2013-09-26 Government Contractors Project Management Systems
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2013-09-26 Government Contractors Project Management Systems 2013-09-26 Government Contractors Project Management Systems Presentation Transcript

  • Government Contractors Financial & Project Management Systems Seminar Page 1 Thrive. Grow. Achieve. Seth Zarny – Raffa Partner Kellye Jennings – BDO Partner Glenn Anstead – Raffa Senior Manager September 26, 2013 Government Contractors Financial & Project Management Seminar
  • Government Contractors Financial & Project Management Systems Seminar Page 2 Agenda • The regulatory environment • Business systems • Time and expense challenges and requirements • Job costing • Definition and allocation of direct and indirect costs • Allocation bases • How rates are calculated
  • Government Contractors Financial & Project Management Systems Seminar Page 3 Agenda (continued) • Other issues • Provisional versus actual rates • Types of government contracts • Government audits • Questions?
  • Government Contractors Financial & Project Management System Seminar Page 4 SECTION 1 – THE REGULATORY ENVIRONMENT
  • Government Contractors Financial & Project Management Systems Seminar Page 5 The Regulatory Environment Heavily regulated: • Many potential pitfalls for the naïve or unwary seller • Compliance costs (personnel, systems, procedures) require up front investment Federal Acquisition Regulation (FAR): • Covers all aspects of contracting for the Federal Government • Includes “Cost Principles” and many other administrative procedures Agency Supplements (e.g., DFARS): • Provide additional Agency-specific guidance Cost Accounting Standards (CAS): • Provide guidance on acceptable cost accounting practices
  • Government Contractors Financial & Project Management Systems Seminar Page 6 The Regulatory Environment Key regulatory compliance issues include: • Identification and Segregation of “Unallowable” Costs: o As discussed further below, Government contractors are required to identify, segregate, and exclude certain types of costs from proposals, billings, and claims. o “Flexibly priced” contracts may require certification of proposed indirect cost rates. • Government Property Control Requirements: o Contractors are required to identify, track and maintain Government Property, including items acquired in performance of a contract. o Lost, damaged, stolen or destroyed property must be promptly reported. o Periodically, inventories of Government Property must be performed and submitted to Government customers.
  • Government Contractors Financial & Project Management Systems Seminar Page 7 (FAR) Federal Acquisition Regulation vs. (CAS) Cost Accounting Standards FAR Cost Principles Determine ALLOWABLE Costs Cost Accounting Standards govern COST ACCOUNTING PRACTICES used for Government Contracts: • Measurement of Costs • Assignment of Costs to Cost Accounting Periods • Allocation of Costs
  • Government Contractors Financial & Project Management Systems Seminar Page 8 What is “FAR”? The Federal Acquisition Regulation (FAR) is the principal set of rules in the Federal Acquisition Regulation System. This system consists of sets of regulations issued by agencies of the Federal government of the United States to govern what is called the "acquisition process," which is the process through which the government purchases ("acquires") goods and services. That process consists of three phases: (1) need recognition and acquisition planning, (2) contract formation, and (3) contract administration The FAR System regulates the activities of government personnel in carrying out that process. It does not regulate the purchasing activities of private sector firms, except to the extent that parts of it are incorporated into government solicitations and contracts by reference.
  • Government Contractors Financial & Project Management Systems Seminar Page 9 Purpose of “FAR” The purpose of the FAR is to provide "uniform policies and procedures for acquisition." FAR 1.101. Among its guiding principles is to have an acquisition system that (1) satisfies customer's needs in terms of cost, quality, and timeliness; (2) minimize administrative operating costs; (3) conduct business with integrity, fairness, and openness; and (4) fulfill other public policy objectives. FAR 1.102(b). The FAR also includes socioeconomic requirements, such as requiring certain items to be purchased from the United States firms only and that large organizations to use smaller businesses as subcontractors.
  • Government Contractors Financial & Project Management Systems Seminar Page 10 What is “CAS”? The Cost Accounting Standards (CAS) are methodologies and techniques used to guide and consistently measure the cost accounting practices amongst government contractors. The Cost Accounting Standards Board (CASB) consists of members from the Office of Management and Budget (OMB), Department of Defense (DOD), General Services Administration (GSA), and private sector. To promote consistency across agencies, the Cost Accounting Standards which address the assignment of costs to government contracts are different from the ‘Cost Principles’ which provide guidance for cost allowability. Some of the principles are based upon certain cost accounting standards and should be referenced to determine if a cost is unallowable. Cost accounting can be categorized into the following three areas: (1) measurement of cost (market vs. present value), (2) cost accounting period assignment (accrual vs. cash basis), and (3) allocation of costs (direct vs. indirect)
  • Government Contractors Financial & Project Management Systems Seminar Page 11 Purpose of “CAS” The purpose of the CAS is to ensure your cost accounting practices as a contractor are fairly standard, practical, yet flexible across the industry, while remaining consistent with your disclosed practices, procedures, and policies for cost recovery: (1) CAS should be considered during the design and configuration of your financial systems, (2) CAS directly affect compliance (3) CAS have a direct impact on your ability to recover costs Your disclosed (submitted statement, if applicable) cost accounting policies and practices must also be adequate and compliant and should be the basis for your accounting and financial system design.
