The Fundamentals of Government Contracting Webinar Series

Transcription

1 An Introduction to the Incurred Cost Submission Part II: Preparation and Adequacy Review March 24 th, 2016 The Fundamentals of Government Contracting Webinar Series 1

2 Your Presenters David King Dixon Hughes Goodman LLP Mike Mardesich Dixon Hughes Goodman LLP

3 Fundamentals of Government Contracting at a Glance Challenges of Contracting with the Federal Government (November 2015) - Completed Contract Types and Associated Risks (December 2015) Completed Year-End Closing (January 2016) Completed An Introduction to the Incurred Cost Submission Part I: Who, What, Where, When, Why, and How? Completed Part II: Preparation and Adequacy Review (March 2016) You are Here! Accounting Systems and Setups (April 2016) 3

4 Fundamentals of Government Contracting at a Glance Accounting System Adequacy 101 (May 2016) The Composition of Total Cost (June 2016) Making Way for 2017 Budgeting and Provisional Rates (July 2016) Procurement Systems: DFARS Business Systems Rule and Criteria (August 2016) Exploring the Gray Area of Unallowable Costs (September 2016) Policy and Procedures Manual: What s In It and Why Do You Need One? (October 2016) 4

5 Agenda ICS background ICS preparation and adequacy review Preparation tips and common inadequacy findings ICS audit readiness Common audit findings and remediation techniques Current regulatory conditions 5

6 The Fundamentals of Government Contracting Webinar Series ICS Background 6

7 ICS Background An ICS is a contractor submission to the government to true-up Billing Rates to Actual Rates as a part of the Indirect Rate Cycle. FAR , Allowable Cost and Payment FAR , Payments under Time-and-Materials and Labor-Hour Contracts Contractor must submit their ICS 6 months after the contractor fiscal year end: FAR (d)(1)(2)(i) DCMA has the option to unilaterally decrement your rates if adequate submissions are not submitted timely. (MRD 14-PPD-002(R) 2/3/14) 98 Days and Counting Submit to your cognizant DCMA and DCAA representative: FAR (d)(1)(2)(i) 7

8 ICS Evaluation Timeline 1. Contractor submission of ICS 2. DCAA performs adequacy check 3. DCAA informs contractor of ICS adequacy or inadequacy - In the event of an inadequate submission the contractor may correct and resubmit 4. DCAA risk assessment and audit selection - ICS is selected for audit OR - ICS is dispositioned with a memorandum to the contracting officer 8

9 DCAA Adequacy Checklist MRD August 27, PPD-005(R) - Revised Checklist for Determining Adequacy of Contractor Incurred Cost Proposal Checklist for Determining Adequacy of Contractor Incurred Cost Proposal Version 3.0 August 2015: Eliminates audit steps in the adequacy review process and expanded some sections related to completeness and the overall function and tie-out of the ICS. DCAA has also reinforced its position that auditors use professional judgment when making an inadequacy determination and obligates them to document and defend an inadequacy determination. May result in less duplicative effort by contractors and fewer inadequacy determinations. 9

10 The Fundamentals of Government Contracting Webinar Series ICS Preparation and Adequacy 10

11 ICS Project Management Establish a project plan for the preparation of your ICS Before starting ICS prep Ensure that your financial reporting can accurately: separate direct costs from indirect costs separate direct costs by contract/task separate indirect costs by indirect cost pool Verify that you have reliable supporting documentation Identify of milestone projects (i.e., each ICS schedule) Identify of key parts of each ICS schedule and responsible parties Set milestone dates (beginning and end) for reviewing and completing each project/schedule, and for final review and submission of the ICS This webinar should help you get started Please contact us on detailed questions you may have on certain schedules or any other aspects of the ICS 11

12 DCAA ICE Model ICE model (Incurred Cost Electronically) Revised Version 2.0.1E (Released December 2015) The ICE model is intended to aid the contractor in providing an adequate submission to DCAA, its use does not guarantee that the submission will be judged adequate. Use of the ICE model is not mandatory Contractors may develop their own template for submission however they must contain the required data described in FAR (d)(2)(iii) - Allowable Cost and Payment 12

