2012 DENVER METRO SBDC VETERANS CONFERNCE  GOVERNMENT CONTRACT COMPLIANCE & ACCOUNTING         SYSTEMS                    ...
Overview• Introduction• Compliance Overview• Current Audit Environment• Internal Controls• Audit Types• Accounting System ...
Mr. Gary L. Henry, CPCM, PMPVice President, OperationsMr. Gary Henry is Vice President, Operations, for McNew & Associates...
Challenges Within the Acquisition LifecycleCarefully Balancing External Factors to Gain Competitive EdgeCompany         Bu...
Current Gov’t Audit Environment• GAO Report Dec 2008    • DCAA, DCMA oversight issues    • Congressional Committee on Gove...
DFARS Interim Rule• DoD is adopting as final an interim amending DFARS to improve the  effectiveness of DoD oversight of c...
Internal Controls - General• Strong internal controls tend to reduce DCAA’s audit efforts, while weak  internal controls t...
Accounting System “Status”• Myth: “Approved” Accounting Systems• Truth: “Adequate” Accounting Systems   • Based on contrac...
What This Really Means•The prime contractor has to have an adequate accountingsystem for award and performance of cost and...
DCAA Audits• Preaward Contract Audits   • Price Proposals      • Audits of contractor price proposal submission allowabili...
Accounting System  • Accounting System: Software, People, Processes, and Policies  • An acceptable accounting system provi...
Elements of anAccounting System• The accounting system center is the general ledger (G/L).• Feeding the hub information ar...
“Business Growth Through Effective Compliance”                                                 MAI Proprietary
Accounting System RequirementsReference Standard Form (SF) 1408 • In compliance with Generally Accepted Accounting Practic...
Minimal AccountingSystem Requirements IAW SF 1408 Purchases       Job Cost Record            Job Cost Ledger   Direct     ...
How To Support• Take each line item on the 1408 and separately document that process• Put the documentation in a folder by...
Common Failures• No written policies or procedures• Software is not open or started.• Indirect rate structure is not devel...
Business Strategy - Subcontractors• Should ensure compliant systems are put in place – 3rd party audit    • Primes requiri...
Key Take Away’s• GAO critical of DCAA, DCMA• DCAA and Government in increased oversight mode• DFARS Interim Rule will incr...
Contact Information McNew & Associates: Email: mcnew@mcnewassociates.com Web: www.mcnewassociates.com Gary Henry, PMP, CPC...
QUESTIONS?“Business Growth Through Effective Compliance”                                                            21    ...
BACK UP SLIDES  “Business Growth Through Effective Compliance”                                                            ...
Proper segregation of costs.•Provide chart of accounts and written accounting policies. How does the contractor define dir...
Direct costs by contract•Provide policies on how contract numbers are established, provide job cost numbers in the system,...
Allocation of indirect costs.•Provide cost accounts that record indirect costs by pool. Provide written policies on pools ...
Accumulation of costs under generalledger control•Pick specific job cost report, trace it to the higher level of total job...
Timekeeping system. Time cards andlabor distribution. • Provide the total labor distribution report for all jobs. • Select...
Interim determination of costs. •Provide bank to cash reconciliation for  the balance sheet selected for the job  cost to ...
Exclusion of Unallowables.• Provide written policies on FAR 31 exclusion.• Provide the accounts in the chart of accounts t...
Costs by Contract Line Item•Demonstrate the numbering system to allow lower level codes to contract charges. Demonstrate a...
Limitation of Costs/Billings:•Demonstrate you have policies, contract briefing forms, and show indirect rates are readily ...
Adequate, Reliable Data:•If the costs are properly recorded and accumulated this will be accepted. If the costs do not rec...
Upcoming SlideShare
Loading in...5
×

Government-Compliant Accounting: Really? What Does it Mean? How Do I Get There?

1,313

Published on

As you grow your business you will soon subcontract to a government prime contractor or prime a contract with the government directly. When you do you understand that your financials are open to being audited by the government to ensure fair and compliant in-voicing. What do you need to know to be “compliant”? Is your accounting system already compliant? This and other questions are worth knowing before that day comes.

By: Gary Henry, McNew & Associates

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
1,313
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
29
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • 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.
  • 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? 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?
  • Government-Compliant Accounting: Really? What Does it Mean? How Do I Get There?

