frequency.
• Chapter 2 recognizes that DoD can deploy its resources more efficiently, without harming effectiveness, by having a common understanding of materiality. This Engagement Materiality Framework sets forth clear materiality guidelines that help auditors plan their work and provide information contracting officers need to manage DoD’s risk, rather than avoid it. The cost of DoD’s oversight, including adverse effects on the timeliness of decision making, must be balanced with expected benefits of that oversight.