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Deltek Insight 2011: Critical Factors for an Approved Time Collection System

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  • 1. ECT-200Critical Factors foran Approved TimeCollection SystemMay, 2011Presented byDavid Donley
  • 2. Enabling Success Project Human Financial Project Manufacturing Resources Management Management Do More Market Teaming CRM and Capture Win More Intelligence Solutions Management Know More Business Performance Management Winning More Increasing Project Improving Cash Reducing the Cost Business Visibility Flow of Compliance2 5/22/2012 © 2010 Deltek, Inc. - The specifications, functionality and schedules described reflect Deltek’s current estimates, may change without notice, and do not constitute obligations of Deltek.
  • 3. Do More Project Human Project Financial Manufacturing Resources Management Management Do More Market Teaming CRM and Capture Win More Intelligence Solutions Management Know More Business Performance Management Project Execution Project & Corp Time, Expense, La Reporting, GRC & & Management Accounting bor, Payroll Compliance3 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 4. Genesis of Requirements onGov’t Contracts FAR 31.205-6 - Compensation FAR 31.203/204 – Direct and Indirect costs FAR 31.201-4 – Allocability4 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 5. Other Citations IGDH 7600.3 - Labor, direct and indirect, can be the most significant cost charged to Government contracts. Generally, it is the most difficult area to review. - No third party documentation exists such as invoices, purchase orders, etc., to support labor costs. - …control (over) the labor accounting system is (with) the individual employee and (depends on) the employee’s acceptance of the responsibility to accurately record time worked.5 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 6. IDGH 7600.3 Time is the only measure of labor activity Possible measurement techniques:  Time clocks  Security locks  One task only  Advanced agreement  Manual/automated systems6 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 7. DCAA Audit Manual ¶6-402 Substantive testing may be greatly reduced when the contractor effectively maintains an adequate and compliant system of internal controls, including monitoring and testing of the system. In carrying out the primary audit objectives, the auditor should be alert to any condition which raises reasonable suspicion of unlawful or fraudulent activities.7 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 8. DCAA Audit Manual The extent of audit effort in testing and verifying labor costs will be influenced by: (1) the adequacy and reliability of the contractors system and related internal controls, (2) the nature and significance of labor and related expenses, (3) prior audit experience with the contractor, (4) the reliability and acceptability of the contractors labor policies and procedures, (5) the audit objectives, (6) the contractors mix of contracts & contract provisions, and (7) the nature of the contractors organization and operations.8 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 9. Important Distinctions Cost-driven system – labor typically being the largest cost element How to collect and convert time to cost, then reconcile to payroll Since the risk of improper/faulty time charging is high, the government takes extraordinary measures to mitigate the risk9 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 10. Risk Continuum Cost reimbursable Buyer’s T&M Risk Fixed priced Seller’s Risk10 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 11. DCAA Hall of ShameClimate – The presumption of contractor guilt is strongest when analyzing laborFRAUD INDICATORS (IGDH 7600.3) • Distinctive charging patterns. • Sudden, significant shifts in charging. • Decrease in charges to projects/contracts in overrun or near ceilings. • A disproportionate percentage of employees charging indirect. • Large number of employees reclassified from direct to indirect or vice versa. • Same employees constantly reclassified from direct to indirect or vice versa.11 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 12. DCAA Hall of Shame Weak internal controls over labor charging, such as employee time cards signed in advance, employee time cards filled in by the supervisor, time cards filled in pencil, or time cards filled in at the end of the pay period. Actual hours and dollars consistently at or near budgeted amounts. Use of adjusting journal entries to shift costs between contracts, IR&D, B&P, commercial work. • Significant increases or decreases in charging to sensitive accounts. • Employee’s time charged differently than associated travel costs. Small Businesses at a disadvantage?12 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 13. Bulletproof Timekeeping Policy Paraphrase (or outright plagiarize) the DCAAM Adopt a rigorous timekeeping method Look at automated systems Design and operate an efficient/integrated/reliable labor distribution system Conduct internal audits (quarterly) Train new employees, continuous training Gently overcome the culture shock CAS vs Non-CAS (9903.201–1(b) – Small business exemption)13 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 14. DCAAM 5-902b. To assess control risk on the labor system as low and reduce substantive testing, the contractors system should have:(1) An effective method to monitor the overall integrity of the Labor/Timekeeping System.(2) An effective employee awareness training program to reasonably assure that all employees are aware of the importance of proper time charging.