Keys to Submitting an Adequate Incurred Cost Proposal

Transcription

1 Keys to Submitting an Adequate Incurred Cost Proposal Presented By: Kiran Pinto, Senior Manager, Watkins Meegan Keith Romanowski, Compliance Director, WJ Technologies March 20, 2013

2 Agenda Who Needs to submit an ICP? What Are attributes of an adequate ICP? What Are my chances of being audited? Where Do I file an ICP? When Do I submit an ICP? Why Are adequate submissions important? 2

3 What is AN Incurred Cost Proposal? Statement of direct and indirect costs by contract and cost element The final avenue of reimbursement for both direct and indirect costs Used to review, audit, and approve direct costs and final indirect rates for every year Required for contract closeout Required by the Federal Acquisition Regulation 3

4 Who Needs to Submit an ICP? Requirement triggered by FAR , Allowable Cost and Payment Clause All Cost type or T&M contracts FP contracts with cost reimbursable clins Christian Doctrine (even if clause not included) Required of Subs as well as Primes 4

5 Submission Requirements The contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6 month period following the expiration of each of its fiscal years. The Contractor shall support its proposal with adequate supporting data. (See DCAA Information for Contractors) Final annual indirect cost rates and appropriate bases shall be established in accordance with ihsubpart 42.7 of the Federal Acquisition Regulation (FAR) in effect for the period covered by the indirect cost rate proposal. 5

6 Inaccurate or Incomplete Submission How does this happen? Lack of adequate review Inadequate version control System reports are incorrect Contract types are mixed Data entry is sloppy or incomplete Contract date base is not maintained Schedule totals from schedule to schedule DO NOT MATCH Started preparation Late 6

7 Consequences of Inaccurate Submission Increased probability of future audits Administrative, Civil & Criminal Penalties May be an indicator of an inadequate accounting system Incorrect final indirect rates Incorrect / inaccurate billings Reduced revenue and profit and/or reversal of revenue and profit already taken Contract close out delays 7

8 Filing Late or Not Filing At All How does this happen? Not realizing you must file No one clearly assigned the responsibility Simply not getting to it What are the Consequences? Filinginarrearsisdifficult; in is historicalknowledge maybe lost ACO can unilaterally set indirect rates and close contracts (FAR ) Statute t t of limitations it ti extended d Elevates your contractor risk factor Inadequate accounting system? 8

9 Escalation Process Failure to file can go undetected for years Three month letter If overdue 6 months, letters begin to escalate After six months the DCAA will recommend a unilateral rate determination ACO can unilaterally set indirect rates and close contracts 9

10 What is the ICE Model? ICE (Incurred Cost Electronic) Electronic form provided by the DCAA for completion of the Incurred Cost Submission The ICE model schedules ARE required FAC , effective June 11, 2011 incorporated the ICE Model schedules into the Allowable Cost and Payment clause, FAR Template model in Excel Format (located at 10

11 How Can We Succeed? Start as soon as possible after the close of the fiscal year Utilize the DCAA ICP adequacy checklist, GUIDE FOR DETERMINING ADEQUACY OF CONTRACTOR INCURRED COST PROPOSAL, as a benchmark Competent Preparer Knows where to get the data Won t take data or things at face value Understands the schedules Doesn t just fill in the boxes Competent and thorough review Tie GL to the IC submission 11

12 How Can We Succeed? (Continued) Ensure that all schedules Tic and Tie Final review / sanity check Version Control Save the reports you create! Document what you did and how you did it for future reference / audits/ etc Understand your contract types and how costs are accumulated (CPFF, T&M, FP, etc) Knowledge of how the contract is invoiced by task or as one line item If by task, the cost has to be reported by task y p y 12

13 Required Schedules Sch A Summary of Claimed Indirect Expense Rates Sch B General and Administrative (G&A) Expenses (Final Indirect Cost Pool) ShC Sch Overhead de Expenses (Final Indirect tcost tpool) Sch D Occupancy Expenses (Intermediate Indirect Cost Pool) Fringe Sch E Claimed Allocation Bases Sch F Facility Capital Cost of Money Factors Computation Sch F(1) Calculation of net book value 13