13 DCAA ICE Model (continued) The ICE model can be tailored (with some limitations) to match the indirect rate structure of the contractor. Tabs and formulas are linked so care should be taken to avoid breaking links and formulas. Upon completion all should links and formulas should be double checked. Not all schedules are mandatory schedules. 13

14 DCAA ICE Flowchart 14

15 Schedule A XYZ Corporation Anywhere, USA Summary of all Claimed Indirect Rates Fiscal Year End - 3/31/2009 SCHEDULE A ICE (version 2.0.1d) COST ELEMENT CLAIMED REFERENCE Overhead POOL 510,610 SCHED C (1) BASE 656,824 SCHED E O/H RATE 77.74% General and Administrative (G&A) Expenses POOL 271,023 SCHED B BASE 3,151,320 SCHED E G& A RATE 8.60% Occupancy POOL 178,083 BASE - (i.e. Sq. Ft.) 18,492 OCCUPANCY RATE Summary of indirect rates Linked from subsequent schedules Ensure all claimed pools and bases and rates are identified Ensure all claimed pools and bases tie to those within the subsequent rate schedules (Schedules A-E) SCHED D (1) 15

16 Schedule B SCHEDULE B XYZ Corporation ICE (version 2.0.1d) Anywhere, USA General and Administrative (G&A) Expenses Fiscal Year End - 3/31/2009 TOTAL PER ACCOUNT G/L, F/S NUMBER DESCRIPTION & TRIAL BAL. ADJUSTMENT CLAIMED NOTES Reference 8310 Salaries & Wages 90,007 90, Legal Fees 1,744 1, Audit Fees 32,361 32, Travel 12,987 (1,295) 11, Entertainment 484 (484) Advertising & Promotion 354 (287) Bad Debts 3,018 (3,018) Periodicals 6,435 6, Conventions/Seminars 7,936 (319) 7, Interest Expense 1,001 (1,001) Holiday 2,321 2, Vacation 5,812 5, Sick Leave Employee FICA 3,815 3, FUI SUI Pension Plan 12,318 (1,883) 10, Miscellaneous 3,357 3,357 SUBTOTAL 197,626 (8,287) 189,339 Intermediate Allocations: Occupancy 23,151-23,151 Sched D (1) SUBTOTAL 220,777 (8,287) 212,490 IR & D Mat'l,Trvl,ODC(Sum SCH H) 9,724 9,724 SUM SCHED H IR & D Labor (Sum SCH H) 14,287 14,287 SUM SCHED H IR & D Overhead(Sum SCH H & SCH E) 11,822 (715) 11,107 8 SUM SCHED H B & P Mat'l,Trvl, ODC(Sum SCH H) 6,485 6,485 SUM SCHED H B & P Labor (Sum SCH H) 9,525 9,525 SUM SCHED H B & P Overhead(Sum SCH H & SCH E) 7,882 (477) 7,405 8 SUM SCHED H - TOTAL G & A EXPENSE POOL 280,502 (9,479) 271,023 Required supporting documentation: Trial Balance / Statement of Indirect Expenses Demonstrate accumulation and adjustment of unallowable costs Ensure proper intermediate allocations if applicable Ensure proper Fringe and OH on IR&D/B&P if applicable 16

17 Schedule C Overhead Fiscal Year End - 3/31/2009 ACCOUNT TOTAL PER G/L NUMBER DESCRIPTION & TRIAL BAL/FS ADJUSTMENTS CLAIMED Notes Ref Salaries & Wages 33,060 33, Postage & Handling 6,235 6, Office Supplies 6,461 6, Small Equipment Temp Help 1,816 1, Other Outside Services 30,281 30, Relocation 1,216 (777) Business Meals 2,702 2, Telephone 45,552 45, Telcopier 2,434 2, Equipment Rental 27,150 27, Holiday 20,181 20, Vacation 25,440 25, Sick Leave 14,318 14, Employer FICA 23,612 23, FUI 1,210 1, SUI 5,812 5, Workers' Compensation 3,311 3, Health Insurance 31,097 31,097 Subtotal 388,590 (32,912) 355,678 Occupancy 154, ,932 Sched D (1) Total Overhead Pool 543,522 (32,912) 510,610 Required supporting documentation: Trial Balance / Statement of Indirect Expenses Demonstrate accumulation and adjustment of unallowable costs Ensure proper intermediate allocations if applicable 17

