GCS 224 Surviving DCAA Audits with GCS Premier. Presented by: Nicole Mitchell, Aronson & Company

Transcription

1 GCS 224 Surviving DCAA Audits with GCS Premier Presented by: Nicole Mitchell, Aronson & Company

2 Agenda Government Contract Audits and the Role of DCAA and DCMA Basic Attributes of a Government Approved Accounting System Overview of Indirect Rates Copyright 2010 Deltek, Inc. 2

3 Government Contract Audits and the Role of DCAA and DCMA

4 Defense Contract Audit Agency (DCAA) Defense Contract Audit Agency Consists of approximately 4,000 people located at more than 300 field audit offices throughout the United States, Europe, and in the Pacific. Provides standardized contract audit services for the Department of Defense, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. Services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA also provides contract audit services to some other Government Agencies. Copyright 2010 Deltek, Inc. 4

5 Defense Contract Management Agency (DCMA) DCMA Your indispensable Acquisition Partner The Defense Contract Management Agency (DCMA) is the Department of Defense (DoD) component that works directly with Defense suppliers to help ensure that DoD, Federal, and allied government supplies and services are delivered on time, at projected cost, and meet all performance requirements. DCMA directly contributes to the military readiness of the United States and its allies, and helps preserve the nation's freedom. Copyright 2010 Deltek, Inc. 5

6 Defense Contract Management Agency (DCMA) DCMA professionals serve as "information brokers" and in-plant representatives for military, Federal, and allied government buying agencies -- both during the initial stages of the acquisition cycle and throughout the life of the resulting contracts. Before contract award, DCMA provides advice and services to help construct effective solicitations, identify potential risks, select the most capable contractors, and write contracts that meet the needs of our customers in DoD, Federal and allied government agencies. After contract award, DCMA monitors contractors' performance and management systems to ensure that cost, product performance, and delivery schedules are in compliance with the terms and conditions of the contracts. Copyright 2010 Deltek, Inc. 6

7 Government Contract Audits The specific types and reasons for audits are numerous, but non-major contractors will generally be limited to the following audits: Pre-award Forward Pricing Indirect Cost Rate Labor Cost Cost Accounting Standards Compliance Billing Defective Pricing Business System Reviews Copyright 2010 Deltek, Inc. 7

8 Key Business Systems DCAA Accounting Compensation Labor & Timekeeping Indirect & Other Direct costs Billing Purchasing Material Management & Accounting Estimating Planning & Budgeting Information Technology DCMA Accounting Estimating Purchasing Earned Value Management Material Management and Accounting Property DFARS Case 2009-D038 new ruling identifying systems Copyright 2010 Deltek, Inc. 8

9 Basic Attributes of a Government Approved Accounting System 9

10 What is an Approved Accounting System? A government contractor s accounting system that: Is adequate for accumulating and billing costs on Government contracts This requirement varies based on the type of contract work is performed under (ie, FFP, T&M, CPFF) Can record, process, summarize and report in a manner consistent with Government contract laws and regulations In accordance with Federal Acquisition Regulations, DFARS, Cost Accounting Standards Copyright 2010 Deltek, Inc. 10

11 Pre-Award Survey of a Prospective Contractors Accounting System Typically the initial review, this may not encompass the entire accounting system, but does incorporate the requirement of the contract triggering the review. Used to determine compliance with cost principles and accuracy of underlying data used to estimate cost and contractor s ability to perform under the proposed contract In many cases the contractor will be required to certify that it has disclosed current, accurate, and complete cost and pricing data. May not only focus on the ability of the accounting system, but also be expanded to verify financial capabilities of the contractor Standard Form 1408 is used for the pre-award survey Link to the Standard Form Copyright 2010 Deltek, Inc. 11

12 Basic Attributes of a Contractor s Accounting System Segregation of direct costs from indirect costs Identification and accumulation of direct costs by contract A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives Accumulation of costs under general ledger control A timekeeping system that identifies employee labor by intermediate or final cost objectives Interim (at least monthly) determination of costs charged to a contract through routine postings of books of accounting Copyright 2010 Deltek, Inc. 12

13 Basic Attributes of a Contractor s Accounting System Exclusion from costs charged to government contracts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions Identifications of costs by contract line item and by unit, if required by the proposed contract Segregation of pre-production costs from production costs including estimating Accounting systems must be able to provide financial information: Required by contract clauses concerning limitation of cost or limitation on payment. Required to support requests for progress payments. Copyright 2010 Deltek, Inc. 13

14 Segregation of Costs Establishment of a Chart of Accounts Account Numbers Sequence XXXX-XXX-XX Initial for numbers is the base account. SFX Contracts, Direct Costs 0500 Fringe 0600 Overhead 0700 G&A 0800 Service Center 0900 Unallowable accounts Account Type C Contract, Direct Cost I Indirect Cost, Excluding Labor L Indirect Labor, excluding B&P and IR&D P Bid & Proposal Costs R Independent Research & Development U Unallowable S Service Center O - Other Copyright 2010 Deltek, Inc. 14