14 Required Schedules (continued) Sch G Reconciliation of Books of Account and Claimed Direct Costs Sch G(1) Reconciliation of G/L to JCL Summary Sch H Schedule of Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates Sch H Direct and indirect costs by contract Sch H(1) Government participation Percentages Sch I Schedule of Cumulative Direct and Indirect Costs Claimed and Billed 14

15 Required Schedules (continued) Sch J Subcontractor information Sch K Summary of Hours and Amounts on T&M/Labor Hour Contracts Sch L Reconciliation of Total Payroll to Total Labor Distributiontion Sch M Decisions/Agreements/Changes Sch N Certificate of final indirect rates Sch O Contract Closing information for contracts completed during the Fiscal Year Sch P Allowable IR&D/B&P 15

16 Optional Schedules Sch Q(1) to Q(4) Comparative schedules Sch R Tax return reconciliation Sch S Contract Briefs Sch T Executive Compensation 16

17 Key Schedules Sch H Direct and indirect costs by contract Sch I Summary of claimed and billed Sch J Subcontractor info Sch K Hours and amounts on T&M contracts 17

18 Sch H Direct and indirect costs by contract Direct costs by major cost element by contract or contract task Contracts are grouped by contract type, show job number and client, sub or prime Hybrid contracts Fixed price/commercial contracts summarized Labor is entered by overhead pool (IMPORTANT) Include unbillable cost Direct costs are totaled and burdened with fringe, overhead, G&A, or other indirect cost and totaled again Good place to check against system generated direct cost reports 18

19 Sch H Sample 19

20 Sch H Pitfalls Not enough detail Not listing contracts by contract type Not providing cost by task if funded by task Labor not detailed correctly by overhead pool Incorrect totals Totals do not tie to GL amounts Formulas arewrong Links are incorrect 20

21 Sch I Summary of claimed and billed Prior Years settled costs Prior Year unsettled claimed costs direct and indirect burdened at claimed rates by year Current year claimed costs direct and indirect burdened at claimed rates Cumulative Billed, Voucher number of last invoice, date billed through Calculates over (under) billing Yes / No is the contract subject to the Penalty Clause (FAR ) 21

22 Sch I Summary of claimed and billed (Continued) Yes/No is contract physically ycomplete? Costs only/no Fee CPFF claimed from Sch H T&M Claimed from Sch K Prior year settled ldcosts 22

23 Sch I Sample 23

24 Sch I Pitfalls Inadequate Review Review, review, review Make sure links to Schedule H are correct Prior year data not correct Ceilings on indirect rates not addressed 24

25 Sch J Subcontractor info Includes all subcontracts awarded on flexibly priced prime contracts and/or upper tier subcontracts Be sure to include all information Identifies subcontractors to audit 25

26 Sch J Sample 26

27 Sch K T&M, ODC T&M labor hours by contract or contract task Show Labor Category, Hours, Hourly Rate, and total ALL Travel & ODC s incurred at actual Indirect costs applied at claimed rates Ceilings identified on Sch I 27

28 Sch K Sample 28

29 Sch K Pitfalls Contracts/delivery orders not reported consistent with Schedule H Cost detail not consistent with billing detail Contract ceiling is not correct ODC claimed for each contract/d.o. does not tie to ODC claimed in schedule H 29

30 Sch A D and Fringe Pitfalls Not using the adjustment column You can correct known mistakes in the GL here Ifyou know you charged unallowable as allowable, change it here, take it out before the audit finds it! Not reviewing rates with system generated ones Not checking pool totals with system generated totals Unallowable costs not identified 30

31 Sch E Allocation Bases Lists all indirect cost pools and bases and calculates rates Pulls base and pool information from individual schedules 31

32 Sch G Reconciliation of Books Reconciles the GL with claimed costs Links to trial balance cost accounts and Schedule H totals DL, Travel, ODC, material, etc Any discrepancies are explained in notes 32

33 Sch L Payroll Reconciliation Reconciles IRS Form 941 s to Total Labor Distribution Lists ALL employee labor cost by type and account Direct Labor Indirect Labor Vacation, Sick, PTO Holiday Bonus, etc 33

34 Sch M, N, O, Q, R, S, T Pitfalls Not explaining organizational changes Schedule M Certifying without reviewing Schedule N Not knowing if your contract is ready to close Schedule O Not reconciling or explaining delta between Schedule R & L Not having contract briefs Schedule S Not providing ALL executive compensation Schedule T 34

