PRESENTATION FOR SMALL BUSINESS JUNE 10, 2004 PRESENTER ANN INTRAVIA, DCAA FLA

2 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??

3 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

4 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

5 Where can you find out more about us?? Who will audit at your location? DEFENSE CONTRACT AUDIT AGENCY

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10 FARSite FAR Chapter 30 Cost Accounting Standards Administration FARSite FAR Chapter 31 Contract Cost Principles and Procedures FARSite FAR Chapter 32 Contract Financing

11 FAR Part 31 Contract Cost Principles and Procedures FAR Part 31.2 Contracts with Commercial Organizations Main Basis for Todays Presentation FAR Definitions Provides Background for Key Terms Examples: Cost Objective, Indirect Cost Pools, G&A

General Composition of Total Cost Determining Allowability Determining Reasonableness Determining Allocability Accounting for Unallowable Costs. FAR Subpart 31.2 Contracts-Commercial Organizations

13 Composition of Total Cost FAR _______ deals with composition of total cost 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

14 Determining Allowability Allowability Criteria: G__________________ R__________________ L__________________ A__________________ C__________________ FAR _______ deals with allowability AAP easonable imits/ terms in contract llocable AS (if applicable)

15 Determining Allowability Continued Contractors Are Responsible For: Appropriate Accounting Maintaining Adequate Records/Documentation Demonstrating Allowability/Allocability of Costs

16 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

17 Determining Allocability FAR 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)

18 Determining Allocability Continued 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

19 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

20 Unallowable Costs FAR deals with accounting for unallowable costs. 1.The practices for accounting for and presentation of unallowable costs will be those described in: CAS Unallowable costs include: Mutually agreed to costs Directly associated costs Contracting officer unilateral decision

21 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

22 DIRECT COST FAR A Direct Cost Is Any Cost That Can Be Identified Specifically With A Particular Final Cost Objective.

23 INDIRECT COST FAR An Indirect Cost Is Any Cost Not Directly Identified with A Single Final Cost Objective, But Identified with Two or More Final Cost Objectives...

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

25 Cost Objective FAR A function, organizational subdivision, or other work unit that cost data are accumulated for Can be Final Contract Or Intermediate Indirect Cost Pool

26 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

27 FAR Part Selected 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)

28 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

29 Accounting System Review Adequacy of Documentation Suitability to Business Reasonable Data- Projection Practices Accumulating Costs GENERAL

30 Accounting System Review Proper Segregation: Direct Cost Indirect Cost Identification & Accumulation Direct costs by contract Consistent Allocation of Indirects Under G/L Control

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

32 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

33 LABOR CHARGING SYSTEM External Documentation Physical Evidence Indoctrinate Employees Wrong Correct Recording Time Charges Guard Against Fraud & Waste

34 Segregation of Responsibilities Procedures Maintenance of Controls Individual Employees INTERNAL CONTROLS

35 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 (?)

36 RECOMMENDED TIMEKEEPING POLICY Supervisor Should Approve & Cosign Supervisor Is Prohibited to complete unless: Prolonged Period Travel Status Employee Returns Work Determines Proper Distribution Company Policy-Employees Responsibility

37 FLOOR CHECKS Employees Are Actually at Work Assigned Job Classification Time Is Charged to The Appropriate Job/Code Unannounced Checks

38 PENALTIES LABOR MISCHARGING The Manipulation of Charges to a Contract May Be Subject To Criminal Charges Under 18 United States Code (U.S.C.) 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

39 ADEQUATE ACCOUNTING SYSTEM Accounting System Is Unacceptable Auditor-Contractor Auditor-Procurement Official Identify Recommendations for Correcting The Deficiencies.

40 ANN INTRAVIA Presenters Information