18 Schedule D SCHEDULE D (1) XYZ Corporation ICE (version 2.0.1d) Anywhere, USA Intermediate Indirect Cost Pool Occupancy (Intermed. Pool) Fiscal Year End - 3/31/2009 ACCOUNT PER G/L NUMBER DESCRIPTION & TRIAL BAL/FS ADJUSTMENT CLAIMED NOTES REFERENCE 8110 Salaries & Wages 23,280 23, Real Estate Rent 122, , Insurance 2,946 2, Property Taxes 1,761 1, Permit & Licenses Depreciation/Amortization 25,417 25, Repairs/Maintenance 1,681 1,681 Total W / Alloc. 178, ,083 TO Sched A Allocation of Expenses Based on Square Feet Utilized Claimed Allocation Base % of Expense of Amts per (i.e. Sq. Ft.) Total Adjustments Allocation G/L G & A TO Sched B Mkt % 5,085 5,085 2 Cont % 6,269 6,269 Pres 1, % 11,797 11,797 O/H - O/H TO Sched C (1) Fab 8, % 80,557 80,557 Assy 4, % 46,428 46,428 Mfg 2, % 27,947 27,947 18, % 178, ,083 TO Sched A Required supporting documentation: Trial Balance / Statement of Indirect Expenses Ensure intermediate allocations appear on source schedules (e.g., Schedule D intermediate allocations to Schedule B allocation amounts) Ensure the schedule identifies (1) the allocation base by recipient, (2) the percentage of the total base for each recipient, and (3) the dollars allocated to each recipient 18

19 Schedule E XYZ Corporation Anywhere, USA SCHEDULE E ICE (version 2.0.1d) Fiscal Year End - 3/31/2009 PER G/L, F/S PER G/L Overhead & TRIAL BAL/FS ADJUSTMENTS CLAIMED Notes Ref. Overhead Pool $ 543,522 $ (32,912) $ 510,610 Sched C (1) Overhead Base: Total Contract Labor $ 633,012 $ 633,012 Summary Sched H IR&D Labor 14,287 14,287 1 " B&P Labor 9,525 9,525 1 Total Overhead Base $ 656,824 $ - $ 656,824 Overhead Rate 82.75% 77.74% Overhead Base* - Straight time direct labor dollars of all contracts and projects including labor costs of IR&D/B&P projects. Required supporting documentation: Trial Balance / Statement of Indirect Expenses Ensure schedule includes an explanation of each base Ensure base amounts show individual cost elements that tie with costs on referenced schedules and include explanatory notes (e.g., direct cost elements in bases tie to Schedule H totals) PER G/L, F/S PER G/L & TRIAL BAL/FS ADJUSTMENTS CLAIMED Notes Ref. G&A Pool $ 280,502 $ (9,479) $ 271,023 Sched B G & A Base: Contract Labor $ 633,012 Summary Sched H Contract Travel 34,563 " Contract Material 842,981 " Other Direct Costs 172,105 " Subcontracts 944,841 " Subtotal = DIRECT COSTS $ 2,627,502 General Ledger Overhead (before adjustments) 543,522 2 Sched C (x) Less: IR&D/B&P O/H transferred to G & A pool. IR &D O/H (at G/L rate) (11,822) 3 SCHED B B&P O/H (at G/L rate) (7,882) 3 " Other Misc Adjustments to G&A Base (provide detailed support) - G&A Base - Total Cost Input (exludes IR&D/B&P and COM) $ 3,151,320 4 G&A Rate 8.60% 19

20 Schedule G XYZ Corporation Anywhere, USA SCHEDULE G ICE (version 2.0.1d) Reconciliation of Books of Account and Claimed Direct Costs by major cost element Fiscal Year End - 3/31/2009 AMOUNT PER GENERAL AMOUNT ACCT DESCRIPTION* LEDGER* ADJUSTMENTS CLAIMED Notes Ref. Direct Labor 656, ,824 Summary Sched H Travel 35,173 (1,687) 33,486 1 " Material 843, ,192 " Other Direct Cost 187,493 (3,183) 184,310 2 " Subcontracts 944, ,841 " TOTAL DIRECT COSTS 2,667,523 (4,870) 2,662,653 Required supporting documentation: Trial Balance Ensure direct cost amounts per general ledger column tie to Schedule H Ensure explanatory notes are included for any amounts contained in an adjustment column or amounts omitted from the claim 20

