WELCOME. Accounting Systems for DOD Contracts

Transcription

1 WELCOME Accounting Systems for DOD Contracts Moderator: Layli Pietri, Small Business Manager, Balfour Beatty Construction Speaker: Kay Papin, Government Compliance Manager, McCarthy Group Inc.

2 Accounting Systems for DOD Contracts Kay Papin McCarthy Building Companies

3 Objectives Provide key FAR, DFARS, and CAS accounting references Provide definition of accounting system Discuss need for an acceptable system Review criteria for an acceptable system Discuss acceptable system strategy Provide resource references

4 Key FAR, DFARS, & CAS Accounting References FAR Federal Acquisition Regulation FAR Part 16: Contract Types FAR Part 31: Contract Cost Principles and Procedures (allowability, allocability, reasonableness) Construction and Architect-Engineer Contracts FAR Part 52: Contract Clauses Changes Provision and Clause Matrix DFARS DoD FAR Supplement CAS Cost Accounting Standards (48 CFR Chapter 99)

5 An Accounting System Defined DFARS : An Accounting System An acceptable accounting system must comply with 18 system criteria to provide reasonable assurance that (i) Applicable laws and regulations are complied with; (ii) The accounting system and cost data are reliable; (iii) Risk of misallocations and mischarges are minimized; and (iv) Contract allocations and charges are consistent with billing procedures

6 An Accounting System Defined Per DFAR an accounting system can include: - Indirect and other direct costs - Compensation - Billing system - Labor - General information technology Inter-relationship of Subsystems Job Cost/Payroll (both timekeeping & payment)/purchasing/financial Reporting/Billing/Scheduling/Estimating

7 Need for an Acceptable System Do you need an acceptable system? DFARS requires acceptable system for: Cost-reimbursement, incentive type, Time and Materials (T&M), or Labor Hours Contracts, or Fixed Price contracts with progress payments made on basis of cost or percentage of completion Other Issues: Consequences of significant deficiency = withhold Changes FAR thru 7

8 DFARS Criteria for an Acceptable System DFARS lists 18 criteria for an acceptable system: (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

9 DFARS Criteria for an Acceptable System (8) Management reviews or internal audits of the system to ensure compliance with the Contractor s established policies, procedures, and accounting practices (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 (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

10 DFARS Criteria for an Acceptable System (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 (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;

11 DFARS Criteria for an Acceptable System (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 (18) Accounting practices in accordance with standards promulgated by the Cost Accounting Standards Board (CAS), if applicable, otherwise, Generally Accepted Accounting Principles (GAAP).

12 Pre-Award Accounting System Survey - SF Accounting system in accordance with GAAP (#1, #7, #8, #18) 2. Accounting system provides for: a. Proper segregation of direct and indirect costs (#2) b. Identification & accumulation of direct costs by contract (Job Costing) (#3) c. System is logical and consistent (#4) d. Costs are under a general ledger system (#5, #6) e. Timekeeping system identifying labor by intermediate or final cost objective (#9) DFARS Criteria # is shown after the DCAA Pre-Award Accounting System Survey item.

13 Pre-Award Accounting System Survey SF Accounting system provides for: f. Labor distribution that charges direct and indirect to appropriate cost objectives (#10) g. Interim costs charge to contracts through routine posting (#11) h. Exclusion of FAR Part 31 Unallowable costs charge to the Government (#12, #16) i. Identification of costs by line item, if required by contract (#13, #16) j. Segregation of preproduction costs from production costs (#14, #16) DFARS Criteria # is shown after the DCAA Pre-Award Accounting System Survey item.

14 Pre-Award Accounting System Survey SF Accounting system provides financial information (#15): a. Required by contract clauses concerning limitation of cost (FAR & 21), or limitation of payments (FAR ) b. Required to support requests for progress payments (#16) 4. Accounting system should be designed, and the records maintained for adequate, reliable data in the development for use in pricing follow-on acquisitions (Change Orders) (#15(ii), #17) 5. Is the accounting system currently in full operation, if not you must be able to demonstrate transition DFARS Criteria # is shown after the DCAA Pre-Award Accounting System Survey item.

15 Acceptable Accounting System Internal Controls Estimating Accounting System Timekeeping & Compensation Billing FAR Part 31

16 Internal Controls (Control Environment) A sound control environment includes processes and structure for effective internal controls Examples: - Ethics Policy & Training - Written Policies and Procedures - Segregation of Duties - Supervisory approval - Management, Internal Audit or 3 rd Party Review

17 Timekeeping Need written procedures providing clear guidance of what is expected Timekeeping system must identify employee s labor hours and labor cost by intermediate or final cost objective Final cost objective typically = contract Intermediate cost objective = indirect cost pool Timekeeping system should be able to segregate labor dollars and fringe benefit dollars by element Davis Bacon (certified payroll)

18 Timekeeping Requirements of an adequate labor accounting system include: - Training - Monitoring - Must record all hours worked (TTA-Total Time Accounting) - Employees must complete their own timesheet - Timesheets must be approved - Must have an audit trail (explain changes) DCAA may perform Floor Check Audit

19 FAR Part 31 Contract Cost Principles & Procedures Per FAR Part : Allowable cost must be (1) Reasonable (2) Allocable (3) Treated in accordance with CAS Board, if applicable; otherwise, generally accepted accounting principles (GAAP) & practices appropriate to the circumstances (4) In accordance with the terms of the contract (5) Comply with limitations set forth in FAR Part 31

20 Requirements of FAR Part 31 FAR Part 31 identifies many costs that cannot be charged to government contracts i.e. unallowable or partially unallowable. Most common examples: Expressly Unallowable Alcohol-FAR Entertainment-FAR Bad debt expense-far Donations-FAR Interest Expense-FAR Partially Unallowable Travel-FAR Relocation-FAR

21 Billing System Billings must reconcile to the cost accounts for both current and cumulative amounts claimed and comply with contract terms Only allowable costs can be included in amounts charged to the Government Rate calculations for indirect costs must include unallowable costs in the base

22 Billing System Identification of costs requiring contracting officer approval per contract Proper withholding of costs Prompt Payment Identify overpayments Refunding to the Government in a timely manner

23 Estimating Accounting system should be designed, and the records maintained for adequate, reliable data in the development for use in pricing follow-on acquisitions (Change Orders) FAR thru 6 Changes Clause FAR 15.4 Contract Pricing FAR , Table 15-2 Certified Cost or Pricing >$700 as of October 1, 2010 Absolute value

24 Strategy for an Acceptable System Start with the DCAA preaward survey program and the preaward checklist Go thru each element and determine risk areas according to deficiencies Develop written plan for implementing changes and/or improvements Implement plan Next Step DCAA Post Award Accounting System Audit at Nonmajor Contractors Follow same process as above Remember consequences - Significant Deficiencies = Withhold

25 DCAA Resources DCAA Pamphlet No , Information for Contractors (Under Publications) Preaward Survey of Prospective Accounting Contractor Accounting System Checklist Preaward Survey of Accounting System (SF1408) Audit Programs Preaward Survey of Prospective Contractor Accounting System Post Award Accounting System Audit at Nonmajor Contractors Accounting and Other System Audit Programs Audit of Control Environment and Overall Accounting System Controls Internal Control Matrix

26 Other Resources FAR FAR Supplements Defense Acquisition Guidebook Ask A Professor

27 Questions