Indirect Rates the Basics In Deltek GCS Premier

Transcription

1 Indirect Rates the Basics In Deltek GCS Premier

2 COPYRIGHT INFORMATION While NeoSystems has made every attempt to ensure the accuracy of these materials, some errors may exist. NeoSystems is not responsible for any loss as a result of using these materials. The information in this document is subject to change without notice. This publication contains proprietary information which is protected by copyright. All rights are reserved. No part of this document may be electronically reproduced or transmitted in any form or by any means without the prior, written consent of NeoSystems, Corp. Copyright NeoSystems All rights reserved. All other trademarks are the property of their respective owners.

3 Topics Overview NeoSystems Corp

4 INDIRECT RATES IN DELTEK GCS PREMIER - THE BASICS TABLE OF CONTENTS V9C Training Objectives... 3 Login Instructions... 4 Government Contractor Accounting... 5 Cost Accounting Standards (CAS)... 5 Billing the Government for Indirect Costs... 6 Direct and Indirect Costs... 6 Direct... 6 Indirect... 7 Allocating costs... 7 Pools... 7 Basic Formula... 8 Typical Pools... 8 Pools a Word of Caution Calculating Pools A Simple Example Tiering of Pools Two-tiered structure Three-tiered structure Intermediate Cost Objectives Exercise Tieing out the allocation Exercise Determining the Indirect Cost Structure for a Company Unallowable Costs Setting up Accounting for Indirect Expenses in GCS Setting Up Pools in a New Division Review the analysis of the rates with the new division Set up the new division Set up the pools in the Indirect Pool file Material and Subcontractor Handling Pools Allocation Flags Pool Rates NeoSystems Corp 2011 Page 1 of 61

5 Target vs. Actual rates Posting Variances Setting up Variance Accounts in GCS Inter-pool Allocations Setting up Tiering in GCS Calculating Company-Wide Rates Troubleshooting rates Answers to Exercises Exercise Exercise Feedback NeoSystems Corp 2011 Page 2 of 61

6 NeoSystems Corp Examples

7 The allocation basis for a fringe pool is total labor (i.e. both direct and indirect). Fringe Pool PTO Accrued Exp Holiday FICA Exp SUTA Exp Insurance 401K Match $19,885 Labor Overhead 1 Overhead 2 G&A Direct $12,000 A $ 7,145 B $18,000 C $25,000 D Total $62,145 Fringe Rate Calculation: $19,885 X 100 = 32% $62,145 Fringe Allocation: OH 1 $12,000 A X 32% = $3,840 E OH 2 $ 7,145 B X 32% = $2,286 F G&A $18,000 C X 32% = $5,760 G Direct $25,000 D x 32% = $7,999 H Total $62,145 $19,885 Once the rate has been calculated, the fringes can be allocated to the pools and projects Overhead 1 Labor $12,000 A Fringe Applied $3,840 E Rent $1,250 Utilities $413 Total $17,503 Project 2000 Labor $8,000 D Fringe $2,560 H Other $96,400 Total $106,960 Project 2001 Labor $9,000 D Fringe $2,880 H Other $56,200 Total $68,080 Overhead 2 Labor $7,145 B Fringe Applied $2,286 F Rent $451 Utilities $150 Total $10,032 Project 3000 Labor $3,000 D Fringe $960 H Other $45,300 Total $49,260 Project 3001 Labor $5,000 D Fringe $1,600 H Other $12,700 Total $19,300 G&A Labor $18,000 C Fringe Applied $5,760 G Audit Fee $5,000 CEO s Office $6,300 Facilities $5,600 Total $40,6660 Fringe on Direct Labor: Proj 2000 $2,559 Proj 2001 $2,880 Proj 3000 $960 Proj 3001 $1,600 Total $7,999 NeoSystems Corp 2011 Page 13 of 61

