Presented by
Albert D. Goldwasser, CPA
Government Contractor Consultant
Agenda
•
•
•
•
•
•
DCAA’s Objectives
Accounting 101
Indirect Cost Allocations
SF 1408
Passing the DCAA Audit
References
What does the DCAA want?
• What is the DCAA’s job?
– To ensure that taxpayer dollars are spent fairly and
properly
– They do this by:
• Identifying and evaluating costs
• Evaluating contractor financial policies,
procedures, internal controls
• Performing audits
How does DCAA carry out its mission?
• Does the accounting system appropriately
control, collect, and allocate costs?
– Does the system produce GAAP financial
statements?
– Can the system separate one contract from
another?
– Are system modules integrated?
How does DCAA carry
out its mission?
• Policies and Procedures
– Does your company have them?
– Are you complying with your own P&P?
– Do your financial records reflect such compliance?
• Adequacy of Records
– Can you produce records/documents to support the
financial transactions?
– Are time cards properly prepared?
Important Definitions
to the DCAA
• Final Cost Objective
Cost objective that has allocated to it both direct
and indirect costs and is one of the final
accumulation points
(It’s where all the costs gather at the final stop –
for that particular job)
Important Definitions to the DCAA
• Indirect Cost Pools
Groupings of incurred costs identified with two
or more cost objectives but not identified
specifically with any final cost objective
(G&A, Overhead, Fringes)
Important Definitions to the DCAA
• Total Costs
All costs properly allocable to the contract
(Allowable direct and indirect costs)
• Direct Costs
Costs of the contract that are charged directly to that
contract
(And just to that contract.)
• Indirect Costs
Those costs remaining to be allocated to intermediate
or two or more final cost objectives
(G&A, Overhead, Fringes)
Accounting 101
• Chart of Accounts
– Group accounts appropriately
– Segregate, segregate, segregate
• Direct from Indirect
• One Indirect from another Indirect (G&A from
Overhead)
• Unallowable from Allowable
Chart of Accounts
Acct #
000-1120
000-1122
000-1125
000-1200
000-1201
000-1220
000-1400
000-1600
000-1610
000-1700
000-1800
000-1805
000-1900
000-2000
000-2001
000-2010
000-2022
000-2023
000-2050
000-2065
000-2200
000-2210
000-2220
000-2310
000-2400
000-2450
000-2490
Account Description
General Checking - Bank 1
Cash - Bank 2
Payroll Account
Accounts Receivable
Other Receivables
Employee Advances
Unbilled Receivables
Prepaid Expenses
Prepaid Insurance
Inventory
Asset - Equipment
Accumulated Depreciation
Deposits
Accounts Payable - Regular
Outstanding Checks
Accounts Payable - Accrued
Accrued Payroll
Accrued Payroll Taxes
Payroll Checks To Be Issued
Vacation Payable
FICA & Federal Withholding Payable
FUTA Payable
SUI Payable
State Withholding
Garnishments
Deferred Revenue/Advance Payment
Notes Payable - MBL
Just a Sampling
Balance
209,395.42
115,872.05
1,339,483.73
1,307.05
300.00
39,291.52
2,987.39
2,870.76
(1,818.30)
750.00
(606,101.26)
(120,772.66)
(91,026.50)
(6,963.53)
(70,000.01)
(369.23)
(38,943.10)
Pool
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
BS
Key Description
Cash
Cash
Cash
Accounts Receivable Trade