(3) Effective procedures for labor authorizations/approvals to facilitate the proper accumulation and recording of labor costs to cost objectives. (FAR 31.201-4)14 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 15. DCAAM 5-902(4) Effective procedures for timekeeping to reasonably assure that labor hours areaccurately recorded and that corrections to timekeeping records are documented,authorized, and approved.(5) Effective procedures for labor distribution to reasonably assure the properrecording of labor costs to cost objectives.(6) Effective procedures for labor cost accounting to reasonably assure that laborcharges to the Government are in compliance with promulgated Cost AccountingStandards, generally accepted accounting principles, and contract terms/clauses.15 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 16. DCAAM 5-902 (7) Effective procedures for payroll preparation and payment to reasonably assure independent preparation of the payroll, and that pay rates are appropriately authorized and accurate. (8) Effective procedures for labor transfers and adjustments to reasonably assure that they are documented and approved.16 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 17. Work at Home Degree of control is the real issue Lends itself to automated timekeeping17 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 18. Manual vs AutomatedTimekeeping Systems Timesheets, design examples Elements of an acceptable system  Time recorded daily (in ink), record all hours  Time recorded in reasonable increments  Specific process for correcting time  Self-certification by employee  Approval by supervisor  Auditable documentation, traceability of data18 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 19. DCAAM 5-909.2Procedures for automated Timekeeping Systems should provide for the accurateand current recording of labor hours by authorized employees, as well asappropriate controls to ensure corrections to labor charges are accurate andauthorized. Generally, they may be categorized as procedures that pertain to: a. Only the employee uses their labor charging instrument to access the labor system. b. Employee badge issuance is sufficiently controlled so that no number is duplicated and badges are not issued to unauthorized persons. c. Procedures are in place which require the employee to report lost badges promptly. d. Changes are initialed, authorized, and dated by the employee and supervisor and include a description of the reason for the change. This may be done electronically. e. A verifiable audit trail process is in place that collects all initial entries and subsequent changes.19 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 20. Uncompensated Overtime Cost-based accounting principles Math examples DCAAM 6-410 - Materiality - Effective rate method - Alternate methods20 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 21. Labor Distribution Excel Deltek Other SW Integrating timekeeping/payroll services Accommodate uncomped OT DCAA bias toward integrated methods21 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 22. Labor Accounting for LLCs FAR 31.206-5 “Distribution of Profits” Guaranteed payments LLC members as W2 employees If it smells like salary… Reconcile to K1, members draw22 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 23. Floor Check Audit Test the strength of internal controls Typically unannounced (combined with other audits) Frequency – at least once a year What they are looking for – pattern charging, lots of changes, errors, contract start and end dates Timecards completed in advance, blank cards turned in Adjusting JE DCAA sensitivity to indicators of waste, fraud, abuse23 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 24. Floor Check AuditWhat to expect, how to manage  Employee alert system (find the CEO first)  Assign someone to escort auditor  Will ask for employee list, select victims at random  Will ask for procedures  Interview employees  Copy of timesheets now, later with reports or bills24 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 25. Floor Check AuditInterview questions  Title, job description, normal work hours  What are you working on right now?  What, who authorized you to work on this?  Who signs your timecard?  How often do you fill out your timecard?  How do you make corrections?  When do you hand in your timecard?25 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 26. Action Plan Develop good practices early Develop a training program Conduct internal audits Make compliance a condition of employment Defend human error, but don’t tolerate bad actors Provide creative, gentle reminders to employees26 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 27. Parting Thought Complaint: “It feels like we’re under constant, unwarranted, unreasonable scrutiny.” Answer: The Gov’ts approach appears reasonable from their perspective. They’re protecting abuse of our tax-paid dollars. Everyone’s at the same competitive disadvantage. Your competitive advantage is being compliant in this particular environment.27 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 28. Questions?My accountant tells menot only will he cook the books But he’ll eat them too Should I be worried?28 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 29. NCMA Ethics Statement Each member of NCMA shall: Conduct oneself in such a manner as to bring credit upon the association, as well as to maintain trust and confidence in the integrity of the acquisition process.29 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved
  • 30. Contact Info Dave Donley – Operations VP 307-272-4841 ddonley@techbizsolutions.com www.techbizsolutions.com www.twitter.com/deltek www.facebook.com/deltekinc www.linkedin.com/company/163414 www.youtube.com/user/deltekinc30 May 22, 2012 ©2011 Deltek, Inc. All Rights Reserved

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