PRESENTATION FOR SMALL BUSINESS

JUNE 10, 2004

PRESENTERANN INTRAVIA, DCAA FLA

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AGENDA

• Opening/Introductions• DCAA Organizational Overview• FAR Cost Principles• Accounting System

– Elements of an Adequate System– DCAA Review

• Labor Charging – Elements of an Adequate System– DCAA Review – Penalties for Labor Mischarging

• Wrap up/Questions??

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• Established in 1965

• Separate Agency of the Department of Defense

• Reports to DoD Controller

• Provides Services to All DoD Components

• Provides All Necessary Contract Audits for DoD

DEFENSE CONTRACT AUDIT AGENCY

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• Advisory Services To Non-DoD customers• Agency Staffing Of Approximately 4,000• Professional Auditors Comprise 83% of Staff• CPAs Comprise 37% of The Auditors

DEFENSE CONTRACT AUDIT AGENCY

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Where can you find out more about us??

Who will audit at your location?

DEFENSE CONTRACT AUDIT AGENCY

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http://www.dcaa.mil

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www.dcaa.mil

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http://www.dcaa.mil

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http://deskbook.dau.mil/jsp/default.jsp

• FARSite FAR Chapter 30 Cost Accounting Standards Administration

• FARSite FAR Chapter 31 Contract Cost Principles and Procedures

• FARSite FAR Chapter 32 Contract Financing

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FAR Part 31Contract Cost Principles and

Procedures• FAR Part 31.2 Contracts with Commercial OrganizationsMain Basis for Today’s Presentation

• FAR 31.001 DefinitionsProvides Background for Key TermsExamples: Cost Objective, Indirect Cost Pools, G&A

•31.201 -- General. •31.201-1 -- Composition of Total Cost. •31.201-2 -- Determining Allowability. •31.201-3 -- Determining Reasonableness. •31.201-4 -- Determining Allocability. •31.201-6 -- Accounting for Unallowable Costs.

FAR Subpart 31.2Contracts-Commercial Organizations

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Composition of Total Cost

FAR _______ deals with composition of total cost.

31.201-1

The total cost of a contract is the sum of the direct and indirect costs allocable to the contract, incurred or to be incurred, less any allocable credits, plus any allocable cost of money pursuant to 31.205-10.

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Determining Allowability

Allowability Criteria:

G__________________

R__________________

L__________________

A__________________

C__________________

FAR _______ deals with allowability.31.201-2

AAPeasonable

imits/ terms in contract

llocable

AS (if applicable)

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Determining AllowabilityContinued

Contractors Are Responsible For:

• Appropriate Accounting• Maintaining Adequate

Records/Documentation• Demonstrating Allowability/Allocability of

Costs

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Determining Reasonableness

Reasonableness Criteria:1. Not Excessive_

2. Prudent Businessperson

3. Competitive Business

4. Burden of Proof On Contractor if challenged

5. Contractor Policy

FAR _______ deals with reasonableness.31.201-3

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Determining Allocability

FAR 31.201-4 deals with Allocability

If a cost is incurred specifically for the benefit of a contract – allocable to that contract

(Direct Cost)

Benefits more than one contract

(Indirect Cost)

Benefits the business as a whole

(G&A)

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Determining AllocabilityContinued

“Allocate” a cost means?

How should a cost be charged if it is incurred specifically for a contract?

To Distribute, Assign, Charge, Pro-rate, etc.

Direct to Contract

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Determining Allocability How should a cost be charged if it is incurred for more than one contract, but not for all contracts?

Indirect or Overhead

How should a cost be charged if the cost is necessary to the business as a whole, but does not benefit any specific contract?

G&A

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Unallowable Costs

FAR 31.201-6 deals with accounting for unallowable costs.

1. The practices for accounting for and presentation of unallowable costs will be those described in:

CAS 4052. Unallowable costs include: Mutually agreed to costs Directly associated costs Contracting officer unilateral decision

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Expressly Unallowable Costs

“… a particular item or type of cost which, under the express provisions of an applicable law, regulation or contract, is specifically named and stated to be unallowable.”

