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TITLE VIII--ACQUISITION POLICY, ACQUISITION MANAGEMENT, AND RELATED MATTERS

Subtitle A—Acquisition Policy and Management.

P. L. 116-

House Conference Report   116-617

(1) by striking ``significant deficiencies'' both places it appears and inserting ``material weaknesses'';

(2) by striking ``significant deficiency'' each place it appears and inserting ``material weakness''; and

(3) by amending subsection (g)(4) to read as follows:

``(4) The term `material weakness' means a deficiency or combination of deficiencies in the internal control over information in contractor business systems, such that there is a reasonable possibility that a material misstatement of such information will not be prevented, or detected and corrected, on a timely basis. For purposes of this paragraph, a reasonable possibility exists when the likelihood of an event occurring--

``(A) is probable; or

``(B) is more than remote but less than likely.''.

The House bill contained a provision (sec. 804) that would replace the term `significant deficiency' and its definition in section 893 of the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law 111-383) with the term `material weakness' and its definition, as established by generally accepted auditing standards.

The Senate amendment contained a similar provision (sec. 845).

The House recedes with an amendment that would further align the definition of `material weakness' used to evaluate contractor business systems with generally accepted auditing standards.

The conferees note that the Section 809 Panel's `Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations' recommended this terminology change after finding the Department of Defense's definition of `significant deficiency' was inconsistent with the two-tiered characterization of internal control deficiencies used in generally accepted auditing standards. The conferees are aware this definitional inconsistency has caused confusion about the seriousness of deficiencies identified in contractor business systems. The conferees believe that implementing the two-tiered
categorization of deficiencies established by generally accepted auditing standards will allow the Department to maintain appropriate oversight over contractor business systems, while taking a more nuanced approach to classifying contractor business system deficiencies according to their severity.

In implementing this provision in the Defense Federal Acquisition Regulation Supplement, the conferees direct the Secretary of Defense to ensure definitions for associated terms are also updated or incorporated as appropriate and in line with generally accepted auditing standards, including: `significant deficiency,' `material misstatement,' and `acceptable contractor business system.'

House Committee Report 116-442 Accompanying H. R. 6395

Section 804--Contractor Business Systems

This section would amend section 893 of the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law 111-383; note 2302 of title 10, United States Code) by replacing ``significant deficiency'' with the term ``material weakness.'' The committee notes that the proposed revised definition will better align review and approval of contractor business systems with generally accepted commercial and government auditing standards.

Senate Committee Report 116-236 to Accompanying S. 4049

Definition of business system deficiencies for contractor business systems (sec. 845)

The committee recommends a provision that would replace the term ``significant deficiency'' and its definition in section 893 of the Ike Skelton National Defense Authorization Act for Fiscal Year 2011 (Public Law 111-383) with the term ``material
weakness'' and its definition, as established by Generally Accepted Auditing Standards.

The committee notes that the Section 809 Panel's ``Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations'' recommended this terminology change to ensure consistency between the National Defense Authorization Act, the Defense Federal Acquisition Regulation Supplement, and Generally Accepted Auditing Standards.

In implementing this change in the Defense Federal Acquisition Regulation Supplement, the Department of Defense should ensure that the definitions for associated terms are also updated or incorporated as appropriate, including: `significant deficiency,'' ``other deficiency,'' ``material noncompliance,'' ``misstatement,'' and ``acceptable contractor business system.''