Implementing a FAR Part 31 Compliant Cost Accounting System

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2 Implementing a FAR Part 31 Compliant Cost Accounting System Breakout Session #: F11 Presented by: Robert E. Jones, CFCM, CCCM Date: July 23, 2013 Time: 4:00 PM 5:15 PM

3 Agenda 1. Choosing a System 2. Designing Your System 3. Reports & Output 4. Audits & Compliance 5. Implementing Your System 2

4 FAR Business Systems Rule 1. Accounting and Billing Systems 2. Purchasing System 3. Estimating Systems 4. Government Property Management System 5. Material Management and Accounting System 6. Earned Value Management System 3

5 My Recent Experience Oracle-based system GAAP compliant Mostly FAR 31 compliant Poor budgeting Lack of calculating and tracking rates Little or no connection to the cost estimating & pricing process 4

6 1.0 Choosing a System What are the names of some compliant systems? How do you get a DCAA-approved accounting system? 5

7 Parts of an Accounting System Chart of Accounts Timekeeping Budgets Estimating & Pricing Invoicing 6

8 2.0 Designing Your System 2.1 Four Reasons to Use ICE (Incurred Cost) 2.2 Five Steps for a Chart of Accounts 2.3 Three Keys to EASY Budgeting These are your takeaway items! 7

9 2.1 Four Reasons to Use ICE 1. Start with a picture of the finished product! 2. You have a copy of the test, no reason you should fail. 3. You know what is expected of you and in what format. 4. You have the rule book! 8

10 2.2 Five Steps for a Chart of Accounts 1. DCAA Information for Contractors 2. Follow FAR Part Eliminate the low hanging fruit M&E, Employee Welfare, Unallowables 4. Consistency 5. Documentation & Training 9

11 2.2.1 DCAA Info for Contractors Accounting System Labor Charging System Price Proposals Cost Accounting Standards 10

12 DCAA Accounting System Checklist Proper segregation of direct costs from indirect costs Identification and accumulation of direct costs by contract A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives Accumulation of costs under general ledger control 11

13 DCAA Accounting System Checklist A timekeeping system that identifies employees' labor by intermediate or final cost objectives A labor distribution system that charges direct and indirect labor to the appropriate cost objectives Interim (at least monthly) determination of costs charged to a contract through routine posting to books of account 12

14 DCAA Accounting System Checklist Exclusion from costs charged to Government contracts of amounts that are not allowable pursuant to FAR Part 31, Contract Cost Principles and Procedures, or other contract provisions Identification of costs by contract line item and units (as if each unit or line item was a separate contract) if required by the proposed contract Segregation of preproductions costs from production costs 13

15 Labor Charging System Timekeeping procedures Timesheet preparation Recommended timekeeping policy Labor floor checks or interviews Penalties for labor mischarging 14

16 2.2.2 Follow FAR Part 31 DCAA FAR Cost Principles Guide e.pdf FARsite fardfars/far/31.htm Wolters Kluwer principles 15

17 2.2.3 Eliminate low hanging fruit Meals & Entertainment (M&E) Employee Welfare Other Unallowables 16

18 2.2.4 Consistency Always treat like and similar costs the same way. 17

19 2.2.5 Documentation & Training Policies Procedures Corporate Policies Local Practices Description of accounting system and how it is used Train users on which accounts to use 18

20 2.3 Three Keys to EASY Budgeting Three items that will forever turnaround your frustration with the budget process. It s all about responsibility and ownership! 1. Chart of Accounts 2. Organizational Chart 3. Budget Ownership & Accountability 19

21 Chart of Accounts The Chart of Accounts is your list of expenses. Go down the list and you shouldn't have any unexpected hiccups. If your Chart of Accounts is well-designed and laid out to match your cost pools and allocations, then calculating your rates and developing your pricing will be easier, too. 20

22 Organizational Chart The Organizational Chart lists the managers and supervisors - the same people who are budget owners and approve expenses. Get them involved in the process. Users of a system have valuable input and will take ownership if they believe they are involved. 21

23 Budget Ownership & Accountability You know who the budget owners are, now give them feedback in the form of monthly reports and hold them accountable. Have a system for explaining variances and require a written response for anything +/- 5%. You may go as far as incorporating corrective action plans for variances greater than +/- 10% or that persist for two or months. 22

24 3.0 Reports & Output G/L Reports (BS, IS, TB, CF) Budget to Actual Labor Distribution & Utilization Standard Cost & Contribution Margin 23

25 4.0 Audits & Compliance Have you documented your policies, procedures, and system setup? Have you provided training? If the auditors call, ask them why type of audit tml 24

26 5.0 Implementing Your System Pulling it all together in project management Define the goal Set the milestones Assign the tasks Keep a log of activity and issues Have regular, meaningful meetings Have a steering committee 25

27 Review & Connect Systems #1 & #3 should now work together. shall ensure that practices used to accumulate and bill costs are consistent with practices used to estimate contract costs (CAS 401 and FAR and (d)) 26

28 Questions Robert E. Jones CFCM, CCCM Contracts Manager, Pole/Zero Corporation (513)