F i v e C A S S t a n d a r d s E v e r y G o v e r n m e n t C o n t r a c t o r S h o u l d K n o w a n d F o l l o w

Transcription

1 F i v e C A S S t a n d a r d s E v e r y G o v e r n m e n t C o n t r a c t o r S h o u l d K n o w a n d F o l l o w December 17, 2015 Presented by: Darrell Hineman, CPA CFE Director Long Nguyen, CFE Manager

2 OBJECTIVES Understand the History of CAS Five Cost Accounting Standard (CAS) that Impact your Business To Introduce Key Concepts Used by the CAS Board to Promulgate the CAS Standards and Rules. Identifying Key Definitions 1

3 FIVE COST ACCOUNTING STANDARDS EVERY GOVERNMENT CONTRACTOR SHOULD KNOW CAS 401 Consistency in Estimating, Accumulating, and Reporting Costs CAS 402 Consistency in Allocating Cost Incurred for the Same Purpose CAS 405 Accounting for Unallowable Costs CAS 418 Allocating of Direct and Indirect Costs CAS 410 Allocation of G&A Expenses 2

4 FIVE COST ACCOUNTING STANDARDS EVERY GOVERNMENT CONTRACTOR SHOULD KNOW (and the other standards) Basic CAS concepts: CAS 401 Consistency in Estimating, Accumulating, and Reporting Costs CAS 402 Consistency in Allocating Cost Incurred for the Same Purpose CAS 405 Accounting for Unallowable Costs Allocation of Costs: CAS 418 Allocating of Direct and Indirect Costs CAS 410 Allocation of G&A Expenses Basic CAS Concepts: CAS 406 Cost accounting period Allocation of Costs: CAS 403 Allocation of home office expenses to segments CAS 420 Accounting for IR&D/B&P costs Compensation: CAS 408 Compensated personal absence CAS 412 Composition and measurement of pension costs CAS 413 Adjustment and allocation of pension costs CAS 415 Deferred compensation Assets: CAS 404 Capitalization of tangible capital assets CAS 409 Depreciation of tangible capital assets CAS 414 Cost of money as an element of the cost of facilities capital CAS 417 Cost of money as an element of the cost of capital under construction Other Standards: CAS 407 Use of standard costs CAS 411 Accounting for material costs CAS 416 Accounting for insurance costs 3

5 COST ACCOUNTING STANDARDS HISTORY Originally established to address concerns involving defense contractor cost estimating, accumulating and reporting under negotiated government contracts (and subcontracts), the Cost Accounting Standards (CAS) can now apply to civilian agency contracts and also extend to certain colleges and universities The most recent update to CAS requirements went into effect as of December 22, 2011 There are two levels of CAS coverage: full coverage and modified coverage 4

6 KEY CAS CONCEPTS To promote: UNIFORMITY and CONSISTENCY To establish: COST ALLOCATIONS 5

7 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) The purpose of this Cost Accounting Standard is to ensure that each contractor's practices used in estimating costs for a proposal are consistent with cost accounting practices used by him in accumulating and reporting costs. Accumulating & Reporting Comparability Estimating Estimate = Book = Bill 6

8 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) Ultimately CASB believes that consistent application of cost accounting practices [i.e. accounting, billing, treatment, measurement, assignment, etc. ] will facilitate the preparation of: Reliable Cost Estimates (Better Proposals) Improve visibility into Contractor s Estimating Capabilities (Estimating System s Reliability) 7

9 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) May accumulate and report in greater detail than estimate May NOT estimate in greater detail than accumulation and reporting Hinges Wood Brackets 45% Direct Materials 8

10 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) If you re awarded the contract, you have to be able to compare the actual costs incurred to the estimate! All Significant Costs Presentation (Proposal) Details If you are not presenting your cost in a manner that it can be compared, your practices are in noncompliance with the standard. 9

11 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) Question: Is your estimating practice deemed to be consistent with your cost accounting practices? Yes or No Real Question: To what degree/level is your estimating practices consistent with your cost accounting practices? 10