Accounts Receivables - Other
Accounts Receivables - Other
Unbilled Revenue
Prepaid Expenses
Prepaid Expenses
Work-in-Process
Equipment
Less Accumulated Depreciation
Deposits
Accounts Payable
Bank Overdraft
Accrued Liabilities
Accrued Payroll / Taxes
Accrued Payroll / Taxes
Accrued Liabilities
Accrued Liabilities
Accrued Payroll / Taxes
Accrued Payroll / Taxes
Accrued Payroll / Taxes
Accrued Payroll / Taxes
Accrued Liabilities
Deferred Revenue
Notes Payable
Chart of Accounts
Acct #
005-5000
005-5002
005-6000
005-6100
005-6110
005-6120
005-6400
005-7000
200-4000
200-4100
200-5000
200-5002
200-5020
200-5030
200-5140
200-5240
200-5250
200-5260
200-5280
200-5290
200-5470
209-6000
209-6010
209-6015
209-6100
209-6110
209-6120
Account Description
Labor - Overhead
Labor Accrual/(Reversal) - Overhead
Holiday - Overhead
FICA/Medicare - Overhead
FUTA - Overhead
SUT - Overhead
Bonus - Overhead
Fringe Allocation - Overhead
Revenue
Revenue - Accrual
Labor
Labor Accrual / (Reversal)
Subcontractors
Outside Services/Consulting
Lease
Phone/Fax/Net
Postage/Freight
Dues & Subscriptions
Travel
Meetings & Seminars
Office Equipment Expense
Holiday - Job 1
Vacation - Job 1
Sick Pay - Job 1
FICA/Medicare - Job 1
FUTA - Job 1
SUI - Job 1
Balance
70,848.99
(384.64)
20,207.05
(7,289,726.56)
1,611,021.69
15,477.44
3,240,346.08
222,178.28
6,350.00
72.64
79.09
383,325.35
34,729.02
900.00
1,211.52
3,030.82
900.00
4,894.45
42.00
166.40
Pool
Overhead
Overhead
Overhead
Overhead
Overhead
Overhead
Overhead
Overhead
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Job 1
Job 1
Job 1
Job 1
Job 1
Job 1
Key Description
Labor
Labor
Holiday
FICA/Medicare
FUTA
SUI
Bonus
Fringe allocation
Sales
Sales
Direct Labor
Direct Labor
Subcontractors
ODC
ODC
ODC
ODC
ODC
ODC
ODC
ODC
Holiday
Vacation
Sick Pay
FICA/Medicare
FUTA
SUI
Just a Sampling
Chart of Accounts
Acct #
900-5000
900-5002
900-5036
900-5110
900-5120
900-5160
900-5170
900-5200
900-5210
900-5220
900-5230
900-5240
900-5250
900-5260
900-5280
900-5290
900-5400
900-5410
900-5420
900-5460
900-5470
900-5480
900-5500
900-5510
900-5520
900-5550
900-8200
Account Description
Labor - Admin
Labor Accrual/(Reversal) - Admin
Uniforms - Admin
Legal Fees - Admin
Professional/Consulting - Admin
Software/Licenses/Maint - Admin
Business Insurance
Office Lease - Admin
Building Repair/Maint - Admin
Office Supplies - Admin
Parking Expense
Phone/Fax/Net - Admin
Postage/Freight - Admin
Dues & Subscriptions - Admin
Travel - Admin
Meeting & Seminars - Admin
Taxes/Licenses/Fees - Admin
Auto Expense - Admin
Depreciation/Amortization - Admin
Payroll Service Expense
Office Equipment - Admin
Trade Show Expense - Admin
Miscellaneous Expense - Admin
Advertising - Admin
Bank Fees - Admin
Business Meals - Admin
Unallowable Travel
Balance
314,238.68
(915.38)
1,275.75
17,733.67
157,235.49
10,549.37
68,897.75
18,663.25
5,980.00
3,426.21
351.00
9,859.20
2,706.88
1,720.26
11,519.10
548.12
16,635.36
2,734.51
478.50
3,059.43
5,590.22
330.00
3,823.12
3,603.67
4,011.43
5,378.51
32,545.26
Just a Sampling
Pool
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
GA
Key Description
Labor
Labor
Uniforms
Legal Fees
Professional/Consult/Mgmt Fees
Software Licenses/Mtnc
Insurance - Business
Office Lease