15 Segregation of Unallowable Costs Copyright 2010 Deltek, Inc. 15

16 Accumulation of Direct Costs by Contract Reports to provide information and details as required by the contract Contract Revenue Summary Contract Cost Summary Job Status Report Labor Detail ODC Detail The contract costs must be captured at the same level of detail proposed in the contract and required for progress payments Open new tasks to separate option periods Set up contracts to track limitations Copyright 2010 Deltek, Inc. 16

17 Tracking of Limitation of Costs Copyright 2010 Deltek, Inc. 17

18 Tracking Ceiling on Indirect Rates Copyright 2010 Deltek, Inc. 18

19 Timekeeping Employees must be properly trained and informed on how to fill out their timesheets. Every employee must know their Labor Codes and Project Numbers to charge both direct and indirect. Record time daily. Employees must properly document any changes. Timesheets - completed & signed by the employee. An approval system must be in place. Employers should perform internal checks to ensure the timesheets are being completed properly. Copyright 2010 Deltek, Inc. 19

20 Timekeeping Controls Copyright 2010 Deltek, Inc. 20

21 Indirect Rates

22 Calculate Indirect Rates A logical consistent method for the allocation of indirect costs to contracts An indirect cost rate percentage is calculated using the pools and bases calculated Indirect Cost Pool A grouping of costs incurred with multiple cost objectives. (numerator) Indirect Cost Basis of Allocation The factor used to allocate or divide up the indirect costs. (denominator) POOL divided by the BASE = percentage Copyright 2010 Deltek, Inc. 22

23 Indirect Cost Pools FRINGE Fringe expense is either statutory (FICA, FUTA, SUTA, Workers' Compensation, etc.) or discretionary (insurance, holiday, sick, etc.) benefits paid on behalf of employees and are generally a percentage of wages or some fixed amount. Currently leave, FICA and 401K contributions are the significant costs in the pool. Fringe is computed as a percentage of all labor both direct and indirect. Copyright 2010 Deltek, Inc. 23

24 Indirect Cost Pools OVERHEAD Overhead pool is composed of costs that support the contract personnel that are assigned to contracts and are not directly billed. The significant cost in this pool is the facilities allocation, which is comprised of rent expense, office supplies/expenses. The overhead labor and performance based bonus for direct and overhead personnel are the other predominate costs in this pool. The base of the Overhead pool is Direct Labor and the related fringe in addition to the B&P labor and fringe. Copyright 2010 Deltek, Inc. 24

25 Indirect Cost Pools GENERAL AND ADMINISTRATIVE G&A expenses are indirect expenses that can not be attributed to any specific contract or division but are for the general benefit of all contracts. Expenses for general accounting, finance, benefit administration, business development, and general management that can not be directed traced to a given contract are collected in the G&A pool. Bid and Proposal costs are considered G&A costs because they will benefit the over all business and increase the G&A base, if awarded. Because persons that would normally be charging direct labor on contracts often work on proposal efforts, the B&P labor is burdened with local overhead so as to not effectively raise the overhead rate charged against their contract because of the loss of direct labor. Copyright 2010 Deltek, Inc. 25

26 Indirect Cost Pools General and Administrative (continued) G&A expenses are typically allocated to contracts as a percentage of total cost and the base consists of direct labor and it s associated fringe and overhead allocation, subcontractors, equipment & software, and other direct costs. Copyright 2010 Deltek, Inc. 26

27 Direct vs. Indirect (Labor Example) Direct Labor Labor cost specifically identified to a contract. Indirect Labor Overhead Labor of employees, who normally charge direct on a contract, incurred for nondirect functions, such as a company meeting or training. General & Administrative Contract Administration Accounting & Human Resources Executive Management Copyright 2010 Deltek, Inc. 27

28 Allocation of Indirect Costs Indirect costs Allocation (benefit) Fringe Total Labor Overhead Direct Labor G&A Total Costs Descriptions of the contents of pools and bases should be documented See the Attached Company-wide Statement of Indirect Rates Copyright 2010 Deltek, Inc. 28

29 Indirect Cost Allocation Considerations Does the allocation result in a reasonable proportion of the costs to each division/to the government? Do the calculations appear accurate? Do the rates calculation account for all allowable costs of the organization? Are the allocations consistent? Is your budget consistent with the results of the allocation? Do you have a system in place to automatically update the rate calculations? Do the rates calculations have limitations? Copyright 2010 Deltek, Inc. 29

30 Indirect Rate Reimbursement Process Submit budget with proposed provisional rates Receive provisional indirect rate letter Prepare invoice using provisional rates Submit incurred cost submission DCAA Audit Submit final billing using actual audited rates Copyright 2010 Deltek, Inc. 30

31 Questions? Copyright 2010 Deltek, Inc. 31