21 Schedule H XYZ Corporation Anywhere, USA SCHEDULE H ICE (version 2.0.1d) Fiscal Year End - 3/31/2009 Sched A Sched A Total Claimed Direct G&A Claimed JOB Prime Labor Total Sub- Direct O/H Costs Plus Base G &A Total ORDER CONTRACT NUMBER O/H Labor Travel Material ODC Contracts Costs O/H O/H (TCI) Applied Costs A. COST TYPE(no entry on title line) 1201 N C Claimed 122, ,113 5, ,068 43,630 87, ,954 94, , ,885 40, ,209 Not Claimed (note 1) - 1,687 3,183 4,870-4,870 4, , N C ,387 16, ,212 15,341 34,088 12,739 46,827 46,827 4,027 50, ,973 8, , ,888 27,267 6,976 34,243 34,243 2,945 37,188 A. TOTAL COST TYPE: 147, ,473 7, ,067 48, , , , , ,825 47, ,540 B. OTHER FLEXIBLY PRICED 1205 N C , ,312 8,932 38,643 59,613 89, , , , ,729 49, ,812 B. TOTAL OTHER FLEXIBLY PRICED 210, ,312 8,932 38,643 59,613 89, , , , ,729 49, ,812 C.. VAR. TIME & MAT'L 1301 N D Task Order No. 1 5,300 5, ,000 6,682 4,120 10,802 10, ,731 Task Order No. 2 2,882 2, ,803 2,240 6,043 6, , F D Task Order No. 1 2,911 2, ,832 2,263 6,095 6, ,619 C.. TOTAL VAR. TIME & MAT'L 11,093 11, , ,317 8,623 22,940 22,940 1,973 24,913 D. VAR-FIXED PRICE 99,819 99,819 5,338 16,724 12, , ,113 77, , ,712 30, ,647 D. TOTAL VAR-FIXED PRICE 99,819 99,819 5,338 16,724 12, , ,113 77, , ,712 30, ,647 E. VARIOUS COMMERCIAL WORK 164, ,315 11, ,297 50, ,650 1,483, ,738 1,611,399 1,611, ,580 1,749,979 E. TOTAL VARIOUS COMMERCIAL WORK 164, ,315 11, ,297 50, ,650 1,483, ,738 1,611,399 1,611, ,580 1,749,979 TOTAL CONTRACT COSTS 633, ,012 34, , , ,841 2,627, ,103 3,119,605 3,119, ,286 3,387,891 IR & D 14,287 14, ,232 24,011 11,107 35,118 B& P 9,525 9, ,156 16,010 7,405 23,415 TOTAL IR & D/B & P 23,812 23, ,388-40,021 18,512 58,533 GRAND TOTAL 656, ,824 35, , , ,841 2,667, ,615 Required supporting documentation: Trial Balance, Job/Project Summary Reports, Contract Briefs Ensure flexibly priced contracts and subcontracts, including commercial T&M, listed by contract and subtotaled by contract type? (Note: FFP and other commercial contracts may be shown on one summary line each) Ensure the cost detail in the same level used for billing costs (e.g., by delivery order) Ensure the indirect expenses are calculated using claimed rates from Schedule A Ensure the OH pool costs for tie to Schedule C OH pool costs 21

22 Schedule H (continued) XYZ Corporation Anywhere, USA Subsidiary Schedule of Government Participation Percentages Fiscal Year End - 3/31/2009 Schedule H-1 ICE (version 2.0.1d) Overhead Overhead G&A Contract Type Base Amount % Base Amount % Ref. Cost-Type 147, % 554, % SCHED H Flexibly Priced 210, % 570, % " T&M 11, % 22, % " Fixed Price 99, % 359, % " Commercial 164, % 1,611, % " IR&D/B&P 23, % - 0.0% " Total 656, % 3,119, % Data is linked from Schedule H Ensure the base amounts used for calculating government participation for each pool tie to Schedules E and H 22