Building Repair/Mtnc
Office Supplies
Parking
Phone/Fax/Net
Postage/Freight
Dues & Subscriptions
Travel
Meetings & Seminars
Taxes/Licenses/Fees - Business
Auto Expense
Depreciation/Amortization
Payroll Service Expense
Office Equipment Exp
Trade Show Expense
Miscellaneous
Advertising
Bank Charges
Business Meals
Unallowable Cost
Accounting 101
• P&L
– Top Level Roll-up
– By Contract + Further
– G&A
– Overhead
• Balance Sheet
– State of the business
– Reconciliations
• Cash Flow
Month
$ 775,408.92
YTD
7,289,726.56
151,310.60
383,313.97
100,517.43
49,021.09
684,163.09
1,626,499.13
3,240,346.08
647,634.38
466,431.17
5,980,910.76
91,245.83
11.8%
1,308,815.80
18.0%
General & Administrative
15,173.33
101,992.47
90,671.40
816,376.49
Total Indirect Expense
117,165.80
907,047.89
Operating Income
(25,919.97)
-3.3%
401,767.91
5.5%
562.50
6,924.79
(26,482.47)
394,843.12
562.50
47.85
6,924.79
478.50
(25,872.12)
-3.3%
402,246.41
5.5%
Revenue
Direct Expenses
Direct Labor
Subcontractors
Other Direct Costs
Fringe Benefit Costs
Total Direct Expenses
Contract Margin
% of Sales
Indirect Expenses
Overhead Expense
% of Sales
Other Income & Expenses
Interest Income
Other Income
Interest Expense
Net Income
% of Sales
Add-Backs
Interest Expense
Taxes
Depreciation
EBITDA
% of Sales
P&L
Top Level
Corporate
P&L
Top Level
Contract
B/S – Top Level - Corporate
ASSETS
Balance
CURRENT ASSETS
Inventory
Prepaid Expenses
TOTAL CURRENT ASSETS
1,708,637.16
Other Receivables
Balance
CURRENT LIABILITIES
325,267.47
1,339,483.73
1,607.05
2,987.39
39,291.52
Cash
Accounts Receivable Trade
LIABILITIES & STOCKHOLDERS EQUITY
Accounts Payable
Accrued Liabilities
Accrued Payroll & Taxes
Line of Credit
Deferred Revenue/Advanced Payments
Notes Payable
TOTAL CURRENT LIABILITIES
606,101.26
191,141.90
97,990.03
150,000.00
361,433.29
1,406,666.48
PROPERTY & EQUIPMENT
Equipment
Less Accumulated Depreciation/Amortization
2,870.76
(1,818.30)
STOCKHOLDERS EQUITY
NET PROPERTY & EQUIPMENT
1,052.46
Paid In Capital
Distributions
Retained Earnings
OTHER ASSETS
Deposits
750.00
NET OTHER ASSETS
750.00
TOTAL ASSETS
1,710,439.62
Current Year Earnings
TOTAL STOCKHOLDER'S EQUITY
TOTAL LIABILITIES & EQUITY
(247,600.00)
156,530.02
394,843.12
303,773.14
1,710,439.62
Reconciliation
Prepaid Insurance
Description
Term
The Hartford - Worker's Comp
The Hartford - Business Owners
Rutherford
Clark & Sampson, Inc.
CBIZ Insurance Services, Inc.
CBIZ Insurance Services, Inc.
CBIZ Insurance Services, Inc.
CBIZ Insurance Services, Inc.
Group Benefit services
Group Benefit services
The Hartford - Worker's Comp
The Hartford - Business Owners
6/21/2012 - 6/21/2013
6/21/2012 - 6/21/2013
10/16/12 - 10/16/13
10/20/12- 10/20/13
07/01/12 - 07/01/13
11/05/12 - 11/05/13
11/05/12 - 11/05/13
11/05/12 - 11/05/13
October 2013
November 2013
6/21/2013 - 6/21/2014
6/21/2013 - 6/21/2014
Rutherford
CBIZ Insurance Services, Inc.
7/1/2013 -2014
7/1/13 - 7/1/14
Desc
Worker's Comp.
Business Owner's
Worker's Comp/ Defense Base Act
Direct & Officer's Insurance
Pacific Ins Co. LTD Professional Liab.
Foreign Pkg
Defense Base Act
Defense Base Act
Health Insurance GBS
Health Insurance GBS
Worker's Comp.
Business Owner's
Defense Base Act - Germany, Italy,
Kosovo
Professional Liability
Exp.
