Preaward and Post Award Accounting System Audits. November 17, 2011 Pikes Peak NCMA Roland Wick

Transcription

1 Preaward and Post Award Accounting System Audits November 17, 2011 Pikes Peak NCMA Roland Wick

2 OVERVIEW This presentation will provide: 1. The basic criteria for the Preaward and Post Award accounting system audits performed by DCAA, and 2. Overview on how to support these DCAA Audits to achieve an adequate system.

3 What is a Preaward Audit? A preaward survey of a contractor s accounting system is an examination of the accounting system at either a major or a non-major contractor before contract award. To determine if the accounting system is acceptable for accumulating costs under a prospective government contract Limited to obtaining an understanding of the design of the system to complete the SF 1408

4 Federal Acquisition Regulation (FAR) Preaward Review-Why Performed? Is requested by contracting officers to meet requirements of FAR Part Policy. (a) Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors Obtaining information. (a) Before making a determination of responsibility, the contracting officer shall possess or obtain information sufficient to be satisfied that a prospective contractor currently meets the applicable standards in (b)(1) Generally, the contracting officer shall obtain information regarding the responsibility of prospective contractors, including requesting preaward surveys when necessary (see 9.106), promptly after a bid opening or receipt of offers. However, in negotiated contracting, especially when research and development is involved, the contracting officer may obtain this information before issuing the request for proposals.

5 What is a Post Award Accounting System Audit? An examination of a non-major accounting system after contract award. The objective is to determine if the system is adequate for accumulating and billing costs on Government contracts.

6 Post Award Generally, is for a follow-up on the preaward or no preaward completed. Normally this is a DCAA initiated audit (not requested) More comprehensive steps to test billings, trace costs to source documents, assess internal control activities. (See MAAR 1 and MAAR 3). However, this is not an internal control audit. (CAM 5-203)

7 What is the Audit Criteria? The basic criteria for both audits rests in the Standard Form (SF)1408 in FAR Part 53. There is added criteria in the Post Award Audit but all requirements generally link to the 1408 criteria. Main emphasis for added effort in Post Award is billing reviews related to limitation of payments.

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9 Added Criteria for Post Award Verify that the contractor is up to date on its submission of incurred cost proposals in accordance with contract terms. (FAR (d)(2)). Verify indirect costs are billed at approved rates (or rates specified in the contract) by evaluating a sample of current invoices (public vouchers and progress payment requests) and evaluating a current contractor billing. Verify that the contractor adjusts billing rates to reflect actual year end allowable rates. Verify/test that interim billings are either prepared directly from the cost accounting records or from other records which are reconciled to the cost accounting records by cost element for all cost-reimbursable work.

10 Added Criteria Post Award Determine that billings are based on current contract provisions. The total amount billed should not exceed any contract, work order, funding limitation, or any other contract ceiling amount. Identify controls which provide for review of contract billing provisions. For time and material and labor hour contracts, total labor costs billed will not reconcile to the contractor s cost accounting records. Consequently, verify that (a) direct labor hours billed reconcile to the cost accounting records and (b) direct labor has been billed at appropriate contract rates.) Verify that billings can be reconciled to the cost accounts for both current and cumulative amounts claimed.

11 Added Criteria Verify that the contractor has procedures to ensure that subcontractor and vendor costs are only included in billings if payment to the subcontractor or vendor will be made in accordance with the terms and condition of the subcontract or invoice and ordinarily within 30 days of the contractor s payment request to the Government. Verify that the contractor has procedures in place to ensure that interim vouchers include fixed fee and cost withholds in accordance with FAR and , when appropriate. Test the contractor s reconciliation of booked to billed costs. If the contractor is authorized to direct bill, perform additional steps, if applicable, to test the contractor s continued eligibility for direct billing as part of this audit.

12 Is this Similar to new DFARS Business System Accounting System Requirements ? YES! c) System criteria. The Contractor s accounting system shall provide for (1) A sound internal control environment, accounting framework, and organizational structure; (2) Proper segregation of direct costs from indirect costs; (3) Identification and accumulation of direct costs by contract; (4) A logical and consistent method for the accumulation and allocation of indirect costs to intermediate and final cost objectives; (5) Accumulation of costs under general ledger control; (6) Reconciliation of subsidiary cost ledgers and cost objectives to general ledger; (7) Approval and documentation of adjusting entries; (8) Periodic monitoring of the system; (9) A timekeeping system that identifies employees labor by intermediate or final cost objectives; (10) A labor distribution system that charges direct and indirect labor to the appropriate cost objectives;

13 New DFARS Requirements (11) Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account; (12) Exclusion from costs charged to Government contracts of amounts which are not allowable in terms of Federal Acquisition Regulation (FAR) part 31, Contract Cost Principles and Procedures, and other contract provisions; (13) Identification of costs by contract line item and by units (as if each unit or line item were a separate contract), if required by the contract; (14) Segregation of preproduction costs from production costs, as applicable;

14 New DFARS Requirements (15) Cost accounting information, as required (i) By contract clauses concerning limitation of cost (FAR ), limitation of funds (FAR ), or allowable cost and payment (FAR ); and (ii) To readily calculate indirect cost rates from the books of accounts; (16) Billings that can be reconciled to the cost accounts for both current and cumulative amounts claimed and comply with contract terms; (17) Adequate, reliable data for use in pricing follow-on acquisitions; and (18) Accounting practices in accordance with standards promulgated by the Cost Accounting Standards Board, if applicable, otherwise, Generally Accepted Accounting Principles.