23 Summary Schedule H XYZ Corporation Anywhere, USA Summary Schedule H of Direct Contract/Subcontract/IR&D/B&P Costs Fiscal Year End - 3/31/2009 SUMMARY SCHEDULE H ICE (version 2.0.1d) CONTRACT IR&D/B&P GRAND DIRECT COST ELEMENTS O/H TOTAL TOTAL TOTAL Ref. Notes Direct Contract Labor 633, ,012 23, ,824 Sched H Direct Material , ,192 Travel , ,173 Other Direct Costs (ODC) ,105 15, ,493 Subcontracts , ,841 TOT. DIR. CONTRACT COSTS ,627,502 40,021 2,667,523 IR&D AND B&P COSTS IR&D Labor 14,287 14,287 Sched H B&P Labor 9,525 9,525 Subtotal IR&D/B&P Labor 23,812 23,812 IR&D Labor Overhead (NOTE 1) 11,107 11,107 Sched H 1 B&P Labor Overhead (NOTE 1) 7,405 7,405 "" 1 IR&D Material 126 IR&D Subcontract - B&P Material 85 B&P Subcontract - IR&D Material Overhead (NOTE 1) - 1 B&P Material Overhead (NOTE 1) - 1 IR&D Other Costs 9,598 Sched H 2 B&P Other Costs 6,400 2 TOTAL IR&D/B&P 58,533 TOTAL DIRECT LABOR Total Direct Contract Labor 633,012 Total IR&D/B&P Labor 23,812 see total above TOTAL DIRECT/IR&D/B&P LABOR 656,824 to Schedules G and L All data is linked from Schedule H and E 23

24 Schedule I XYZ Corporation Anywhere, USA SCHEDULE I ICE (version 2.0.1d) Schedule of Cumulative Direct and Indirect Costs Claimed and Billed by Contract and Subcontract Fiscal Year End - 3/31/2009 Unsettled/Claimed Direct Prior And Indirect Costs Using Subject Years Claimed Total Less Net Cumulative Cost Billed (Manual Entry) To Settled Prior Year Current Year Cumulative Contract Cumulative Date Cost Over Physically Penalty Total Costs Costs Settled or Limitations Settled or Billed (Under) Complete Contract No. Order Clause Costs FYE FYE Claimed Rebates/Credits Claimed PV No. Through Amount Billing SCHED H SCHED H Cost Type & Flexibly Priced: N C Yes 126, , , , /28/ ,110 1,862 N C Yes 382,595 2,867,500 51,140 3,301,235 3,301, /31/2009 3,295,110 (6,125) , ,311 37, , , /31/ ,100 7,975 Yes N C Yes 591, , ,473 1,658,751 1,658, /31/2009 1,640,426 (18,325) Yes Subtotal-Cost & Flexibly Priced Contracts 6,550,359 6,550,359 6,535,746 (14,613) SCHED K SCHED K Time & Material N D ,601 10,601 10, /31/ , Yes N D ,950 5,950 5, /31/2008 5,000 (950) F D ,000 6,000 6, /31/2008 5,750 (250) Subtotal-Time & Material Contracts 22,551 22,551 21,598 (953) Total- Cost/Flexibly Priced and Time & Material Contracts 6,572,910 6,572,910 6,557,344 (15,566) Required supporting documentation: Contract Briefs, prior year ICS Ensure current FY cost type claimed cost ties to Sch H while current FY claimed T&M cost ties to Sch K Prior year contract costs should tie to previous FYE ICS. Ensure total cumulative claimed total costs are below contract ceilings Ensure contracts identified as physically complete reported on Schedule O Ensure contracts subject to the penalty clause (FAR ) are indicated Ensure cost detail in the same level used for billing costs 24