Account
Total Prepaid
900-6200
900-5170
900-6200
900-5170
900-5170
900-5170
900-5170
900-5170
xxx-6300
xxx-6300
900-6200
900-5170
842.00
1,282.00
34,493.00
3,748.56
6,528.66
2,500.00
25,176.00
4,320.00
10,637.00
10,579.00
1,220.00
500.00
842.00
1,282.00
34,493.00
3,748.56
6,528.66
2,500.00
25,176.00
4,320.00
10,637.00
10,579.00
1,337.00
500.00
900-5170
900-5170
32,595.00
9,041.97
32,595.00
9,041.97
Total Policy
Oct-13
Total
Expensed
Balance
111.42
41.67
842.00
1,282.00
34,493.00
3,748.56
6,528.66
2,500.00
25,176.00
4,320.00
10,637.00
557.10
208.35
10,579.00
662.90
291.65
2,716.25
753.50
10,865.00
3,014.00
21,730.00
6,027.97
18,363.38
163,060.79
39,291.52
1,437.17
208.37
2,098.00
360.00
10,637.00
Cash Flow – Top Level - Corporate
Month
Cash flows from operating activities:
Net Income
Depreciation & Amortization
Changes in Assets and Liabilities
Decrease (increase) in Accounts Receivable
Decrease (increase) in Unbilled Receivable
Decrease (increase) in Other Receivable
Decrease (increase) in Prepaid Expenses
Increase (decrease) in Accounts Payable and Liabilities
Increase (decrease) in Line of Credit
Decrease (increase) in Capitalized Closing Costs
Other changes, net
Net cash provided by operating activities
Ytd
(26,482.47)
47.85
394,843.12
478.50
(2,384.38)
(2,987.39)
(1,307.05)
7,784.38
(709,280.15)
1,937.61
15,972.24
21,228.86
209,442.50
184,113.44
Cash flows from investing activities:
Capital Expenditures
Sale of equipment, net of loss
Net cash provided by (used) in investing activities
-
Cash flows from financing activities:
Changes in Equity
Net cash provided by (used in) financing activities
-
748,837.50
150,000.00
624,017.68
-
(597,600.00)
(597,600.00)
Net increase (decrease) in cash and cash equivalents (calculated)
184,113.44
26,417.68
Cash at beginning of period
Cash at end of period
141,154.03
325,267.47
298,849.79
325,267.47
Cash at end of period per balance sheet
325,267.47
325,267.47
Indirect Cost Allocations
• Accumulate indirect costs by logical cost
groupings
– G&A
– Overhead
– Fringes
• Allocate grouping by a base that makes sense
for that whole grouping
Indirect Cost – Fringe Allocation
Account Description
Year to Date
Actual
Holiday
Vacation
Sick Pay
Bereavement
Other Paid Leave
FICA/Medicare
FUTA
SUI
Worker's Compensation
Insurance Benefits
Bonus
36,243.75
86,648.26
9,169.74
1,012.50
4,725.60
171,160.39
1,896.25
7,447.21
28,328.11
90,847.97
139,010.16
Total Fringes
576,489.94
Account Description
Direct Labor
Overhead - Labor
G&A - Labor
Year to Date
Actual
1,626,499.13
70,464.35
313,323.30
Total Labor
2,010,286.78
Fringe Rate
28.7%
Allocation - Direct
Allocation - Overhead
Allocation - G&A
466,431.16
20,207.06
89,851.72
Total Fringe Allocated
576,489.94
Account Description
Labor
Fringes
Year to Date
Actual
313,323
89,852
Professional/Consulting - Bid
Legal Fees - Admin
Professional/Consulting - Admin
Software/Licenses/Maint - Admin
Business Insurance
Office Lease - Admin
Building Repair/Maint - Admin
Office supplies - Admin
Phone/Fax/Net - Admin
Postage/Freight - Admin
Dues & Subscriptions - Admin
Recruiting - Admin
Travel - Admin
Taxes/Licenses/Fees - Admin
Auto Expense
Depreciation/Amortization - Adm
Payroll Service Expense
Office Equipment - Admin
Bank Fees - Admin
Business Meals - Admin
Other Benefits
Contributions
Unallowable Travel
Unallowable Business Meals
Other Unallowable Costs
Entertainment
29,703
17,734
127,533
10,549
68,898
18,663
6,042
3,364
9,859
2,707
1,720
11,519
16,635
2,735
479
3,059
5,590
4,011
5,379
750
32,545
3,913
9,144
10,738
Total G&A Expense
816,376
Unallowable Expense
Total FAR G&A
57,091
759,286
Indirect Cost
G&A Allocation
G&A Base:
Direct Labor
Subcontactor
ODC
Fringes
Overhead
Total G&A Base
Less Unallowable Expense
Adjusted G&A Base
G&A Rate
FAR G&A Rate
1,626,499
3,240,346
647,634
466,431
90,671
6,071,582
6,071,582
13.4%
12.5%
Account Description
Labor - Overhead
Fringes
Indirect Cost
O/H Allocation
Professional/Consulting - Bids/Proposa
