Emphasizes Flash Reports and Institutes Limited Scope Internal Control Audits

On the same day the above guidance was issued, DCAA issued another set of guidelines on what auditors should do if they identify internal control deficiencies during one of their non-system audits (e.g. forward pricing proposals, incurred cost submittals). The auditors are told to (1) issue a flash report addressing potential deficiencies within seven days if they do not receive comments from the contractor (a long established though not often followed guideline) and (2) establish a limited scope audit assignment to review the cited internal control weakness and all other “related” internal controls, preferably within 30 days after the condition is identified. If the limited scope audit determines that internal controls are not adequate, the auditor is to issue a report stating the relevant system is inadequate and recommend the CO disapprove of the system and suspend progress payments or reimbursement of costs. The guidance states it is applicable “generally” to major contractors, a term that often is later extended to non-majors if significant “risk” is identified (80-PAS-04(R)).

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