25 Schedule J Schedule not linked to XYZ Corporation SCHEDULE J other schedules. Anywhere, USA ICE (version 2.0.1d) Subcontract Information Fiscal Year End - 3/31/2009 Cost-type subcontracts issued under flexibly priced prime contracts Yes _X No SUBCONTRACTOR'S POINT OF CONTACT SUBCONTRACT Performance Period INCURRED AWARD SUBCONTRACT NO. PRIME CONTRACT NO. NAME & ADDRESS AND PHONE NO. VALUE From To IN FY 2009 TYPE Subcont ract s Issued: P.O. #XYZ0998R N C-0873 Small Company Ms. Donna Charleston $110,500 3/16/2006 6/30/2009 $87,912 CPFF 1445 Southpark Blvd. Marketing Manager Buffalo, NY (716) X317 P.O. #XYZ1213R N C-0913 DSK Corporation Ms. Jane Matthews $236,135 10/12/2008 3/15/2009 $49,732 CPFF 3559 Vaulting Road Marketing York, PA (717) P.O. #XYZ0822R N C-0913 Aristeo Associates Mr.Vince Aristeo $100,000 5/14/2007 5/14/2008 $40,000 CPFF 546 Arroyo Drive President Carlsbad, NM (504) T&M/LH subcontracts issued under flexibly priced prime contracts Yes No _X SUBCONTRACT PRIME SUBCONTRACTOR'S POINT OF CONTACT SUBCONTRACT Performance Period INCURRED AWARD NO. CONT RACT NO. NAME & ADDRESS AND PHONE NO. VALUE From To IN FY 2009 TYPE Schedule contains no links and requires point of contact information and other contract detail including costs incurred for flexibly priced subcontracts Ensure the schedule includes all types of subcontracts (e.g., cost-type, T&M/LH, IDIQ with a variable element, and FFP) and intercompany costs claimed by the contractor on flexibly priced prime contracts and/or upper-tier subcontracts Ensure the schedule includes all of the required point of contact, contract type and cost incurred detail for the required subcontracts Ensure subcontract costs incurred in the current FYE for subcontracts under flexibly priced prime or upper-tier subcontracts tie to those claimed on Schedule H 25

26 Schedule K Contract Labor Contract No D-0111 Contract No D-0111 Contract No D-0112 Contract No. Category (1) Task: 001 Task: 002 Task: 001 Task: LABOR Rate (2) Hrs Amount Rate (2) Hrs Amount Rate (2) Hrs Amount Rate (2) Program Manager $ ,500 $ ,250 $ ,250 Senior Engineer $ ,000 $ ,750 $ ,750 Engineer $ ,000 $ ,250 $ Analyst $ ,250 $ $ Technical Typist $ $ $ TOTAL 550 9, , ,000 OTHER COSTS Material Costs (3) 1, Travel Costs (3) Sched A 8.60% (4) Subtotal 1,501 1,000 1,000 TOTAL 10,601 5,950 6,000 Task Ceilings 25,000 12,500 7,500 Explanatory Notes (1) Represents effort performed by the company. Any subcontract effort should be identified separately. (2) Represents rates specified in the contract which may be higher or lower than actual rates incurred. (3) Represents actual costs recorded in the cost records. (4) G&A applied at the claimed rate to Material (if not Value-added base) and Travel Costs. XYZ Corporation Anywhere, USA Summary of Hours and Amounts on Time and Material/Labor Hour Contracts Fiscal Year End - 3/31/2009 Required supporting documentation: final year-end invoices with cumulative amounts billed for T&M contracts including rates and hours billed by labor category Ensure the ICS claimed G&A rate ties to Schedule A Ensure all the contracts/delivery orders identified as T&M/LH on Schedule H are on Schedule K Ensure the information is presented by cost element, with labor presented by labor category, showing contract labor rates (not actual rates and billed labor hours) Ensure the direct material and ODC claimed in Schedule K for each contract/delivery order tie to direct material and ODC claimed in Schedule H 26