  • Government Contractors Financial & Project Management Systems Seminar Page 12 Compliance Is Your Friend Compliance Is Your Friend Government Contracting Industry is heavily regulated • Many potential pitfalls for the naïve or unwary seller • Compliance costs (personnel, systems, procedures) require up front investment Federal Acquisition Regulation (FAR) • Covers all aspects of contracting for the Federal Government • Includes “Cost Principles” and many other administrative procedures Agency Supplements (e.g., Defense Federal Acquisition Regulation Supplement - DFARS) • Provide additional Agency-specific guidance Cost Accounting Standards (CAS) • Provide guidance on acceptable cost accounting practices Compliance generally leads to a competitive advantage. Noncompliance may lead to imposition of penalties, suspension, debarment, and no award
  • Government Contractors Financial & Project Management System Seminar Page 13 SECTION 2 - BUSINESS SYSTEMS
  • Government Contractors Financial & Project Management Systems Seminar Page 14 Business Systems Rule Simply stated… the Contractor shall establish and maintain acceptable business systems… • Establishes criteria for mandatory adherence of requirements specifically related to a contractors business systems to ensure best practices are maintained for all government contracts. • Criteria reflects a combination of existing requirements as found in CAS, FAR, DFARS, and those historically enforced by DCAA, DCMA, cognizant audit agency, etc. • Identifies the relevant business systems, corresponding guidelines and compliance requirements.
  • Government Contractors Financial & Project Management Systems Seminar Page 15 Business Systems Rule (cont.) • Provides for mandatory financial penalties for any noncompliance that is deemed a “significant deficiency” • Allows for discretion (as exercised by government audit agency and reviewers) in how compliance will be achieved; final determination resides with ACO, CO directs withholding decision • Defines grace period for implementing corrective action plan to rectify deficiencies
  • Government Contractors Financial & Project Management Systems Seminar Page 16 Acceptable / Deficient “Deficiency” is defined as a shortcoming in the contractors business system(s) that materially affects the ability of officials of the Department of Defense to rely upon information produced by the system that is needed for management purposes. “Acceptable contractor business systems” are contractor business systems which are found to be in compliance with relevant laws and regulations [Cost Accounting Standards (CAS) clauses and Federal Acquisition Regulations (FAR) principles] as reviewed by your cognizant audit agency.
  • Government Contractors Financial & Project Management Systems Seminar Page 17 What happens if found “Deficient”? You must respond in writing to your Contracting Officer (CO) within 30 days of receiving your determination of identified business systems deficiencies to include your comments – rationale for disagreement CO may issue a notice of intent to Contractor to withhold amounts from interim billings not to exceed: • 5% for one or more identified significant deficiencies in any single business system • 10% significant deficiencies in multiple business systems
  • Government Contractors Financial & Project Management Systems Seminar Page 18 What happens if found “Deficient”? (cont.) If you correct the deficiencies or submit an acceptable corrective action plan (one that includes milestones and steps taken to eliminate issues) within 45 days of notice of intent to withhold, and as verified by the cognizant audit agency (auditor), the CO may: • Decrease the withholding percentage until such time all deficiencies have been corrected and verified • Discontinue withholding and release previously withheld amounts (if not related to other system deficiencies) and verified by auditor • If no determination of the corrective action plan by the CO has been made within 90 days, withholding could be reduced by 50%, but not release payment for previous withholdings If the corrective plan is not followed and the deficiencies continue to exist, the CO may: • Increase the withholding percentage if the corrective action plan is not followed and deficiencies continue to exist
  • BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. What systems can I use to run my business?