    1. 1. 2012 DENVER METRO SBDC VETERANS CONFERNCE GOVERNMENT CONTRACT COMPLIANCE & ACCOUNTING SYSTEMS Mr. Gary Henry, Vice President McNew & Associates Mr. Roland Wick, Sr. Consultant McNew & Associates “Business Growth Through Effective Compliance” MAI Proprietary
    2. 2. Overview• Introduction• Compliance Overview• Current Audit Environment• Internal Controls• Audit Types• Accounting System – The Foundation• Business Strategies• Questions “Business Growth Through Effective Compliance” 2 MAI Proprietary
    3. 3. Mr. Gary L. Henry, CPCM, PMPVice President, OperationsMr. Gary Henry is Vice President, Operations, for McNew & Associates, Inc. (MAI), Colorado Springs, Colorado. He provides subject matter expert support related to Federal Acquisition Regulation requirements, federal contract proposal development guidance, business development, teaming strategies and post award contract management requirements. He is a retired Air Force officer, with a career spanning over twenty years in the operational, acquisition, contracting, and mission support disciplines.Roland WickSenior ConsultantMr. Roland Wick is a Senior Consultant with McNew & Associates, Inc. (MAI), Colorado Springs, Colorado. In this role he provides subject matter expert support related to Federal Acquisition Regulation (FAR) , Defense FAR Supplement (DFARS), and Cost Accounting Standards (CAS) requirements and proposal development guidance and support. Prior to joining MAI, Mr. Wick was a supervisory auditor for the Defense Contract Audit Agency.McNew & Associates provides:• Government Cost Accounting & Bookkeeping• Proposal Pricing Development & Strategy• Contract Management & Administration• Business System Implementation, Review, and Maintenance• DCAA Audit Support• Proposal Management• Business Development Support “Business Growth Through Effective Compliance” MAI Proprietary
    4. 4. Challenges Within the Acquisition LifecycleCarefully Balancing External Factors to Gain Competitive EdgeCompany Business Proposal Contract Contract ContractProcesses Systems BD/Capture Negotiation/ Development Administration Closeout Established Award Proposal Dev & Pricing “Back Contract/Subcontract ManagementOffice”Support Accounting/Financial Management Business Systems Compliance – Estimating, Accounting, Purchasing, EVMS DCAA/DCMA/FAR/DFARS/CAS Growth Business Changing Federal Workforce & Skill Competitor Opportunities Challenges Regulations Set Changes Influence “Business Growth Through Effective Compliance” MAI Proprietary
    5. 5. Current Gov’t Audit Environment• GAO Report Dec 2008 • DCAA, DCMA oversight issues • Congressional Committee on Government Contracting• DCAA has significantly increased defense contractor scrutiny • No longer provide guidance, hands-off, increased hiring • Focus is on “Quality Audits” • Significant backlog in “incurred cost audits” • More accounting system failures – slow turn around for revaluation• Significant change in the audit process • One deficiency noted, entire system is non-compliant (Pass/Fail) • Proposal adequacy (FAR 15-2) bar significantly raised• Prime Contractors getting systems deemed inadequate by DCAA • Estimating, Accounting, Billing, Purchasing, EVMS, Property • DCMA getting increased systems status requests from KO• DFARS Interim Ruling for Business System Compliance “Business Growth Through Effective Compliance” MAI Proprietary
    6. 6. DFARS Interim Rule• DoD is adopting as final an interim amending DFARS to improve the effectiveness of DoD oversight of contractor business systems • Rule will add Subpart 242.70 – Business Systems and would define six separate business systems: • Accounting System • Earned Value Management System (EVMS) • Estimating System • Material Management & Accounting System (MMAS) • Property Management System • Purchasing System • DoD is implementing compliance enforcement mechanisms in the form of a business systems clause which includes payment withholding as a percentage of payments• Business systems clauses contains a requirement for contractors to respond to initial and final determinations of deficiencies “Business Growth Through Effective Compliance” MAI Proprietary
    7. 7. Internal Controls - General• Strong internal controls tend to reduce DCAA’s audit efforts, while weak internal controls tend to increase audit scrutiny• When evaluating internal control systems, DCAA will consider: • Amount of systems testing previously performed or currently planned • Self-governance programs• The accounting and management systems should be considered in the context of the following: • Contractor’s size, organization and ownership characteristics • Nature of the contractor’s business • Diversity and complexity of the contractor’s operations • Contractor’s methods of processing information • Applicable legal and regulatory requirements• The “foundational” internal control is the Accounting System “Business Growth Through Effective Compliance” MAI Proprietary