8 NeoSystems Corp NeoTips

9 NeoTip Often companies will make use of consultants and bill them as though they are employees. This is particularly common on T&M contracts. When this situation exists, it is tempting to think of direct labor as consisting of both employees and consultants however from GCS s perspective, direct labor is the allocation base for the fringe benefits pool (see the Pools section). Obviously, consultants do not receive benefits so it would be inappropriate to include their cost in the direct labor. There are set-up and processing steps to take that will appropriately include consultants in billing as labor yet ensure they are not included in the base of the fringe benefits pool. Review the Contracts and Labor/Payroll classes for details on the set up and processing steps. MATERIAL AND SUBCONTRACTOR HANDLING POOLS With several of the options above there is a reference to an allocation flag. This flag is found in the Contract Suffix Accounts set up screen. The allocation flag works in conjunction with the options listed above to give you more flexibility in what is included or excluded from the base of the pool. This is useful in cases where you have a Material or Subcontractor Handling pool and a G&A pool. A Material Handling pool is often set up in companies that have a large dollar volume of materials that are purchased on behalf of the contract. These materials are often ordered by the company and shipped to the customer without a company employee ever seeing them. In these cases the government has successfully argued that it would be inappropriate for these costs to receive a G&A burden that is then billed to the government. Look at how the government bill would be impacted if these materials were included in the G&A base: G&A POOL ONLY MH G&A POOL MATERIAL COSTS $100,000 $100,000 NON-MATERIAL COSTS $200,000 $200,000 TOTAL DIRECT COSTS $300,000 $100,000 $200,000 POOL COSTS $15,000 $1,000 $14,000 G&A RATE 5% 1% 7% Some contractors have a need to exclude materials from the base of the G&A pool and include them in the base of a material handling pool. The same argument can be used for subcontractor costs. This is where the base H and I with allocation flags come in. A company can set up the NeoSystems Corp 2011 Page 39 of 61

10 System Options NeoSystems Corp

11 TARGET VS. ACTUAL RATES In the system, many contract reports can be printed with an option for Target or Actual rates. Printing contract reports by target rates allows for project managers to see how their projects will be burdened when the year is over rather than being subjected to the monthly rate fluctuations that are inherent in actual rates. In the graph below, the target fringe rate is 32% but the actual rate doesn t reach 32% until the end of the year. More importantly remember that revenue can be driven by indirect rates i.e. CPFF and T&M contracts. Let s look at how the costs, revenue and profits are impacted by the difference between Target and Actual rates in the following CPFF example: Rates Amounts Variance Actual Target Actual Target Amount % Revenue $92,026 $105,403 -$13,377-13% Direct Labor $18,000 $18,000 $0 0% ODC's $44,000 $44,000 $0 0% Total Direct $62,000 $62,000 $0 0% Fringe 20% 30% $3,600 $5,400 -$1,800-33% OH 72% 85% $15,552 $19,890 -$4,338-22% G&A 8% 15% $6,492 $13,094 -$6,602-50% Total Indirect $25,644 $38,384 -$12,740-33% Total Costs $87,644 $100,384 -$12,740-13% Profit/Loss 5% 5% $4,382 $5,019 -$637-13% In this example, the actual rates are less than the target rates. This is commonly referred to as under-running the target rates. The revenue and profit at actual rates is 13% lower than at target rates. The company would owe the government money in this scenario. NeoSystems Corp 2011 Page 42 of 61