  • Government Contractors Financial & Project Management Systems Seminar Page 20 Microsoft Integrated Solutions • Dynamics ERP • SharePoint 2
  • Government Contractors Financial & Project Management Systems Seminar Page 21 What is Microsoft Dynamics? • Integrated Financial and Operational/Project Management Software • Familiar to Your Employees • Government Contracting Industries: • Professional Services • Contracting • Manufacturing • Distribution • Accepted by DCAA 2
  • Government Contractors Financial & Project Management Systems Seminar Page 22 Functionality Provided by Dynamics •Financials •Accounting •Fringe, Overhead and G&A Rate Calculations - Cost Segregation – Allowable vs. Unallowable •Job Costing •Purchasing & Requisition Mgmt •Manufacturing •Inventory Management •Sales Orders •Service Management •Customer Relationship Management 2
  • Government Contractors Financial & Project Management Systems Seminar Page 23 Microsoft SharePoint What is Microsoft SharePoint? A foundation for connected information • Team Collaboration • Dashboard • Key Performance Indicators • Dynamics Business Portal • Integrated with Project Server 2
  • Government Contractors Financial & Project Management Systems Seminar Page 24 What will you get from the Integrated Solution? Organized flow of information • Project Management • Resource Allocation • Financial Reporting Seamless integration of information One view of the data Tools your team is familiar with… 2
  • Government Contractors Financial & Project Management Systems Seminar Page 25 Project Manager Support 2 • WEB ACCESS TO YOUR DATA • Immediate access to Projects profitability • Maintain projects • Assign resources to projects, tasks or subtasks • Create initial and subsequent budgets • Set maximums for Projects and Tasks • Store and share Project invoices in a document repository • Enter time remotely supporting your companies needs: bi-weekly, semi monthly…
  • Government Contractors Financial & Project Management Systems Seminar Page 26 Reporting vs. Dashboards Many people use the terms interchangeably What is the purpose of a report in Government Contracting company? • Compliance • Company Directed What is the purpose of a dashboard? • Drive user towards decision How do you know what the Dashboards should be? • Key Performance Issues of Company What are KPI’s? • Key Performance Indicator 2
  • Government Contractors Financial & Project Management Systems Seminar Page 27 Critical Requirements for Success What to look for when reviewing integrated solutions? Out of the Box, Proven Financial and Operational Software - Proven management of Indirect and Direct Costs - Integrated across Finance and Project Management / Operations - Business Process Automation - Setup Flexibility to meet business needs 2
  • Government Contractors Financial & Project Management Systems Seminar Page 28 Business Process Improvements Indirect Rates • Monitor Trends via standard reports • More Accurate Cost Information for Bidding • More Accurate Historical Procurement Costs Traceability of Source Documents • Management Reporting Drill Down • On line Inquiry Screens • Transaction Level Detail • Imaging/Document Management 2
  • Government Contractors Financial & Project Management Systems Seminar Page 29 Statement of Indirect Expense 2
  • Government Contractors Financial & Project Management Systems Seminar Page 30 Operational Benefits What benefits should Operations & Project Managers receive from Microsoft Dynamics? - Superior Cost Control - Real time visibility into committed costs - Immediate access to supporting documentation via document imaging - Earned Value Management visibility 3
  • Government Contractors Financial & Project Management Systems Seminar Page 31 Job Summary Report 3
  • Government Contractors Financial & Project Management Systems Seminar Page 32 Dynamics SL Overview Exec Mgmt Dashboards Real-time visibility into your data Top 10 Customers Year over year Sales and Margin 3
  • Government Contractors Financial & Project Management Systems Seminar Page 33 Dynamics SL Overview Project Dashboard Real-time visibility into your data Project P&L Labor hours statistics 3
  • Government Contractors Financial & Project Management Systems Seminar Page 34 Dynamics Overview Increased Visibility Real-time visibility into your data Labor statistics by Customer 3
  • Government Contractors Financial & Project Management Systems Seminar Page 35 Dynamics Overview Project Visibility Online Project visibility – multiple levels… 3
  • Government Contractors Financial & Project Management Systems Seminar Page 36 Dynamics Overview Project Visibility Online Project visibility – multiple levels… Commitments & Budgets 3
  • Government Contractors Financial & Project Management Systems Seminar Page 37 Dynamics Overview Self Service Access Online Project visibility – multiple levels… Self-service – Project profitability 3
  • Government Contractors Financial & Project Management Systems Seminar Page 38 Dynamics Overview Ability to drill into the details Online Project visibility – multiple levels… Self-service – Drill into the supporting details 3
  • Government Contractors Financial & Project Management System Seminar Page 39 SECTION 3 – TIME AND EXPENSES
  • Government Contractors Financial & Project Management Systems Seminar Page 40 Objectives of Timekeeping System • Ensure that proper and reliable contract labor costs, identified as either direct or indirect, are: - Accumulated - Reported - Billed • Billings to the government via a system of accurate, timely, and complete posting of labor hours on individual employee timecards
  • Government Contractors Financial & Project Management Systems Seminar Page 41 T&E System Best Practices • Employee understanding of procedures for preparing time sheets/cards/entering time, and preparing expense reports • Employee independence in preparing and correcting time sheet/expense report and adequate management review and submission to accounting • Adequate written policy and procedures that employees and management must follow • Traceability of changes • System for detecting errors/required changes
  • Government Contractors Financial & Project Management Systems Seminar Page 42 T&E System Best Practices (continued) • Proper coding of expenses to corresponding accounts. • Inclusion of sufficient business purpose on expense reports. - A business purpose of “miscellaneous reimbursement” is not adequate and does not provide transparency into the nature of the expense. • Detail regarding number of attendees for meal expenses on expense reports (dependent on Company policy) • Itemized receipts for expenses relating to meals (dependent on Company policy)
  • Government Contractors Financial & Project Management Systems Seminar Page 43 Basic Requirements of Timekeeping System • Employee is given or mapped to correct project or charge number via work authorization before work commences • Time cards/sheets or access to system provided to employee at beginning of pay period • Time cards/sheets are pre-coded with pay period, name, etc., if manual • Employee has control or possession of timesheet (if manual) or sole access to electronic system • Employees record time daily • Supervisors or other personnel do not prepare timesheet entries for employees (unless out due to sickness, etc.)