27 Schedule L XYZ Corporation Anywhere, USA SCHEDULE L ICE (version 2.0.1d) Reconciliation of Total Payroll per IRS form 941 to Total Labor Costs Distribution Fiscal Year End - 3/31/2009 Acct No. Description General Ledger Reference Direct Labor 656,824 Summary SCHED H General & Administrative: SCHED B 8310 Salaries 90,007 link from Schedule B 8528 Holiday Wages 2, Vacation Wages 5, Sick Leave Personal Absence 1,082 Overhead Pools: SCHED C (x) 7001 Wages 33,060 link from Schedule C 8421 Holiday Wages 20, Vacation 25, Sick Leave 14, Severance Pay (in full) 32,419 Intermediate Pools: 8110 Occupancy Wages 23,280 SCHED D (x) Overtime Premium (in ODCs) 270 link from schedule D Overtime Premium - Other Adjustment to arrive at Total Payroll Distributed (Provide detailed support) - TOTAL LABOR DISTRIBUTION 906,001 PER IRS FORM 941 1ST QTR. 228,479 2ND QTR 228,236 3rd QTR. 237,206 4th QTR. 220,167 Plus: Current Year Accrual 15,128 Minus: Prior Year Accrual (33,214) Other Adjustments 9,999 TOTAL PAYROLL 906,001 Required supporting documentation: year-end payroll summary report or reconciliation, 941 Quarterly Tax Filings Ensure direct labor totals tie to totals on Schedule H Ensure G&A labor totals tie to totals on Schedule B Ensure other indirect pool labor totals tie to applicable pool schedules 27

28 Schedule M XYZ Corporation Anywhere, USA Listing of Decisions/Agreements, or Approvals Affecting Direct/Indirect Cost And Description of Accounting or Organization Changes Fiscal Year End - 3/31/2009 A. Decisions/Agreements or Approvals 1. Severance Pay - (Schedule C) Reference ACO letter of 30 July 2008 regarding Severance Pay and Relocation Expenses of terminated employees. 2. Pension Plan - (Schedules B & C) Reference ACO memorandum of negotiations of 10 August 2008 (FY 2009 Overhead) which sets forth pension plan rates, vacation approvals, and certain other matters. B. Accounting or Organization Changes 1. During January 2009, a redirection of Contract No. N C-0914 occurred. The PCO directed the stretching of this program into the future. This action necessitated a significant reduction in staff. From a total of 25 full-time employees on 1 January 2008, the staff was reduced to a total of 13 full-time employees by 30 May Effective 1 April 2008, we deleted our secondary overhead pool for fringe benefit expenses. We elected to charge the fringe benefits expenses directly to the benefiting overhead pool. Provide a negative response if there have been no significant changes rather than leave the schedule incomplete 28

29 Schedule N XYZ Corporation Anywhere, USA Certificate of Final Indirect Costs Fiscal Year End - 3/31/2009 This is to certify that I have reviewed this proposal to establish final indirect and to the best of my knowledge and belief: 1. All costs included in the proposal (identify proposal and date] to establish final indirect cost rates for (identify period covered by rate) are allowable in accordance with the cost principles of the Federal Acquisition Regulation (FAR) and its supplements applicable to the contracts to which the final indirect cost rates will apply; and 2. This proposal does not include any costs which are expressly unallowable under applicable cost principles of the FAR or its supplements. Firm: Signature: Name of Certifying Official: Title: Date of Execution: Ensure that the certificate signed by an individual of the contractor s organization at a level no lower than a vice president or chief financial officer of the business segment of the contractor that submits the proposal (FAR (a)(3)) 29

30 Schedule O XYZ Corporation Anywhere, USA SCHEDULE O ICE (version 2.0.1d) Schedule of Contract Closing Information for those Contracts which Work Effort was Completed During Fiscal Year End - 3/31/2009 Ready Performance Period To Contract Ceiling (if applicable) Level of Effort Cumulative Hours Contract No. Order No. From To Close(1) Amount (2) Fee(3) Required Actual Notes Cost Type: Subcontract-Clark Inc. 2/16/05 2/28/09 Yes N C /16/06 12/28/08 Yes 1,750, ,000 27, Time & Material N D /1/06 12/31/08 Yes 25,000 Ensure that the contracts reported here identified as physically complete, already closed or ready to close on Schedule I Ensure the schedule contains Level of Effort (LOE) information (LOE and actual hours), contract fee computations, period of performance, and contract ceiling amounts 30

