Over a year ago DCAA made an abrupt change in how it handles audits by considering even minor deviations from compliance requirements a major deficiency. As a result, it has been recommending a host of negative actions including rejecting the adequacy of accounting systems for government contracting. Initially this was aimed at large DoD businesses. However it is also being applied to small businesses. I personally have witnessed these actions across the country at many small business locations. However, the DCAA application of this radical change in audit guidance has been very inconsistent. It varies by location and even by auditor. I have successfully turned many of these scenarios around for the contractor and to facilitate the award of contracts. But this required lots of work. I have also seen situations where the government procurement personnel have avoided DCAA essentially circumvented this guidance to get past the DCAA audit report, amazing.
The bottom-line is this, if you get one of these auditors that is following this guidance then the smallest deviations in accounting policy or practices, once considered to be immaterial, now render your systems to be inadequate. For a small business this may very well prevent you from securing contracts or a host of other negative consequences. Suggest systems, practices and policies/procedures be closely reviewed and corrective actions be taken immediately.