  • Government Contractors Financial & Project Management Systems Seminar Page 44 Basic Requirements of Timekeeping System (continued) • Audit trail for changes made to initial timekeeping entries • Management approval of timesheet corrections noted • Explanation of timesheet corrections provided • Timesheet signed by employee at end of pay period • Paid absences charged to correct indirect code • Indirect duties (training, meetings, etc.) properly charged • Timesheets collected by appropriate official and reviewed and approved
  • Government Contractors Financial & Project Management Systems Seminar Page 45 What DCAA observations will elevate audit risk? • Mix of cost plus government & commercial contracts • Lack of written or inadequate t&e procedures • Significant adjusting entries to G/L labor charges • Data indicated on timesheet during floor check does not match time sheet after entered to labor distribution • Significant and non-verifiable changes and alterations to employee timesheets • Timesheets without employee signature • Inadequate demonstration of employee training for preparing time sheets
  • Government Contractors Financial & Project Management Systems Seminar Page 46 How do I know if I have Timekeeping System problems? • Timekeeping procedure is twelve years old and has not been updated to reflect current electronic methods • At end of payroll period, electronic time entries for several employees are changed & then “approved” by supervisor • John Doe provides Lisa Smith, another employee (not his supervisor) his timekeeping password so that Lisa can prepare entries for him while John is in rehab • Jane Doe, an “exempt” G&A person, often works uncompensated OT, but does not record more than 40 hrs/week • Company cannot reconcile total payroll to labor distribution
  • Government Contractors Financial & Project Management Systems Seminar Page 47 Time Reporting • All time worked should be reported, including all time worked in excess of the standard workweek. This includes all time worked for clients, whether billable or not. • All time and expenses associated with an individual contract should be recorded in a Work Breakdown Structure (WBS) element. Any time or expense related to the execution of a specific contract should be charged to the correct WBS elements, regardless of whether or not those time and expenses can be billed. All other time and expenses should be charged to the appropriate WBS element.
  • Government Contractors Financial & Project Management Systems Seminar Page 48 Labor System Authorization/Approvals • The contractor should have procedures to ensure the segregation of duties for work authorizations and/or job assignments to the extent practical. Work authorizations/job assignments should be controlled and issued by individuals independent of those responsible for performing the work - a critical control is the procedure used to open and close work authorizations. • The contractor should have procedures for the preparation of labor documentation/work descriptions that require clear identification of the nature of the work performed - trackable to intermediate or final cost objectives • The contractor should establish a labor charging awareness program to train all employees, as appropriate, on proper labor charging practices.
  • Government Contractors Financial & Project Management Systems Seminar Page 49 Labor System Authorization/Approvals cont. • The contractor should assure that labor hours are accurately recorded and that any corrections to time keeping records are documented including the appropriate authorizations and approvals. • The contractor should assure the proper allocation of labor costs to cost objectives. • The contractor should provide reasonable assurance that labor transfers or adjustments of the labor distribution are documented and approved. • The contractor should monitor the overall integrity of the time keeping system.
  • Government Contractors Financial & Project Management Systems Seminar Page 50 Overtime Approval • Requests for overtime should be made by project managers or department managers. Overtime must only be authorized when a project or department manager has documented the following in writing: - Overtime is necessary to meet delivery requirements, - Overtime is necessary to meet performance requirements, or - Overtime is necessary to make up for delays beyond the control or without the fault or negligence of the contractor • When required by contract provisions, the project manager authorizing overtime must obtain the contracting officer's written approval.