15 DCAA Audit of Non-Major Contractors Could/Will Change as DCAA Develops new Non Major Audit Programs DCAA is currently working on this plan.

16 How To Support The Audit? Take each line item on the 1408 and audit program and separately document that process. Put the documentation in a folder by each criteria. Pre Award Must demonstrate design is acceptable. Post Award ---Must show system is working as designed. Fill out the ICQ (Internal Control Questionnaire)

17 What to Provide for Support? Generally Accepted Accounting Principles. Pre Award and Post Award ICQ, flowcharts, audited or reviewed financial statements (if available), written accounting policies, organization charts, chart of accounts. Show the overall system process and flow of the recording processes.

18 Proper segregation of costs. Both Pre and Post Award. Provide chart of accounts and written accounting policies. How does the contractor define direct and indirect costs? Provide written policies which state contractor procedures.

19 Direct costs by contract Both Pre and Post. Provide policies on how contract numbers are established, provide job cost numbers in the system, show the cost element breakout at the job cost level, show current and cumulative costs, provide job cost reports. DCAA will select billing/invoice, if possible, in the pre award, to trace direct costs downward into records to job cost record and then for (i) labor to the time cards and labor distribution verification and (ii) materials and ODC to invoices/checks receipts/source documents. This will occur in detail for Post Award review.

20 Allocation of indirect costs. Both pre and post. Provide cost accounts that record indirect costs by pool. Provide written policies on pools and bases, to include description of pool/base elements, and the methodology for calculating indirect rates. Provide current rates and pools and bases that tie directly to the accounting records. Provide interim indirect rates and final year-end actual indirect rates.

21 Accumulation of costs under general ledger control Both pre and post. Pick specific job cost report, trace it to the higher level of total job cost report summary, trace that top level job cost summary to the income statement COGS. Assure the income statement for that period ties to the balance sheet (retained earnings).

22 Timekeeping system. Time cards and labor distribution. Both audits. Provide the total labor distribution report for all jobs. Select the same job cost report from above and trace labor to that section of the distribution report. From the specific labor distribution report for that job cost report trace selected labor to time cards. Assure time cards support hours in the labor distribution. Provide selected payroll records to assure effective labor rates are applied for all hours worked. Assure that costs computed in labor distribution are correct (all hours worked and rates applied correctly).

23 Interim determination of costs. Both audits. Provide bank to cash reconciliation for the balance sheet selected for the job cost to income statement to balance sheet trace. This should show the accounting system is currently posted. (Also verified in trace of current vouchers to source records).

24 Exclusion of Unallowables. Both audits. Provide written policies on FAR 31 exclusion. Provide the accounts in the chart of accounts that accumulate unallowable costs. Demonstrate indirect pools have no unallowable accounts and that bases include appropriate unallowables as required under FAR 31.

25 Costs by Contract Line Item Demonstrate the numbering system to allow lower level codes to contract charges. Demonstrate all cost elements, down to the lowest level, are incurred and recorded by line item, for each specific contract in the detailed job cost ledgers.

26 Limitation of Costs/Billings: Preaward- Demonstrate you have policies, contract briefing forms, and show indirect rates are readily calculated from records. Explain and document who monitors these rates, who will monitor limitation of billings, who will review costs vs billings? Does the contractor have controls or procedures that would provide that interim billings of direct cost are prepared directly from the books and records, excluding unallowable costs? Does the contractor have procedures to ensure that subcontractor and vendor costs are only included in billings if payment to the subcontractor or vendor will be made in accordance with the terms and conditions of the subcontract or invoice and ordinarily within 30 days of the contractor s payment request to the Government? Can billings be reconciled to the cost accounts for both current and cumulative amounts claimed?

27 Limitation of Costs/Billings: Post Award- Same but expanded steps to show these limitation activities are occurring. Briefing of contracts, current reviews of rates, current review of costs vs. billings. indirect costs are billed at approved rates Costs on selected vouchers (CPFF/CPAF/CPIF) must trace directly from voucher to the costs in the job cost records. Vouchers will be selected to trace directly to job cost, then down to labor distribution, then to time cards, with verification of labor rate applied. Materials and ODC will be tested downward to assure source records support costs billed. Is math correct? T&M. T&M rates must trace to contract, hours must trace to job cost, ODC elements must trace. Fee and profit must meet contract and FAR limits. Cost and Fee limitations correct?

28 Adequate, Reliable Data: If the costs are properly recorded and accumulated this will be accepted. If the costs do not reconcile or are not in detail to allow cost element bid support per FAR part 15 then this criteria will fail.

29 Common Failures Software is not open or started. Indirect rate structure is not developed. Vouchers do not trace directly to job cost report. No time cards for officers and owners. All time is not reported. (Total Time) Cash to bank does not reconcile. Total of job cost reports does not reconcile to income statement. Funding and cost limitations are not correct. No billing to cost reconciliation is performed. No contract briefing cards.

30 Summary/Questions The Pre award and Post award audits are based on the same FAR 1408 criteria. Organization of data by specific criteria in the audit programs is the best way to approach the audit. Limitation of cost analysis is significantly expanded in Post award steps. Discuss all issues with DCAA. Make sure you fully understand what DCAA is reporting and saying. Errors and misunderstandings happen, so you need to assure all issues are fully explained and understood.