This document discusses new certification requirements for overhead rates that will impact engineering and design firms working with the federal government. It notes that firms must now annually certify their overhead cost submissions and proposals to ensure compliance with federal regulations. Non-compliance could result in suspension, debarment, or prosecution. It provides examples of indirect costs that could be deemed unallowable if improperly charged to overhead and advises firms to implement policies to protect themselves, including educating staff on contracting rules and separating unallowable cost accounts.

1. How the New Certification of Overhead Rates Will Impact Your Firm T. Wayne Owens, CPA T. Wayne Owens & Associates, PC 800.637.2727

2. © Copyright Jerry Laiserin 2010. All rights reserved.

3. T. Wayne Owens & Associates, PC

4. Built for A/E/C We are a CPA firm that provides a full range of accounting and financial management solutions, including audits, FAR audits and tax services tailored for the design industry. Our services are specifically geared toward boosting the effectiveness, well-being and profitability of your A/E/C firm. Our relationship with you is the driver – consider us a partner on your success team, providing experienced guidance and advice for your situation and spotting opportunities to position your company for the future.

6. Is This Really Serious?

7. Where is my Risk?

8. What can We do to Protect Our Firm?

11. Expected to:

12. Increase audit quality and consistency

13. Increase compliance with FAR cost principles

14. Reduce risk of payment of unallowable costs and waste in the consultant services program

16. Contractors must certify cost submissions for overhead rates annually and with proposals

17. Contractors who knowingly charge unallowable costs to overhead could face:

18. Suspension

19. Debarment

22. imposes liability on any person who submits a claim to the federal government that he/she knows or should know is false

23. Civil penalty of not less than $5,500 and not more than $11,000, plus 3 times the amount of damages which the Government sustains because of the act of that person

25. Is This Really Serious?

26. 12 U.S. Settles Case Against Berger Group for $69 Mil 11/05/2010 By Richard Korman Louis Berger Group has agreed to pay $69 million to settle civil charges by the Dept. of Justice that the company systematically inflated its overhead charges in cost-plus work for the federal government from 1999 to 2007. Separately, Berger Group’s former chief financial officer, Salvatore Pepe, 58, and its former controller, PrecyPellettieri, 54, pleaded guilty in federal court in Newark, N.J., to conspiring to defraud the U.S. government. In its descriptions of the fraud, the U.S. attorney claimed that Berger Group charged overhead for home office employees as if they only worked on federal contracts when those employees actually only spent part of their time working on federal contracts. The investigation began when a former Berger employee who worked in the company’s accounting department filed a whistleblower lawsuit in federal court in Maryland. The employee is entitled to a portion of the settlement.

27. Where is My Risk? The big risk is in the little things

29. Can be direct, indirect, allowable, unallowable

30. Example of potential problems:

31. Principle regularly attends Rotary meetings and charges time to general overhead

32. Project has run out of fee and project manager tells staff to charge project time to training

33. Reducing direct labor costs for contract limitations and charging difference to overhead

35. Firm regularly charges in-house printing to jobs. Contract does not allow this so charges are not costed to project.

36. Firm has out of town project meeting that is not included in contract as reimbursable. In order to keep the job under budget the principle charges costs to selling expense.

38. Firm records a capital lease as an operating lease in order to write the cost off faster.

39. Many firm owners view the firm checkbook as theirs thus they “expense” certain personal expenses.

40. Personal yard maintenance

41. Personal maid service

42. Vehicles for family members

44. Dining club memberships

45. Country club memberships

46. Sporting events

47. Holiday parties

48. Alcohol

51. All principles and project managers who propose and manage government jobs should have a general understanding of government contracting and overhead

52. Firm accounting personnel should be well versed in government contracting

53. Discuss with state DOT

55. Firms who contract with the government MUST have written policies and procedures

56. Policies should at least cover time reporting and costing, treatment of contract costs including in-house costs, personnel, expense reports, unallowable costs

57. Separate accounts for unallowable amounts are required

59. Expense report receipts – specify a minimum dollar amount that receipts are necessary. Require all alcohol to be separately recorded.

60. Timesheets – indirect codes for unallowable labor with detailed explanations for staff.

61. Subconsultant qualification process.

63. Government rules are typically good business practices

64. Government compliant firms tend to be much better managed

65. Slow reacting firms could be in for some serious pain