  • Government Contractors Financial & Project Management Systems Seminar Page 51 Timecard Changes / Modifications • It is improper for supervisors to unilaterally make changes to an employee’s timecard. Doing so may result in disciplinary action. • If a time correction is necessary PRIOR TO submitting the time sheet to the Payroll Department, the employee should ensure that the time sheet correction is made in ink and initialed. The reason should be clearly documented and approved by a supervisor. • When making a correction(s) to reported time SUBSEQUENT TO submitting the time sheet to the Payroll Department: - The correction may not be more than 30 days old. - Employees must indicate the reason for the correction, the job numbers affected by the adjustment, and the related hours. - The documentation for the labor corrections must be signed by a supervisor and submitted to accounting. - Consider creating a “Labor Correction Form” that will state the necessary procedures for making labor corrections.
  • Government Contractors Financial & Project Management Systems Seminar Page 52 Distribution of Labor Costs and Labor Transfers • Written justification is required for any transfer of labor costs to ensure the proper allocation of labor costs to each project. Each justification should be retained in accordance with the contractor’s record retention policy. Journal vouchers are commonly used to document labor transfers. • The contractor should consider additional procedures for more closely scrutinizing transfers. • The contractor should include procedures to address management review and approval of labor transfers, labor distribution edit errors, and review and correction of labor errors. • Labor distribution edit errors should be processed in a suspense account and billed to customers only after correction.
  • Government Contractors Financial & Project Management Systems Seminar Page 53 Consequences for Deliberate Failure to Follow Timekeeping Policies and Procedures • The contractor should be committed to the enforcement of all timekeeping procedures. Any clear infraction of the policy stated above will result in disciplinary action which may include a warning, reprimand, probation, suspension, reduction in salary, demotion, or dismissal. • Employees should be aware, in addition to company imposed sanctions, that individuals directly responsible for deliberate mischarging of time or materials may be held personally liable for civil penalties and actual damages sustained by the government as a result of the mischarging. Criminal prosecution may also result which carries fines and/or imprisonment.
  • Government Contractors Financial & Project Management Systems Seminar Page 54 Consequences for Deliberate Failure to Follow Timekeeping Policies and Procedures cont. • Employees must be vigilant in their efforts to accurately record time. The penalties for knowingly mischarging time can be as severe as termination and other Governmental ramifications (i.e., False Claims Act). • The contractor should periodically conduct floor checks to ensure timekeeping practices are being followed and actual hours worked are accurately recorded.
  • Government Contractors Financial & Project Management Systems Seminar Page 55 Dynamics Overview Web based Timecards Online Timesheets 5
  • Government Contractors Financial & Project Management Systems Seminar Page 56 Web Based EE Expense Report 5
  • Government Contractors Financial & Project Management Systems Seminar Page 57 Dynamics SL Overview - Assign Resources 5
  • Government Contractors Financial & Project Management Systems Seminar Page 58 Dynamics Overview - Increased Visibility Real-time visibility into your data Labor statistics by Customer 5
  • Government Contractors Financial & Project Management System Seminar Page 59 SECTION 4 – JOB COSTING
  • Government Contractors Financial & Project Management Systems Seminar Page 60 Job Cost Accounting Systems • Used to determine cost of a product or service • Can be used to determine prices – government contract prices are often based on costs charged to a job • Used to record cost of an individual transaction • May be used to distribute indirect costs to cost objectives • Government does not require “on book” distributions • “Memo records” are acceptable • Facilitates integration of production data into accounting records
  • Government Contractors Financial & Project Management Systems Seminar Page 61 Job Cost Accounting Systems (continued) • Costs must be accumulated under general ledger control o Job costs must be reconcilable and posted to general ledger control accounts o Costs must be posted at least monthly to books of account • Costs must be segregated between direct and indirect types o Controls must exist to preclude direct charging of indirect expenses • Direct costs must be accumulated by contract o Must either have a subsidiary job cost ledger or accounts receivable ledger o Must be able to “drill down” to at least Contract Line Item Number (“CLIN”) level • Indirect costs must be allocated to jobs o Accumulated in logical cost groupings and allocated based on causal or beneficial relationships
  • Government Contractors Financial & Project Management Systems Seminar Page 62 Allocation of Expenses When a company incurs an expense, it is either a direct expense that is charged to a specific project or it is an indirect expense that benefits various projects and the company as a whole.
  • Government Contractors Financial & Project Management Systems Seminar Page 63 Accounting for Unallowable Costs An allowable cost in government contracting terms means billable – it’s allowable if the rules permit it to be included in an invoice to the government. An unallowable cost is just the opposite; it’s the kind of cost you can’t bill the government for. Under the FAR 31.201-2, a cost is allowable only when it meets all of these requirements: Terms of the contract Limitations set for the in FAR 31.201 Reasonable and allocable
  • Government Contractors Financial & Project Management Systems Seminar Page 64 What is a Direct Cost? If a cost is easily identified with a single project, it is generally considered a direct cost. To help make this determination, ask… “If we did not have this contract, would we still incur this cost?” A “no” answer to this question indicates that it is probably a direct cost.
