Nuts and Bolts of
Government Accounting
Molly Ruddock, Draper Laboratories
Paula Handrahan, Abt Associates Inc.
Agenda
 Acceptable accounting systems
 Indirect rates
 Proposal Audits
 DCAA (Defense Contract Audit Agency)
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Incurred Cost Audit
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
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Labor, material, travel, etc
Labor hours are generally required but can be
in a subsidiary ledger
Indirect Rates
 What are they?
A way of recovering costs that are not
directly associated with a particular contract.
 How many rates do you need?
 Depends on many things
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Size of the organization
Mix of government vs. commercial sales
Basis of award
Variety of products in the business unit
Indirect Rates
 What makes up the different pools?
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Overhead pools:
 Expenses related to providing the product/service but not
part of the end product (facility costs, supervision, etc.)
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How many overhead rates should I have?
 Less is more…small pools are difficult to predict and
manage
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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.)
Indirect Rates
 What makes up the bases?
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Overhead 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
Indirect Rates
 How do you choose a base?
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G&A
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What base best represents the total activity of a
business unit in a typical fiscal year
Overhead
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What base best allocates the expenses to the
final cost objective to reasonably reflect the
benefits received
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:
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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
Direct Labor Support
 Hours:
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Did you base your estimate on history?
Are you using a learning curve?
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If it’s a follow on contract will certain functions take less time on this
contract?
 Labor Rates:
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Are you bidding actual salaries?
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Are you bidding a combined rate (engineer, scientist, etc)?
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If so have the salary support (roster, W-2, etc.)
If so be able to show how the rate was computed.
Are you bidding a loaded rate? (T&M)
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Be able to show how the rate was loaded
Also be able to support the components of the loaded rate
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
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?
Indirect Costs
 Do you have a Negotiated Indirect Rate
Agreement (NICRA)
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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.
DCAA
 Who is the DCAA?
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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?
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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
DCAA Audits
 What types of audits will they do?
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Pre-award and Post-award audits
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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
DCAA Audits (Continued)
 What types of audits will they do?
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System reviews
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Accounting
Billing
Earned Value Management (EVMS)
Electronic Data Processing (EDP)
Compensation
Purchasing
Labor
Budgeting
Material Management
Disclosure Statement
DCAA Audits (Continued)
 What determines the type of audits DCAA can
perform?
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Type of contract
Basis of contract award
Size of company
 What happens if the you disagree with DCAA?
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The Procurement Contracting Officer (PCO) (for proposals)
or Administrative Contracting Officer (ACO) would have to
justify why they are siding with you.
DCAA Information
 What you should know:
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New contractor guidance available on DCAA
website
Contract Audit Manual (CAM)
Field-Detachment
Resident Offices
Audit Programs available on the DCAA
website
DCAA Audit Tips
 Designate one point of contact for all requests
 Document requests and note the following:
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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.