Approaches to Accounting and Auditing for Unallowable costs San Diego Chapter www.sdaga.org WELCOME Approaches to Accounting and Auditing for Unallowable costs February 13, 2019 San Diego AGA 2/13/2019

NEW MEMBERS Elliot Steele – MGO CPAs 02/13/19 San Diego AGA 2/13/2019

AGA Board of Directors We need you to help us fulfill the goals of the chapter Monthly Meetings Contacting Speakers, coordinating visits Reserving space and arranging food All Day event AGA Website Job Announcements Skills we are really, really, really looking for Website maintenance Social Media Room Reservations Requirement – employed by General Atomics 02/13/19 San Diego AGA 2/13/2019

Upcoming Events Employee vs Independent Contractor - Wednesday March 6, 2019 Michael Parme – Haight, Brown, & Bonesteel LLP Annual All Day Conference – Wednesday April 24, 2019 Baker Tilly Government Audits/Investigations Employee Compensation, Benefits and Compensation Plans Subcontractor Compliance Other Transactional Agreements (OTA) 02/13/19 San Diego AGA 2/13/2019

Approaches to Auditing and Accounting for Unallowable Cost Darren Reeder, Leidos February 13, 2019 02/13/19 San Diego AGA 2/13/2019

Agenda Purpose and Objectives Process Overview Topics and Questions 02/13/19 San Diego AGA 2/13/2019

Purpose and Objectives Overview of the process for reviewing indirect cost for unallowables Discussion of certain topics Open discussion or questions 02/13/19 San Diego AGA 2/13/2019

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Risk Assessment Review the unallowable policy Determine how the unallowable costs are segregated – are there separate accounts? Are they homogenous? Does anyone use statistical sampling? Download the allowable costs and determine where there are material amounts that will likely be targeted by DCAA – Consultants are usually popular. Legal and Travel are sometimes thrown in Review unallowable costs and look for similar costs in allowable accounts. Lobbying, Advertising, M&A, Organization costs Review unallowable costs and determine if anything is missing Review 10K/10Q for specific risk items to review with Legal Include areas where past deficiencies were noted, any areas where the CACO has shown concerns, and review any audit results from internal audits conducted on controls for additional input Examine the direct cost. Are there a high number of cost plus contracts? 02/13/19 San Diego AGA 2/13/2019

Schedule and Planning Starting point based on year over year testing Supplement with additional testing for specific areas of concern: Reorganizations New systems or controls Turnover Litigation Recent DCAA audit findings DCAA MRDs Determine and document how all 52 cost principles are covered by some form of audit or control 02/13/19 San Diego AGA 2/13/2019

Schedule and Planning The ICS is due within 6 months of FY end ICS Unallowable scrubs should begin immediately after year end close Focus is typically on indirect costs that impact the rates Concurrent auditing during the fiscal year will save time, but note that stat sample results cannot be combined Decide what is a good fit for stat sampling, judgmental sampling, or interview Stat Sampling is for large, homogenous populations (CAM 4-602) Judgmental sampling can be used to make a universe more homogeneous, or to identify and eliminate particular areas of risk in the sampling universe Ex. - Stratification, key word, or carve out of certain projects Schedule enough time to gather documentation and conduct peer review, in addition to sample audit List all audits to be completed and assign a lead, and a deadline 02/13/19 San Diego AGA 2/13/2019

Conduct Review Based on Plan Have a written audit plan for each audit that describes: The purpose of the audit, how the universe was derived, what systems are used to incur the cost, and a description of the review process Within the audit files include: Step by step procedures for completing the universe A checklist of actions completed, with links to the relevant sheets Take the time to remediate issues while auditing, similar to what would take place during a DCAA audit Take the time to train individuals responsible for errors on specific transactions, or groups of transactions, on a real time 02/13/19 San Diego AGA 2/13/2019

Checklist example 02/13/19 San Diego AGA 2/13/2019

Determine Necessary Adjustments Review with management as audits are completed, and address any questions and concerns; i.e. do not wait for everything to be completed A one page summary is useful for management reviews, which includes: A Rationale for what was audited and why Changes from any previous audits Results, along with a listing of historical results for comparison Summary comments 02/13/19 San Diego AGA 2/13/2019

Create a Culture of Compliance Training is a control and is important in creating a culture of compliance Annual Unallowable policy training Develop informal training for certain areas of concern on an as-needed basis or upon request Some training will also include developing remediation plans Monitoring of Remediation Plan Repeat when necessary New staff, findings, etc. 02/13/19 San Diego AGA 2/13/2019

Finalize and Document Results Save the files in a repository with other ICS files, where they are not accessible by DCAA They can be used to demonstrate compliance or to dispute results of DCAA audits Remediation plans may be required in some cases, to include: Statement of the problem List the actions recommended to resolve Track progress to a reasonable deadline 02/13/19 San Diego AGA 2/13/2019

Topical Discussion 02/13/19 San Diego AGA 2/13/2019

QUESTIONS?? 02/13/19 San Diego AGA 2/13/2019