  • Government Contractors Financial & Project Management Systems Seminar Page 65 Direct Costs Examples • Labor performed while working on a project • Travel to project status meetings • Material consumed entirely on a project • Subcontractors/consultants hired to work on a project .
  • Government Contractors Financial & Project Management Systems Seminar Page 66 What is an Indirect Cost? An indirect cost is a cost incurred that: • Benefits more than one contract • Incurred for the common good of the company • Impractical to split • Immaterial direct cost
  • Government Contractors Financial & Project Management Systems Seminar Page 67 Defining Indirect Costs Fringe benefits Company expenses incurred for the benefit of its employees • Employer payroll taxes • Medical insurance paid by the company • Company 401(k) contributions • Paid time off
  • Government Contractors Financial & Project Management Systems Seminar Page 68 Defining Indirect Costs Overhead Costs not directly related to cost objectives but are support-type costs necessary for the production of goods or services • Salaries and wages of support and production personnel • Facilities cost • Supplies It is common to find separate overhead pools for engineering, manufacturing, and for certain off-site activities
  • Government Contractors Financial & Project Management Systems Seminar Page 69 Defining Indirect Costs G&A Costs associated with the general administration and overall management of a company • Compensation of company executives and related fringe • Legal and professional fees • Administrative personnel and costs • Business insurance • Company taxes (except federal income taxes) • Bid and proposal costs
  • Government Contractors Financial & Project Management Systems Seminar Page 70 Defining Indirect Costs Subcontractor/material handling Costs associated with overall administration of subcontractor and materials acquisitions • Selecting, negotiating, and managing subcontractors and materials purchases
  • Government Contractors Financial & Project Management Systems Seminar Page 71 Direct or Indirect – Gray Areas Example: Company A and B ship monthly program reports to their clients Company A • Charges the shipping expense against the contract • Support personnel charge time to overhead Company B • Charges all shipping to overhead • Administrative staff charge: o Time supporting projects o Overhead when working on support of a general nature The same approach can be taken on many other types of expenses, such as photocopies, phone calls, faxes, etc.
  • Government Contractors Financial & Project Management Systems Seminar Page 72 G&A or Overhead Company A charges HR costs to G&A while Company B allocates the cost of HR across the entire company. HR benefits the Company as a whole, meeting the criteria of a G&A cost, but HR also benefits all ee’s of the Company. Company B rational: • The fundamental costs of the majority of ee’s are maintained in OH • HR costs will be allocated between OH & G&A based on a method such as using proportionate number of ee’s Can certain G&A costs qualify as OH expenses? Deciding to allocate costs between G&A and OH takes detailed planning and consideration of materiality and cost /benefit relationship
  • Government Contractors Financial & Project Management Systems Seminar Page 73 Defining Allocation Bases Assigning an indirect cost pool to a particular allocation base depends upon: • Types of costs included in the pool • Whether the base provides a reasonable representation of the relative consumption of pooled indirect costs by direct cost activities Labor costs are an appropriate allocation base for the fringe expenses. There is a clear relationship between the two.
  • Government Contractors Financial & Project Management Systems Seminar Page 74 Indirect Rates Indirect rates are equitable, logical and consistent process for allocating costs not directly associated with a single project or cost objective. The only requirement of the FAR is that the allocation of indirect costs be: • Fair • Reasonable • Equitable
  • Government Contractors Financial & Project Management Systems Seminar Page 75 Indirect Rates Key points to establish and manage indirect cost structures: Fiscal year The period for allocating indirect costs is a contractor’s fiscal year – it is not related to a period of performance for a given contracts. Simplicity When substantially the same result can be achieved through less precise methods, a company is permitted to keep the allocation simple and not be forced into more complicated allocation formulas that are technically more accurate but not materially different. Consistency Once treated as a direct (or indirect cost), a cost should be treated consistently. Companies have a great deal of latitude to determine indirect rate structure
  • Government Contractors Financial & Project Management Systems Seminar Page 76 Calculation of Indirect Rates Indirect rate = Similar cost (pool) Allocation base The calculation of indirect rates is simple math – it is just a matter of grouping, adding, and dividing. It’s how and why certain numbers are grouped together that can be complex.
  • Government Contractors Financial & Project Management Systems Seminar Page 77 Indirect Rates
  • Government Contractors Financial & Project Management Systems Seminar Page 78 Indirect Rates
  • Government Contractors Financial & Project Management Systems Seminar Page 79 Indirect Rates Methods practiced to reduce indirect rates: • Charge as many costs direct as possible. By charging shipping and copying directly to a contract, it will keep it out of overhead pool, which will in turn reduce the overhead rate. • Direct charge unique costs to a specific contract • More indirect rates by splitting large groupings • Indirect rates for different types of work • Establish a services center A company with high rates may not really be any more expensive -- though they are often perceived that way. When developing or evaluating indirect rates, a company should keep in mind ways to reduce at least the appearance of indirect rates.