12 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) Consistency between proposal and how the costs are accumulated and reported in the accounting books and records: 1. The classification of elements or functions of cost as direct or indirect (CAS 418); 2. The indirect cost pools to which each element or function of cost is charged (i.e. assigned) or proposed to be charged (CAS 402); and 3. The methods of allocating indirect costs to the contract (CAS 410 and CAS 418) 11

13 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) Illustration #1: A contractor uses labor category averages to estimate/bid direct labor on future work. However, employees are identified to labor categories and the contractor accumulates and reports direct labor by employee. Yes it is Compliant with CAS 401: Estimated: Category Average Direct Labor Rates Accumulated: Actual employee s labor costs Reports: Actual employee s labor costs 12

14 CAS CONSISTENCY IN ESTIMATING, ACCUMULATING, REPORTING COSTS (48 CFR PART ) Illustration #2: Travel costs: Contractor s disclosed practice is to charge travel costs indirect Contractor bids travel as direct costs for direct labor employees in new proposal It is Noncompliant with CAS 401: Disclosed practice states travel costs are indirect. In this proposal, they are bid direct to the contract In order for the contractor to charge travel direct for direct labor employees, the contractor must change their accounting practice for all contracts and revise their disclosure statement 13

15 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) The purpose of this standard is to require that each type of cost is allocated only once and on only one basis to any contract or other cost objective. 14

16 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) Guard against the overcharging of some cost objectives and to prevent double counting Double counting occurs most commonly when cost items are allocated directly to a cost objective without eliminating like cost items from indirect cost pools which are allocated to that cost objective. Establish your practices = How are you going to treat this cost incurred for the same purpose under like circumstances? 15

17 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) All costs incurred for the same purpose, in like circumstances, are either direct costs only or indirect costs only with respect to final cost objectives (C/O). For what purpose did you incur the cost? What is the circumstance? Direct Cost Indirect Cost X Y Z Cost Objectives Consider it from the Cost Objective perspective For the same type of cost, one C/O may receive the cost indirectly while another C/O is charged directly 16

18 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) Illustration # 3: Planning Costs: A contractor normally allocates planning costs indirectly over direct labor dollars A proposal for a new contract requires a disproportionate amount of planning costs, not related to labor What can the contractor do? The contractor must choose a different equitable allocation method to distribute cost to all final cost objectives For example, he may use the number of planning documents processed rather than his former allocation base of direct labor. Contractor's Disclosure Statement must be amended 17

19 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) Illustration # 4: IT Help Desk Costs: A contractor normally allocates general IT Help Desk costs indirect to projects over assigned computers A proposal for a new contract requires three dedicated network technicians to maintain 24 hour service beyond the general offered services - IT Help Desk may also provide services in addition to the dedicated three What should the contractor do? Allocate the three dedicated IT personnel directly to the particular contract requiring them and also allocate a portion of the cost of the general IT Services to the same contract Only on condition that his disclosed practices indicate that the costs of the separate classes of IT serve different purposes 18

20 CAS CONSISTENCY IN ALLOCATING COSTS INCURRED FOR THE SAME PURPOSE (48 CFR PART ) Disclosure Statement A disclosure statement requires contractors to set forth its cost accounting practices with regard to the distinction between direct and indirect costs It must describe the criteria and circumstances for allocating those items which are sometimes direct and sometimes indirect Nondisclosure Statement Based upon the contractor's cost accounting practices used at the time of contract proposal 19

21 CAS 405 ACCOUNTING FOR UNALLOWABLE COSTS (48 CFR PART ) The purpose of this Cost Accounting Standard is (1) the identification of costs specifically described as unallowable and (2) the cost accounting treatment to be accorded such identified unallowable costs in order to promote the consistent application of sound cost accounting principles covering all incurred costs. 20

22 CAS 405 ACCOUNTING FOR UNALLOWABLE COSTS (48 CFR PART ) It s about the proper identification and recording of unallowable cost within the contractor s books and records. Unallowable Cost: law, regulation or contract Written decision furnished by a contracting officer pursuant to contract disputes procedures This Standard does not govern the allowability of costs. This is a function of the appropriate procurement or reviewing authority. 21