FAR 31.001

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DIRECT COST FAR 31.202

A Direct Cost Is Any Cost That Can Be Identified Specifically With A Particular Final Cost Objective.

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INDIRECT COST FAR 31.203

An Indirect Cost Is Any CostNot Directly Identified with ASingle Final Cost Objective, But Identified with Two or More Final Cost Objectives...

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FINAL COST OBJECTIVEFAR 31.001

A Cost Objective That Has Allocated to it Both Direct & Indirect costs... Is One of The Final Accumulation Points

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Cost Objective FAR 31.001

A function, organizational subdivision, or other work unit that cost data are accumulated for

Can be Final

Contract

Or Intermediate

Indirect Cost Pool

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FAR Sections

• Key FAR sections associated with cost -- – Negotiation - FAR Part 15– Contract Types – FAR Part 16

– Cost Principles - FAR Part 31– Contract Financing - FAR Part 32– Contract Management - FAR Part 42– Contract Clauses - FAR Part 52– Forms - FAR Part 53

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FAR Part 31.205Selected Costs

• Defines the cost• Defines what is allowable• Defines what is not allowable

DO• Read each definition very carefully• Look out for changes (Use current FAR)

• http://farsite.hill.af.mil/

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ADEQUATE ACCOUNTING SYSTEM

• Conforms With Generally Accepted Accounting Principles, (GAAP)

• Produces Equitable Results--Verified,

• Applicable to The Contemplated Contract (s), and

• Is Capable of Being Consistently Followed.

GENERAL

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Accounting System Review

•Adequacy of Documentation•Suitability to Business

•Reasonable Data- Projection •Practices Accumulating

Costs

GENERAL

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Accounting System Review

•Proper Segregation:Direct CostIndirect Cost

•Identification & Accumulation Direct costs by contract •Consistent Allocation of Indirects• Under G/L Control

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Accounting System Review

•Timekeeping System-Identifies Labor by Intermediate or Final Cost Objectives•Labor Distribution System-Charges Direct & Indirect Labor to Appropriate Objectives

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Accounting System Review

•Interim Determination of Costs – at Least Monthly•Exclusion of Unallowable Costs from Contracts•Identification of Costs by Contract Line item If Required

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LABOR CHARGING SYSTEM

• External Documentation• Physical Evidence• Indoctrinate Employees

• Wrong• Correct

• Recording Time Charges• Guard Against Fraud & Waste

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•Segregation of Responsibilities

•Procedures

•Maintenance of Controls

•Individual Employees

INTERNAL CONTROLS

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TIMECARD PREPARATION

Recording Time on A Daily Basis

Recording Time on The Timecard (Ink)

Project Numbers, Contract Number, etc…

Changes To The Timecard

Recording All Hours-Whether Paid or Not

Signing The Timecard (?)

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RECOMMENDED TIMEKEEPINGPOLICY

• Supervisor Should Approve & Cosign

• Supervisor Is Prohibited to complete unless: Prolonged Period Travel Status Employee Returns

• Work Determines Proper Distribution • Company Policy-Employee’s Responsibility

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FLOOR CHECKS

Employees Are Actually at Work

Assigned Job Classification

Time Is Charged to The Appropriate Job/Code

Unannounced Checks

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PENALTIESLABOR MISCHARGING

The Manipulation of Charges to a Contract May Be Subject To Criminal Charges Under 18 United States Code (U.S.C.) 1001.The Following Can Be Liable for The Violation:

• Employees Who Fill & Sign T/C With False Information.

• Supervisors Who Approve…Knowingly • Managers and Officers Who Know Those Facts… • The Company- sufficiently high enough level

There does not have to be a direct contractual relationship between the Government and the employee who submitted the false timecard for the employee to be liable

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ADEQUATE ACCOUNTING SYSTEM

•Accounting System Is Unacceptable•Auditor-Contractor•Auditor-Procurement Official

•Identify Recommendations for Correcting The Deficiencies.

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ANN INTRAVIA303-676-3480ann.intravia@dcaa.mil

Presenters’ Information