31 Supplement B - Executive Compensation Although not a required schedule, the contractor must consider the reasonableness and allowability of compensation claimed within the ICS NDAA FY 2012 Increased applicability to all contractor employees Bipartisan Budget Act of 2013: reduced the comp cap for DoD and NASA contracts from $952k to $487k DCMA 1/29/2016 Guidance as a follow-up to DPAP 10/24/14 Pricing Memo: Allows for use of blended rates at the contractors discretion Applies to final overhead rates, and interim billing and forward pricing rates Contractor required to demonstrate accuracy of calculations and identify universe of contracts Contractors and CO s will enter into advanced agreements 31

32 Blended Rate Methodology Calculate a composite cap amount for each year to be used in determining the withdrawal of comp prior to calculating the allowable indirect rates to be applied to contracts Cap amount for each year would be determined based upon the weighted average of the USG business volume at the contractor before and after 6/24/2014 The relative percentage that the new $487k cap amount contributes to the composite cap would increase over time as the business mix shifts from old contracts (prior to 6/24/14) to new contracts (after 6/24/14) Allows for an orderly transition from old to new cap in proportion to the contractor s shift in business volume Requires development of only one set of rates and relies on existing processes at the contractor to apply the rates to all contracts Protects the interests of the government while keeping the process as simple as possible 32

33 The Fundamentals of Government Contracting Webinar Series ICS Audit Readiness 33

34 Prior to Audit During ICS preparation, create an audit package with all ICS supporting schedules and backup documentation as an audit may not occur for many years. Document any assumptions or management decisions that are not clear from the supporting schedules as the ICS preparer may no longer be with your company. Perform DCAA Adequacy checklist and retain with documentation 34

35 Prior to Audit Frequently Questioned Costs Review the submission and ensure the reasonableness and adequate support of frequently questioned costs: Compensation (not only executive comp) Document reasonableness $952k vs $487k Blended rates? Bonus Employee morale Travel and entertainment Marketing Legal Business meetings Subcontract costs Poor SOW documentation Direct labor Labor qualifications for T&M contracts ( Audit Alert) Labor categories and resumes Labor Hours - timekeeping system Lack of timesheets / inadequate approvals 35

36 At the time of audit Compile the audit package and have the backup data available in hard copy and electronic format Establish a single point of contact for all communication and flow of documentation with the auditor Request a walkthrough of the audit Conduct periodic updates on the progress of the audit and any open items Be familiar with DCAA Audit procedures Contract Audit Manual (CAM) Chapter 6 ICS Audit Procedures 36

37 The Fundamentals of Government Contracting Webinar Series Current Conditions 37

38 DCAA ICS Audit Backlog DCAA has a backlog of ICS to audit of over 6 ICS FY in some cases 2016 National Defense Authorization Act prohibits DCAA from providing audit support to non-dod customers unless the Secretary of Defense certifies that the backlog for ICS audits is less than 18 months of ICS inventory. As of now, DCAA does not meet the requirement. The current ICS backlog could cause some ICS years to go unaudited after the expiration of the 6 year Statute of Limitations (SOL) DCAA is aggressively targeting the ICS backlog to minimize SOL issues In order to avoid SOL issues the DCAA could be incentivized to find a contractor ICS inadequate even at the last minute and force them to update and recertify which would reset the 6 year SOL clock The date of submission rather than the date of audit starts the SOL clock (date when claims were known or should have been known) however this is being tested in the courts 38

39 DCAA Audit Guidance Memos DCAA is pursuing penalties for claimed unallowable costs 2015 Audit Alert on Identifying Expressly Unallowable Costs 2014 Audit Alert Distributing a Listing of Cost Principles That Identify Expressly Unallowable Costs DCAA will provide a non-audit service on proposed advance agreements for blended rates and also audit contractor compliance with blended compensation caps in ICS upon execution of advances agreements 2016 Audit Alert on DCMA Implementation Guidance on Blended Compensation Caps DCAA has provided DCMA with a 16.4% unilateral decrement to apply to overdue ICS 2016 Updated Audit Guidance on the Treatment of Overdue Indirect Rate Proposals 39

40 Questions? 40

41 The Fundamentals of Government Contracting Webinar Series Join us next month for Accounting Systems and Setups on Thursday, April 28 th 41