  • Government Contractors Financial & Project Management Systems Seminar Page 80 Indirect Cost Allocation Cycle Indirect cost allocation typically follows the cycle depicted in the following figure: Forward Pricing Estimate Indirect Contract Costs Final Allocation Allocate Indirect Costs to Contracts Billing Progress Payments Cost Reimbursement
  • Government Contractors Financial & Project Management Systems Seminar Page 81 Indirect Cost Allocation Cycle Forward Pricing- During this phase, the contractor proposes forward pricing rates and uses those rates in contract proposal pricing. Contract Billing- Provisional / Target rates are indirect rate projections used on contract billing that have been reviewed and approved by the DCAA or the contractor’s cognizant agency for proposal and estimating purposes. For example, a company may develop budgeted rates for the current year and forecasted rates for the next two years. All three years of rates can be approved for proposal preparation purposes.
  • Government Contractors Financial & Project Management Systems Seminar Page 82 Indirect Cost Allocation Cycle Final Pricing. After the cost accounting period is completed, contractors can calculate actual indirect cost rates to determine actual contract cost. • For contracts that require final pricing (e.g. cost plus) the responsible contracting officer or auditor must determine final indirect rates for the contract. • Final indirect rate proposal is submitted by the contractor. • Months or years may be required to complete this process. Under certain limited conditions, the contracting officer and the contractor may agree to use estimated quick-closeout indirect cost rates for final pricing. • Data used to support final rates will become part of the data available for estimating forward pricing and billing rates for subsequent accounting periods.
  • Government Contractors Financial & Project Management Systems Seminar Page 83 Government Contract Life-Cycle Pre-Award Award Accounting Controls [Policies,Procedures,Training] Accounting System
  • Government Contractors Financial & Project Management Systems Seminar Page 84 Dynamics SL Overview Project Dashboard • Real-time visibility into your data • Project P&L • Labor hours statistics 8
  • Government Contractors Financial & Project Management Systems Seminar Page 85 Dynamics SL Overview - Create New Project 8
  • Government Contractors Financial & Project Management Systems Seminar Page 86 Dynamics SL Overview - Create New Project 8
  • Government Contractors Financial & Project Management Systems Seminar Page 87 Dynamics SL Overview - Assign Resources 8
  • Government Contractors Financial & Project Management Systems Seminar Page 88 Dynamics SL Overview - Create/Update Budget 8
  • Government Contractors Financial & Project Management Systems Seminar Page 89 Benefits Beyond The Norm 8 Traditional Project Management • On time versus original schedule estimate • Within budget versus original cost estimate • Within scope versus original deliverables • Meet or exceed customer expectations • “Best available” resource utilization Project Management & Accounting Reduced time to market and/or cycle time Project revenue, cost, and profitability Business value of services delivered Alignment with business and client objectives “Best fit” skills-based resource optimization
  • Government Contractors Financial & Project Management Systems Seminar Page 90 Other Measurable Benefits 9 • Better Prioritization of Projects and Services It is shocking how many “projects” operate below the radar screen with no plans, controls or accountability • Shorten Billing Cycles Better allocation of resource T&E to project schedules and invoicing, and faster resolution of billing disputes • Minimize Revenue Leakage Eliminate errors from manual entry or redundant systems used to invoice client services • Improved Service Agility Quicker response to sudden or unexpected changes in business priorities, competitive pressures, new technology, and economic downturns
  • Government Contractors Financial & Project Management Systems Seminar Page 91 Bringing it All Together 9 A SINGLE VIEW OF OPERATIONAL DATA • Discover the one truth for your business • Provide people access and empower them with simple but sophisticated tools • Focus on what is important and act! • Institute the command and control you need to meet goals
  • Government Contractors Financial & Project Management Systems Seminar Page 92 Dynamics SL Overview Exec Mgmt Dashboards Real-time visibility into your data Top 10 Customers Year over year Sales and Margin 9
  • Government Contractors Financial & Project Management Systems Seminar Page 93 Dynamics Overview Increased Visibility Real-time visibility into your data Labor statistics by Customer 9
  • Government Contractors Financial & Project Management Systems Seminar Page 94 Dynamics Overview Web based Timecards Online Timesheets 9
  • Government Contractors Financial & Project Management Systems Seminar Page 95 Dynamics Overview Project Visibility Online Project visibility – multiple levels… 9
  • Government Contractors Financial & Project Management Systems Seminar Page 96 Dynamics Overview Project Visibility Online Project visibility – multiple levels… Commitments & Budgets 9
  • Government Contractors Financial & Project Management Systems Seminar Page 97 Dynamics Overview Self Service Access Online Project visibility – multiple levels… Self-service – Project profitability 9