Temp Help
Office Supplies
Phone/Fax/Net
Postage/Freight
Dues & Subscriptions
Recruiting
Travel
Meetings & Seminars
Business Meals - Contracts
Depreciation
Office Equipment
Business Meals
Year to Date
Actual
70,464
20,207
-
90,671
Direct Labor Base
Overhead Rate
1,626,499
5.6%
SF 1408
• Purpose:
Determine the acceptability of contractor’s
accounting system for accumulating costs
under a Government contract
• The Company’s Goal in Answering Questions
on the SF 1408:
Say Yes to each question
Questions on the SF 1408
The DCAA Audit
•
•
•
•
•
•
•
•
Entrance Conference
PBC Request and Auditor Questions
Company’s response
Exit Conference
Draft Report
Company Response
Auditor Follow-up
Company Goal: Accounting
System is Adequate
PBC Request and Auditor Questions
DCAA Audit
Requests for Information, via email from Auditor
Identify the type/brand of the accounting software used by Company.
1.
2.
3.
4.
5.
6.
7.
8.
9.
Identify the type/brand of the accounting software used by Company.
Have there been any changes in the accounting system?
Provide a current organization chart.
Provide current chart of accounts.
Provide job cost ledger which accumulates costs by contract.
Provide a general ledger trial balance.
Provide the actual indirect rates for fiscal year.
Provide budgetary data for fiscal year including budgeted indirect rates.
Provide formal documentation of the accounting system, with a written
description of the contents of bases and pools.
PBC Request and Auditor Questions
DCAA Audit
Requests for Information, via email from Auditor
10. Provide reconciliation schedule of booked to billed costs.
11. Review the monitoring process to ensure that established manual and
computerized controls are functioning as intended.
12. Describe any identified weaknesses or reported internal control
deficiencies and related follow-up actions taken.
13. Are interim billings prepared from cost data?
14. Identify controls to preclude direct charging of indirect expense and
indirect charging of direct contract costs.
15. Identify controls in place to ensure compliance with reporting
requirements.
16. Identify controls which provide for review of contract billing provisions.
17. How often are contract costs posted to the books?
PBC Request and Auditor Questions
DCAA Audit
Requests for Information, via email from Auditor
18. How often are interim indirect rates monitored?
19. How often are total contract expenditures against contract
limitations on price or cost monitored and updated?
20. Identify procedures for accumulating and billing labor costs.
21. Identify procedures for accumulating and billing direct material.
22. Identify procedures for assuring payment to vendors.
23. Identify procedures on items issued from inventory.
24. Identify procedures for accumulating and billing indirect costs.
25. Identify procedures for identifying and excluding unallowable costs.
26. Identify procedures to ensure that subcontractor and vendor costs
are only included in billings if payment is appropriately made.
Auditor’s Report and
Company’s Response
Timekeeping System
Condition:
Company lacks proper internal control procedures and adequate
timekeeping policies and procedures over their labor charging system to
ensure accurate labor charging to intermediate or final cost objectives.
The contractor lacks proper segregation of duties for labor related
activities. There was a lack of documentation from the employees and
supervisors indicating what the change was for and their concurrence with
the change. Timesheets also lacked documentation of supervisory
approval. We determined that Company does not have documented
policies and procedures for the certification or verification of the
externally prepared payroll prior to updating their accounting system. Due
to the lack of internal controls and adequate timekeeping policies, the
payroll recorded by ADP did not reconcile to their accounting system.
