Nuts and Bolts of Government Accounting Molly Ruddock, Draper Laboratories Paula Handrahan, Abt Associates Inc.

Agenda Acceptable accounting systems Indirect rates Proposal Audits DCAA (Defense Contract Audit Agency) Incurred Cost Audit

Accounting Systems There is no 1 approved accounting system that has to be used Any system used must be able to track costs by job Direct costs are key Labor, material, travel, etc Labor hours are generally required but can be in a subsidiary ledger

Indirect Rates What are they? How many rates do you need? A way of recovering costs that are not directly associated with a particular contract. How many rates do you need? Depends on many things Size of the organization Mix of government vs. commercial sales Basis of award Variety of products in the business unit

Indirect Rates What makes up the different pools? Overhead pools: Expenses related to providing the product/service but not part of the end product (facility costs, supervision, etc.) How many overhead rates should I have? Less is more…small pools are difficult to predict and manage G&A pool: Expenses for overall operation of the business as a whole (CEO, CFO, CIO, etc.) Material/Subcontract Handling pool: Expenses related to material handling or subcontract management (receiving, subcontract operations, etc.)

Indirect Rates What makes up the bases? Overhead Base G&A Base Generally direct labor dollars Sometimes includes fringe benefits on direct labor G&A Base Total Cost Input (all direct and indirect costs except G&A expenses) Value added (all direct and indirect costs except material/subcontract costs & G&A expenses) Single element (usually direct labor) Material/Subcontract Handling Base Material/Subcontract dollars

Indirect Rates How do you choose a base? G&A Overhead What base best represents the total activity of a business unit in a typical fiscal year Overhead What base best allocates the expenses to the final cost objective to reasonably reflect the benefits received

Proposal Support DCAA guidance, proposal support must be available immediately at start of audit. Must explain how your budget was prepared DCAA will only audit: Fixed Price Proposals >$10 million Cost Type Proposals > $100 Million unless there are unusual circumstances DCMA and others are subbing out the cost price analyst function

Direct Labor Support Hours: Labor Rates: Did you base your estimate on history? Are you using a learning curve? If it’s a follow on contract will certain functions take less time on this contract? Labor Rates: Are you bidding actual salaries? If so have the salary support (roster, W-2, etc.) Are you bidding a combined rate (engineer, scientist, etc)? If so be able to show how the rate was computed. Are you bidding a loaded rate? (T&M) Be able to show how the rate was loaded Also be able to support the components of the loaded rate

Subcontract/Consultant Support Have the sub/consultant bid available for review. Did you competitively source the vendor? If so have the competing bids Be able to explain why you chose the vendor you bid. If it was not a competitive bid why? What made this vendor uniquely qualified to do the work

Other Direct Costs Does your bid have material? You will need a bill of material You will need quotes for material bid Does your bid have travel? You will need to be able to support airfare and any per diem being bid. Other costs? Be able to explain how you arrived at estimates for any other direct costs. Did you use a factor, history, etc?

Indirect Costs Do you have a Negotiated Indirect Rate Agreement (NICRA) If so did you apply the rates in the manner prescribed on the NICRA? Have a copy of the NICRA available for review. If this is your first bid? If so be able to support how you arrived at the rates you used.

DCAA Who is the DCAA? What is DCAA’s role? Part of the Department of Defense Also provides services to other government agencies Provides standardized contract audit services, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. What is DCAA’s role? Perform contract audits requested by representatives of the various military and civilian acquisition organizations and by the DCMA (Defense Contract Management Agency) Advisor to buying command on proposal reviews Reports to ACO on rate and CAS audits

DCAA Audits What types of audits will they do? Pre-award and Post-award audits Price Proposals Pre-award Surveys Forward Pricing Labor & Overhead Rate review Financial capability Incurred cost (rate) audits / A-133 Audits CAS audits (If CAS covered) Claims

DCAA Audits (Continued) What types of audits will they do? System reviews Accounting Billing Earned Value Management (EVMS) Electronic Data Processing (EDP) Compensation Purchasing Labor Budgeting Material Management Disclosure Statement

DCAA Audits (Continued) What determines the type of audits DCAA can perform? Type of contract Basis of contract award Size of company What happens if the you disagree with DCAA? The Procurement Contracting Officer (PCO) (for proposals) or Administrative Contracting Officer (ACO) would have to justify why they are siding with you.

DCAA Information What you should know: New contractor guidance available on DCAA website Contract Audit Manual (CAM) Field-Detachment Resident Offices Audit Programs available on the DCAA website

DCAA Audit Tips Designate one point of contact for all requests Document requests and note the following: Status (e.g., not started, in progress, complete) Requesting Auditor Person responsible for providing answers Schedule regular status meetings with auditors Provide open items lists to applicable staff Label Supporting Documentation with the Auditor Name and Topic (e.g., direct material invoices, labor timesheets) Schedule “Office Hours” whenever possible.