  • Government Contractors Financial & Project Management Systems Seminar Page 98 Dynamics Overview Ability to drill into the details Online Project visibility – multiple levels… Self-service – Drill into the supporting details 9
  • Government Contractors Financial & Project Management Systems Seminar Page 99 Web Based EE Expense Report 9
  • Government Contractors Financial & Project Management Systems Seminar Page 100 Dynamics Rate Table Setup 1
  • Government Contractors Financial & Project Management Systems Seminar Page 101 Provisional vs. PTD Actual reporting 1
  • Government Contractors Financial & Project Management Systems Seminar Page 102 Provisional vs. YTD Actual 1
  • Government Contractors Financial & Project Management Systems Seminar Page 103 Statement of Indirect Expense 1
  • Government Contractors Financial & Project Management Systems Seminar Page 104 Project – GL reconciliation report 1
  • Government Contractors Financial & Project Management Systems Seminar Page 105 Job Summary Report 1
  • Government Contractors Financial & Project Management Systems Seminar Page 106 Employee Labor Distribution 1
  • Government Contractors Financial & Project Management System Seminar Page 107 SECTION 5 – OTHER ISSUES
  • Government Contractors Financial & Project Management Systems Seminar Page 108 Actual versus Provisional Rates • Provisional rates – estimated rates that are required to reimburse contractors on an interim basis. o Sometimes referred to as “target rates.” o Should be adjusted as facts and circumstances change to prevent substantial underpayments or overpayments. • Actual rates – final indirect rates that are determined during or after a contractor’s fiscal period. o Subject to audit o Required to be submitted in the final indirect proposal within six months after year-end o Used in the contract close-out process
  • Government Contractors Financial & Project Management Systems Seminar Page 109 Basic Types of Government Contracts • Fixed price – contractor is paid a predetermined fixed amount for a specified scope of work and has full responsibility for the performance costs. • T&M and labor hour – contractor is paid fixed hourly rates for direct-labor hours expended under specified labor categories. Materials and other non-labor costs are usually reimbursed at actual costs plus allocable indirect costs. • Cost reimbursement – contractor is reimbursed for allowable incurred costs plus a fee (if specified). TIP: Do not make your accounting systems decision based on the contract mix that you have today.
  • Government Contractors Financial & Project Management Systems Seminar Page 110 Scope of Government Audits • Proposal / pre-award • Incurred cost • Business systems • Forward pricing/estimating • Special o Termination proposals o Progress payments o Financial capabilities o Other claims • Other audits o CAS Compliance o Defective pricing o Other
  • Government Contractors Financial & Project Management Systems Seminar Page 111 The Current Audit Environment • Increased oversight on contractor business systems and controls • Stringent rigor applied to audit practices, programs and documentation o Decreased cooperation with contractors to prevent appearance of bias o “Zero tolerance” with respect to meeting control objectives. o Elimination of recommendations on deficiencies o Inadequate/adequate findings – no more “inadequate in part” • As a result, an increasing number of contractors now have inadequate systems with “significant deficiencies” and “material weaknesses” • Most inadequacies have been accompanied with recommendations to ACOs to pursue withhold of payments • ACOs face an up hill battle in disagreeing with auditor findings • Impacting contractors ability to win new awards and sub-awards
  • Government Contractors Financial & Project Management Systems Seminar Page 112 The Current Audit Environment (continued) • Through periodic business systems audits and flash reports – opportunities for inadequate systems are higher. • Since there are no longer “inadequate in part” determinations, a single finding is now a “significant deficiency” representing a “material weakness.” • As a result, a single audit finding can now result in a recommendation of withhold of fees/payments. • Since there is a backlog of audits and because audits > 4 years old are no longer current, there is an increased number of contractors with unaudited systems. • DCAA is working on reducing the backlog of open incurred cost audits. o Data is old o Personnel may have changed o Systems may have changed • Results in increased audit scrutiny (e.g., substantive testing) in all other audits and impacts contractors ability to obtain new awards
  • Government Contractors Financial & Project Management Systems Seminar Page 113 Dealing with government auditors • Understanding what is being audited o Pre-award – evaluation of whether the contractor is capable of performing the proposal. o Post-award – evaluation of accuracy, completeness, and currency of pricing data submitted. o Incurred costs – evaluation of whether direct and indirect costs are properly claimed for reimbursement on flexibly-priced contracts. • Be prepared o Establish an audit liaison o Understand the programs that the auditor will be using o Insist on an entrance and an exit conference o Be prompt in your responses • Understand that not all government auditors are the same.
  • Government Contractors Financial & Project Management Systems Seminar Page 114 Questions?