    8. 8. Accounting System “Status”• Myth: “Approved” Accounting Systems• Truth: “Adequate” Accounting Systems • Based on contract type and requirements • FAR 16.301-3 – adequate to determine costs applicable to cost reimbursement contracts (no FAR requirement for T&M or FFP contracts) • FAR 9.103 – KO must determine responsibility IAW FAR 9.104-1 • May request a pre-award survey (FAR 9.106)• No longer adequate in part – either adequate or inadequate “Business Growth Through Effective Compliance” MAI Proprietary
    9. 9. What This Really Means•The prime contractor has to have an adequate accountingsystem for award and performance of cost and flexibilitypriced contracts• The prime has to assess its subcontractor’s system • This has become an increasingly highlighted requirement pre and post contract award • Incurred cost audits at prime level•Contracting officer will request audits by DCAA “Business Growth Through Effective Compliance” MAI Proprietary
    10. 10. DCAA Audits• Preaward Contract Audits • Price Proposals • Audits of contractor price proposal submission allowability, allocability, and reasonableness • Preaward Surveys • Audit to determine whether the contractors accounting system is adequate and suitable for accumulating costs under Government contracts • Forward Pricing Labor & Indirect Rates • Provisional Billing Rates – Audit of indirect cost rates used for obtaining reimbursement on cost type contract billings • Forward Pricing Rate Agreements – Audit of projected or forecasted bidding rates and pricing factors• Post Award Contract Audits • Incurred Costs • Year end audit of total year costs incurred to ensure reasonableness, allowability, and allocability. • Truth In Negotiations Act (TINA) Compliance • Basically ensure no deception in pricing at negotiation time • Cost Accounting Standards (CAS) Compliance & Adequacy • Only applicable to contracts over $7.5M or $50M (A whole different conversation) • Claims • Audit of requests for Equitable Price Adjustments, financial assistance, or Economic Price Adjustment • Financial Capability • Audit to determine whether the contractor’s finances are adequate to perform the contract “Business Growth Through Effective Compliance” MAI Proprietary
    11. 11. Accounting System • Accounting System: Software, People, Processes, and Policies • An acceptable accounting system provides reasonable assurance that • Applicable laws and regulations are complied with • Accounting system and cost data are reliable • Risk of misallocations and mischarges are minimized • Contract allocations and charges are consistent with invoice procedures Business System DCAA ICAPS and Other System Audits Accounting System Control Environment and Overall Accounting System Controls Indirect and Other Direct Cost Controls Compensation System Controls Billing System Controls Labor System Controls Pre-Award and Post-Award Accounting System Review General Information and Technology System Controls “Business Growth Through Effective Compliance” MAI Proprietary
    12. 12. Elements of anAccounting System• The accounting system center is the general ledger (G/L).• Feeding the hub information are sub ledgers that include the following components: • Accounts Receivable • Accounts Payable • Order Entry • Inventory Control • Cost Accounting • Payroll • Fixed Assets Accounting•Must meet form 1408 accounting system adequacy criteria “Business Growth Through Effective Compliance” MAI Proprietary
    13. 13. “Business Growth Through Effective Compliance” MAI Proprietary
    14. 14. Accounting System RequirementsReference Standard Form (SF) 1408 • In compliance with Generally Accepted Accounting Practices (GAAP) • 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 • A timekeeping system that identifies employees’ labor by intermediate of final cost objective • A labor distribution system that charges direct and indirect labor to the appropriate cost objectives • Interim (at least monthly), routine posting of books of account • Exclusion of unallowable costs specified in the contract or specifically identified in FAR 31.205 • Identification of costs by contract line item number (CLIN) • Separation of pre-production costs from production costs • Accounting system provides financial information for limitations of cost and payment • The accounting system is designed and maintained to provide adequate and reliable data • The accounting system is in full operation “Business Growth Through Effective Compliance” MAI Proprietary
