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

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

3. 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

4. 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

5. 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.)

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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?

12. 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.

13. 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

14. 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

15. 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

16. 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.

17. 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

18. 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.