Auditor’s Report and
Company’s Response
Recommendation:
We recommend that Company revise their internal controls and
policies and procedures over their labor charging system to
ensure accurate labor charging to intermediate or final cost
objectives in accordance with FAR 31.202, Direct Costs; and FAR
31.203, Indirect Costs. This will ensure a timekeeping system
that can adequately identify employees’ labor by intermediate
or final cost objectives; and specifically require any changes to
the timesheets be documented and signed by both the
employee and the employee’s supervisor.
Auditor’s Report and
Company’s Response
Contractor’s Reaction:
Contractor will revise their internal controls, policies and procedures to
ensure that each employee’s time card is documented with the
appropriate cost objective, that the time card is signed by the
employee’s supervisor indicating review and concurrence with the
time shown, that any changes to the time card will be documented and
signed by both the employee and the employee’s supervisor prior to
data entry into the timekeeping system, and that Company will review
and reconcile ADP data to timesheets prior to updating the accounting
system.
The Goal
“The purpose of this letter is to inform you
that Company’s accounting system is
considered approved. This determination is
based on the review of all available
information. During this review, no significant
deficiencies were identified.”
References
• FAR Subpart 31.2 – Contracts with Commercial
Organizations
Rules and Definitions for Costs
• DCAA Manual No. 7641.90 – Information for
Contractors
The manual is designed to assist contractors in
understanding applicable requirements and to
help ease the contract audit process
Subpart 31.2—Contracts with
Commercial Organizations
31.201-1 Composition of total cost.
(a) The total cost of a contract is the sum of the direct and indirect costs allocable
to the contract, incurred or to be incurred.
31.201-2 Determining allowability.
(a) A cost is allowable only when the cost complies with all of the following
requirements:
(1) Reasonableness.
(2) Allocability.
31.201-3 Determining reasonableness.
(a) A cost is reasonable if, in its nature and amount, it does not exceed that which
would be incurred by a prudent person in the conduct of competitive business.
(b) What is reasonable depends upon a variety of considerations and circumstances
31.201-4 Determining allocability.
A cost is allocable if it is assignable or chargeable to one or more cost objectives on
the basis of relative benefits received or other equitable relationship.
A Sampling
Subpart 31.2—Contracts with
Commercial Organizations
31.201-6 Accounting for unallowable costs.
(a) Costs that are expressly unallowable or mutually agreed to be unallowable shall
be identified and excluded from any billing, claim, or proposal applicable to a
Government contract.
(c)(1) The practices for accounting for and presentation of unallowable costs must
be those described in 48 CFR 9904.405, Accounting for Unallowable Costs.
31.202 Direct costs.
(a) Direct costs of the contract shall be charged directly to the contract.
31.203 Indirect costs.
(b) After direct costs have been determined and charged directly to the contract or
other work, indirect costs are those remaining to be allocated to intermediate or
two or more final cost objectives.
(c) The contractor shall accumulate indirect costs by logical cost groupings with
due consideration of the reasons for incurring such costs
A Sampling
Subpart 31.2—Contracts with
Commercial Organizations
31.205 Selected costs.
31.205-1 Public relations and advertising costs.
31.205-3 Bad debts.
31.205-8 Contributions or donations.
31.205-11 Depreciation.
31.205-13 Employee morale, health, welfare, food service, and dormitory costs and credits.
31.205-14 Entertainment costs.
31.205-15 Fines, penalties, and mischarging costs.
31.205-18 Independent research and development and bid and proposal costs.
31.205-19 Insurance and indemnification.
31.205-20 Interest and other financial costs.
31.205-21 Labor relations costs.
31.205-23 Losses on other contracts.
31.205-30 Patent costs.
31.205-33 Professional and consultant service costs.
31.205-34 Recruitment costs.
31.205-44 Training and education costs.
31.205-46 Travel costs.
31.205-48 Research and development costs.
31.205-49 Goodwill.
31.205-51 Costs of alcoholic beverages.
A Sampling
DCAA Manual
No. 7641.90
Information for
Contractors
A Sampling
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