23 CAS 405 ACCOUNTING FOR UNALLOWABLE COSTS (48 CFR PART ) Directly associated cost means any cost which is generated solely as a result of the incurrence of another cost, and which would not have been incurred had the other cost not been incurred. In circumstances where these unallowable costs normally would be part of a regular indirect-cost allocation base or bases, they shall remain in such base or bases. Unallowable Cost related to a direct project must receive an equitable share of allowable costs, except that the cost associated with the activity/transaction is unallowable 22

24 CAS 405 ACCOUNTING FOR UNALLOWABLE COSTS (48 CFR PART ) The detail and depth of records required as backup support for proposals, billings, or claims shall be that which is adequate to establish and maintain visibility of identified unallowable costs (including directly associated costs) It does NOT require detailed cost accounting records, but must be given appropriate consideration in any cost accounting determinations governing the content of allocation bases used to distributing indirect costs 23

25 CAS 405 ACCOUNTING FOR UNALLOWABLE COSTS (48 CFR PART ) Visibility requirements (3 Options) 1. The segregation of unallowable costs in separate accounts maintained for this purpose in the regular books of account, 2. The development and maintenance of separate accounting records or workpapers, or 3. The use of any less formal cost accounting techniques which establishes and maintains adequate cost identification to permit audit verification of the accounting recognition given unallowable costs. 24

26 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) To provide criteria on how to allocate Business Unit G&A to Business Unit final cost objectives in an objective manner to be comparable to other similar contractors. Costs 25

27 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) COST: The value of resources consumed for a purpose. And how that cost gets to COST OBJECTIVES: The levels at which we desire to measure costs. Project/Contracts Functions Organizational subdivisions Other work units. 26

28 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) Home Office Segment A Segment B Division 1 Division 2 Division 3 27

29 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) G&A: Expenses incurred or allocated for the general administration of a business unit. Costs typically include: Financial Management????? G&A expenses shall be grouped in a separate indirect cost pool which shall be allocated only to final cost objectives 28

30 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) Total Cost Input Value- Added Single Element All costs excluding G&A pool costs Total Cost Input less subcontract and materials A factor that represents the total activity of the Business Unit 29

31 CAS ALLOCATION OF BUSINESS UNIT GENERAL AND ADMINISTRATIVE EXPENSE (48 CFR PART ) Did you know? G&A expenses of a segment incurred by another segment shall be removed from the incurring segment's G&A expense pool... Expenses which are not G&A expenses and are insignificant in amount may be included in the G&A expense pool for allocation to final cost objectives. 30

32 CAS ALLOCATION OF DIRECT AND INDIRECT COSTS (48 CFR PART ) To provide criteria for identifying direct vs indirect costs and how to accumulate and equitably allocate indirect costs. 31

33 CAS ALLOCATION OF DIRECT AND INDIRECT COSTS (48 CFR PART ) An accounting concept Results from the relationship between a cost and a cost objective A beneficial or causal relationship should exist. A benefiting cost objective should bear all (or an appropriate portion) of the cost from which it benefits or which it causes. 32

34 CAS ALLOCATION OF DIRECT AND INDIRECT COSTS (48 CFR PART ) The total cost of specific final cost objectives includes: Functions of specific support (overhead services and activities) Functions of general support (G&A) 33

35 CAS ALLOCATION OF DIRECT AND INDIRECT COSTS (48 CFR PART ) What is in a pool of homogenous costs? 34

36 CAS ALLOCATION OF DIRECT AND INDIRECT COSTS (48 CFR PART ) What is a Causal Beneficial Base??? 35

37 CAS Allocation of Direct and Indirect Costs (48 CFR Part ) Contains material amounts of costs for the management or supervision of activities Measured By: 1. a base shall be used which is representative of the activity being managed or supervised. Does not contains material amounts of costs for the management or supervision of activities Measured by: 1. A resource consumption measure, 2. An output measure, or 3. A surrogate that is representative of resources consumed. 36

38 S U M M A R Y - C A S C O N C E P T S Uniformity & Consistency Cost Allocation Concepts Causal Beneficial Relationship Direct Identification Is Desirable The Hierarchy of Preferable Indirect Allocation Techniques 37

39 CONTACT INFORMATION Darrell Hineman - Director (703) Darrell.Hineman@CohnReznick.om Long Nguyen - Manager (703) Long.Nguyen@CohnReznick.om 38