35 DCAA and Executive Compensation 2011 Statutory limit $763,029 FAR Compensation for personal services Compensation must be reasonable for work performed DCAM Audit of executive compensation More than 110% of reasonable compensation may be justified by clearly superior performance DCAA policy is to use 10% range of reasonableness 35

36 What does an adequate ICP mean? DCAA adequacy checklist Mandatory schedules are there Schedules tie to one another Claimed costs on schedules B, C & D tie to schedule A Certified Statute of limitations clock starts Rate adjustment invoice ICP ready for audit 36

37 DCAA s Revised Policy Effective July 6, 2012 Modification of DCAA Process for Sampling Low Risk Incurred Cost Proposals Effective September 6, 2012 Audit Guidance on Revised Policy and Procedures for Sampling Low Risk Incurred Cost Proposals All ICP s will be evaluated upon receipt for adequacy IAW FAR Using the DCAA Incurred Cost Proposal Adequacy checklist 37

38 ICP determination Not Adequate ICP is determined to be NOT adequate and the deficiencies cannot be remedied with minor effort ICP will be returned to the contractor with written instructions on required corrective actions, IAW CAM Chapter 6 38

39 ICP determination Adequate In process assignments continue as planned All high risk proposals will be audited All proposals >$250million auditable dollar value (ADV) will be audited Low risk proposals <$250million auditable dollar value (ADV) sampled 39

40 Low Risk Proposal Criteria Must have prior incurred cost audit experience No significant audit risks or leads Known system deficiencies Concern of Contracting Officer Significant changes in organization or operations Risks identified by audit team No significanttotal total exception dollars 40

41 Low Risk Proposal Criteria (Significant Exception Dollar Table) Low Risk Adequate Proposals by Auditable Dollar Value(ADV) $1M or Less $15,000 $1M to $15Million $25,000 $15M to $50 Million $55,000 $50 Million to $250 Million $100,000 Amount of Previous Exception Dollars (Including Corporate, Intermediate Home Office, etc) Classified as Significant 41

42 Low Risk Proposal Criteria (Sampling Percentages) Low Risk Adequate Proposals by Auditable Dollar Value (ADV) $1M or Less 1% $1M to $50Million 5% $50M to $100 Million 10% $100 Million to $250 Million * 20% Greater than $250 Million 100% Low Risk Sampling Percentages * If not selected for audit for two consecutive years, third year will be selected for audit. 42

43 Low Risk Proposal Criteria If ICP not audited DCAA to issue a memorandum for the CO, including the key steps performed from the adequacy checklist If Contractor has multiple low risk audits open and one year sampled, All years will be kept open until audit is complete If significant questioned costs are found, all years will be audited. 43

44 Key Changes to DCAA s Low Risk Criteria Risk Factor Previous Criteria(applied to Revised Criteria (applied to proposals under $15M ADV) proposals under $250M ADV) History of incurred cost At least one incurred costs At least one incurred cost audits audit every 3 years audit* Previous questioned costs Below $10,000 Below thresholds ranging from $15,000 to $100,000 based on ADV Audit leads or other significant risks No relevant risk factors No changes * Proposals with ADV of greater than $100 M to $250 M must have at least one audit every three years. 44

45 GAO Report on DOD Audit Backlog DCAA estimates they will be current by 2016 High risk proposals are 250% of anticipated Initiative appears promising, but DCAA has not fully developed measures to reduce backlog and protect taxpayers interests DOD is missing i information on contracts t to close DCMA contract closeout metrics established and monitored Army goal to close 475,000 contracts by 9/2014 Missing info and no implementation plan Navy & Air Force performance metrics not established for closeout 45

46 Resources ICE Manual DCAA Information for Contractors (updated pdated6/26/12) DCAAM (Chapter 6) ICP audits Incurred Cost Audit Program download from Excel version of ICS down load from FAR Cost Principal Guide ICP Adequacy Checklist 46

47 Questions? 47

48 Contact Us 8000 Towers Crescent Drive Tysons Corner, VA Dulles Technology Drive Herndon, VA Keith Romanowski, Senior Manager (703) Karen Williams, Senior Consultant (703)