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

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

3. 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
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Room Reservations
Requirement – employed by General Atomics
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4. 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)
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5. Approaches to Auditing and Accounting for Unallowable Cost
Darren Reeder, Leidos
February 13, 2019
02/13/19
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6. Agenda Purpose and Objectives Process Overview Topics and Questions
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7. Purpose and Objectives
Overview of the process for reviewing indirect cost for unallowables
Discussion of certain topics
Open discussion or questions
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9. 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?
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10. 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
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11. 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
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San Diego AGA 2/13/2019

12. 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
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13. Checklist example
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14. 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
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San Diego AGA 2/13/2019

15. 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.
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16. 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
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17. Topical Discussion
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18. QUESTIONS??
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