    15. 15. Minimal AccountingSystem Requirements IAW SF 1408 Purchases Job Cost Record Job Cost Ledger Direct Direct Summary of all Materials Costs by job cost reports Job Direct Costs Payroll General Ledger The central “books” of theDirect Labor system. Every transaction flows through the general ledger.Indirect Labor These records remain as a permanent track of the history Overhead of all financial transactions since day one of the life of the Indirect company. accounts for indirect Time Cards allocation “Business Growth Through Effective Compliance” MAI Proprietary
    16. 16. How To Support• Take each line item on the 1408 and separately document that process• Put the documentation in a folder by each criteria• Provide requirements in accordance with Generally Accepted Accounting Principles: • ICQ, flowcharts • Audited or reviewed financial statements • Written accounting policies • Organization charts • Chart of accounts. • Show the overall system process and flow of the recording processes “Business Growth Through Effective Compliance” MAI Proprietary
    17. 17. Common Failures• No written policies or procedures• 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• Cash to bank does not reconcile.• Total of job cost reports does not reconcile to COGS.• Funding and cost limitations are not correct.• No billing to cost reconciliation is performed.• No contract briefing cards. “Business Growth Through Effective Compliance” MAI Proprietary
    18. 18. Business Strategy - Subcontractors• Should ensure compliant systems are put in place – 3rd party audit • Primes requiring review of subcontractor systems • Increased sub pricing information required for gov’t proposals • DCAA assist audit requirements – even if Fixed Price• Can use compliant systems as a discriminator in capability • Discriminator now, requirement in near term • Auditable systems help prime selection & price reasonableness• Ensure compliance culture throughout contract life cycle• Benefits • Reduced risk in DCAA audits, government proposal analysis • Reduced overhead, wasted resources defending audits • Business Development – key prime selection criteria• Bottomline: compliant systems increase chance of subcontract award “Business Growth Through Effective Compliance” MAI Proprietary
    19. 19. Key Take Away’s• GAO critical of DCAA, DCMA• DCAA and Government in increased oversight mode• DFARS Interim Rule will increase requirements• Contractors must have adequate accounting systems to perform cost type contracts. FAR Part 9• Primes selecting subcontractors like government – Risk!• Compliance will result in increased business opportunities “Business Growth Through Effective Compliance” MAI Proprietary
    20. 20. Contact Information McNew & Associates: Email: mcnew@mcnewassociates.com Web: www.mcnewassociates.com Gary Henry, PMP, CPCM Vice President Tel: (719) 559-0670 Email: ghenry@mcnewassociates.com Roland Wick, Sr. Consultant Tel: (719) 559-0670 Email: rwick@mcnewassociates.com “Business Growth Through Effective Compliance” MAI Proprietary
    21. 21. QUESTIONS?“Business Growth Through Effective Compliance” 21 MAI Proprietary
    22. 22. BACK UP SLIDES “Business Growth Through Effective Compliance” 22 MAI Proprietary
    23. 23. Proper segregation of costs.•Provide chart of accounts and written accounting policies. How does the contractor define direct and indirect costs? Provide written policies which state contractor procedures. “Business Growth Through Effective Compliance” MAI Proprietary
    24. 24. Direct costs by contract•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. “Business Growth Through Effective Compliance” MAI Proprietary
    25. 25. Allocation of indirect costs.•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. “Business Growth Through Effective Compliance” MAI Proprietary
    26. 26. Accumulation of costs under generalledger control•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). “Business Growth Through Effective Compliance” MAI Proprietary
    27. 27. Timekeeping system. Time cards andlabor distribution. • 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). “Business Growth Through Effective Compliance” MAI Proprietary
    28. 28. Interim determination of costs. •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). “Business Growth Through Effective Compliance” MAI Proprietary
    29. 29. Exclusion of Unallowables.• 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. “Business Growth Through Effective Compliance” MAI Proprietary
    30. 30. 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. “Business Growth Through Effective Compliance” MAI Proprietary
    31. 31. Limitation of Costs/Billings:•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? “Business Growth Through Effective Compliance” MAI Proprietary
    32. 32. 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. “Business Growth Through Effective Compliance” MAI Proprietary
    1. A particular slide catching your eye?

      Clipping is a handy way to collect important slides you want to go back to later.

    ×