12 NeoSystems Corp Reconciliations

13 The first side of the entry is to a Cost Variance Account which increases or decreases the actual costs on the income statement to match the target costs. Obviously another side is needed and this is a Receivable variance account. This is an Unbilled Receivable account. Let s look at the entries first: Receivable Variance - Cost Variance - Fringe Fringe $900 $900 Cost Variance - OH Receivable Variance - OH $360 $360 Remember Fringes are underrunning so to bring the Fringes to Target, more cost must be booked. Overhead is overrunning or too high, so the cost is reduced through a credit. As with the Fringes, G&A is underrunning so more cost is booked to bring it up to Target. Now let s look at the impact on the B/S and I/S. First, the income statement: Cost Variance - G&A Receivable Variance - G&A $4,419 $4,419 We ve seen this before so it shouldn t come as a surprise to see some familiar numbers. Income Statement Before Costs at Actual Variances After Costs at Target Target $105,403 $105,403 Direct Labor $18,000 $18,000 ODC's $44,000 $44,000 Total Direct $62,000 $62,000 Fringe $4,500 $900 $5,400 OH $20,250 -$360 $19,890 G&A $8,675 $4,419 $13,094 Total Indirect $33,425 $38,384 Total Costs $95,425 $100,384 Profit/Loss $9,978 $5,019 Now the Balance Sheet: NeoSystems Corp 2011 Page 45 of 61

14 Reconciliation of Variances Fringe OH 1 OH 2 G&A G/L Balance $19,885 $13,663 $7,746 $41,340 Fringe Alloc Out $12,636 Fringe Alloc In $3,480 $2,072 $7,084 OH Alloc Out $4,705 OH Alloc In $4,705 P/L Balance $7,249 $12,438 $9,818 $53,129 The entries would look like this: Fringe Inter-pool Alloc OH 1 Inter-pool Alloc OH 2 Inter-pool Alloc 12,636 3,480 2,072 7,084 4,705 4,705 G&A Inter-pool Alloc Let s look at how that would impact the Income Statement: Income Statement (1,225) 2,072 11,789 Inter-pool Entries Adjusted Income Statement Project Ledger Direct Labor $25,000 $25,000 $25,000 ODC s $210,600 $210,600 $210,600 Fringe $19,885 ($12,636) $7,249 $7,249 Overhead 1 $13,663 ($1,225) $12,438 $12,438 Overhead 2 $7,746 $2,072 $9,818 $9,818 G&A $41,340 $11,789 $53,129 $53,129 Total Costs $318,234 $0 $318,234 $318,234 Notice that now the Adjusted Income Statement and Project Ledger tie out line by line. The accounts that are assigned to hold the inter-pool entries must be set up in the GL first and assigned an account type of Other. This type of account is ignored for rate calculation purposes. Given that these costs are included in other accounts, they should not be counted twice, so they are assigned the Other account type. Usually these accounts are assigned to the same FS Code line as the other pool accounts. SETTING UP TIERING IN GCS At the bottom of the screen are three tabs that are active depending on which tier you ve assigned the pool to. Although there are no options available for Tier 3, both Tier 1 and Tier 2 do have some options. Let s look at the Tier 1 Settings tab first. NeoSystems Corp 2011 Page 48 of 61

15 Here are the first two pages showing a Fringe pool: REPORT DATE: 04/15/09 13:34 DELTEK SYSTEMS, INC. PAGE 001 COMPANY-WIDE STATEMENT OF INDIRECT EXPENSES PERIOD END: 03/31/09 Fringe Benefits CUMULATIVE Y-T-D ACCOUNT DESCRIPTION Annual Leave Expense 8, Holiday Expense 2, Medical Insurance Expense 10, Employer FICA Expense 8, FUTA Expense Company 401K Match 11, SUTA Expense 1, SUBTOTAL: OTHER Fringe Benefits 44, TOTAL FOR Fringe Benefits POOL Here is the rate 44, calculation: Total Fringe Benefits BASE Fringe Pool divided 144, by the base = the RATE: Fringe Benefits allocation percent =========== COMPANY-WIDE STATEMENT OF INDIRECT EXPENSES PERIOD END: 03/31/09 Fringe Benefits RATE CALCULATION/APPLICATION DETAIL BASE YTD AMT APPLIED RATE % D LABOR CLI 80, , OH 51, , G&A LABOR 12, , , , A B NeoSystems Corp 2011 Page 52 of 61