Transcript Government Cost Accounting Survival Guide

Government Cost
Accounting Survival Guide
An introduction to the critical accounting practices
needed for working on SBIRs and other governmentfunded contracts
Thursday, May 17th
12:00pm – 1:30pm EDT
Organized by
Hosted by
Workshop Presenter
David M. Shelby
Innovation Resources, LLC
Kurz Purdue Technology Center
1281 Win Hentschel Blvd. West Lafayette, IN 47906
Former CFO/VP Business Operations
Griffin Analytical Technologies, LLC (FLIR Systems)
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Why do Government Contracts?
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R&D contracts provide non-dilutive
financing for your business
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R&D funding provides a revenue stream
to cover uncertainties in sales cycles
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R&D contracts lead to product validation
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Why do Government Cost
Accounting?
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Funding requirement for commercial
firms performing R&D contracts or grants
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Eligibility requirement for commercial
firms posting their services or products
on the Federal Supply Schedule (FSS)
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Okay, I know I need to do it…
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This Seminar is for Entrepreneurs
 Part
1: The Landscape of government
contracting
◦ Who, what, when, where
◦ Links to almost everything
 Part
2: Government requirements
 Part
3:Your Accounting System
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The Government Contracting Landscape
Part 1
A landscape with
multiple cliffs
and pitfalls
David Shelby at the Grand Canyon
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The Landscape…
It is all about compliance…
Here are the players:
Dun & Bradstreet (D&B) provides a D-U-N-S
Number, a unique nine digit identification
number, for each physical location of your
business.
Central Contractor Registration (CCR) is the primary
registrant database for the U.S. federal government. CCR
collects, validates, stores, and disseminates data in support of
agency acquisition missions, including federal agency
contract and assistance awards.
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Landscape…
CCR – set up your MPIN
A Marketing Partner ID Number (MPIN) is a
personal code that allows you to access other
government applications
• Past Performance Information Retrieval
System (PPIRS)
• Online Representations and Certifications
Application (ORCA)
The MPIN is a mandatory data element created by
the CCR registrant
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Landscape…
CCR – Get your CAGE Code
Your company will be assigned a CAGE Code
during the processing of your registration.
Notification of the activation of your CCR
registration will be sent via email to the CCR
Primary and Alternate Points of Contact.
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Landscape …
Online Representations and Certifications Application (ORCA)
•Certificate of Independent Price Determination.
•Certification and Disclosure Regarding Payments to
Influence Certain Federal Transactions.
•Taxpayer Identification.
•Women-Owned Business (Other Than Small Business).
•Prohibition on Contracting with Inverted Domestic
Corporations—Representation.
•Certification Regarding Responsibility Matters.
•Place of Performance—Sealed Bidding.
•Place of Performance.
•Small Business Program
•Equal Low Bids.
•Small Disadvantaged Business Status (Basic &
Alternate I).
•Certification Regarding Knowledge of Child Labor for
Listed End Products.
•Previous Contracts and Compliance Reports.
•Affirmative Action Compliance.
•Compliance with Veterans’ Employment Reporting
Requirements.
•Exemption from Application of the Service Contract
Act to Contracts for Maintenance, Calibration, or
Repair of Certain Equipment Certification.
•Exemption from Application of the Service Contract
Act to Contracts for Certain Services—Certification.
•Biobased Product Certification.
•Recovered Material Certification.
•Estimate of Percentage of Recovered Material Content
for EPA-Designated Items (Alternate I only).
•Buy American Act Certificate.
•Buy American Act—Free Trade Agreements—Israeli
Trade Act Certificate (Basic, Alternates I, II, and III).
•Trade Agreements Certificate.
•Prohibition on Conducting Restricted Business
Operations in Sudan—Certification.
•Prohibition on Contracting with Entities Engaging in
Sanctioned Activities Relating to Iran.
•Historically Black College or University and Minority
Institution Representation.
•Royalty Information
•Representation of Limited
Rights Data and Restricted
Computer Software.
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Landscape …
New in 2012
Will provide a new, one site interface for CCR, ORCA, and
business opportunities starting Mid-2012
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Landscape …
Useful and helpful Sites for
Entrepreneurs
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Landscape …
The Defense Contract Management Agency
(DCMA) is the Department of Defense (DoD)
component that works directly with Defense
suppliers to help ensure that DoD, Federal, and
allied government supplies and services are
delivered on time, at projected cost, and meet all
performance requirements
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Facility or operational capabilities reviews
Deliverables on contracts
Closing out contracts
Tracking and monitoring of government owned property
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Landscape …
And you want to get paid too?
Wide Area Workflow (WAWF) is a
secure web based system for
electronic invoicing, receipt, and
acceptance. WAWF allows
government vendors to submit and
track invoices and
receipt/acceptance documents
over the web and allows
government personnel to process
those invoices in a real-time,
paperless environment.
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Landscape …
Our friendly, Defense Contract Auditing
Agency
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Landscape …
Not for you…
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Landscape …
THIS
is for you…
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Landscape …
Indianapolis Chapter of National Contract
Management Association
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Landscape …
Indianapolis Chapter of National Contract
Management Association
Bob Grimm’s company
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Part 2. Government Accounting
Requirements
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Federal Acquisition Regulations-FAR
Let’s focus on a few key accounting
sections…
Subpart 31.2 Contracts with
Commercial Organizations
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The Government Pays for Total
Costs—What is that?
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Direct Costs
◦ Costs which are specifically incurred to a
grant or contract
 Materials, Labor, Subcontract, Equipment, Travel,
ODCs
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Indirect costs
◦ Overhead costs that are proportionally
allocated fairly to your grant or contract
 Such as Facilities, Sales, General & Administrative
costs,
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But all costs must be allowable!
FAR 31.201-1 Composition of total cost
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What are Allowable Costs?
Must be all of these:
Reasonableness (The subjective catch-all)
 Allocability (How do these costs relate to the project at
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hand?)
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Contractual Terms (Your contract may also define
allowable costs)
FAR 31.201-2 Determining allowability
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What are Unallowable Costs?
Costs that the Government will not pay for.
Expressly unallowable cost means 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 31.201-6 Accounting for unallowable costs
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Unallowable Cost List
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Advertising
Airfare Travel Costs in
excess of the lowest
available option
Alcohol
Automobile Costs for
Personal Use
Bad Debts
Contingencies
Contributions and
donations
Costs of promotional
items
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Debt Service
Deferred R&D
Dividends
Donations and
contributions
Entertainment
Executive Salaries in
excess
Finance Leases
Fines and penalties
Gifts
Goodwill
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Unallowable Cost List, (Cont.)
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Hotel in excess of per
 Organizational Costs
diem
 Penalties or incurred due
Idle or excess facilities
to mischarging the
government
Interest and other
financial costs
 Personal Housing and
Living Expenses
Legal costs incurred to
defend or pursue a claim  Plant reconversion costs
with the government
 Public Relations
Lobbying
Recreation Costs
Losses on other contracts  Research and
development expenses in
Meals in excess of per
excess of reasonable
diem
Memberships in social,
dining or country clubs
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Unallowable Cost List, (Cont.)
Allowable per diem costs
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Unallowable really means: Unbillable
Just because these are called unallowable
does not mean you will not incur these costs.
It just means you must segregate them from
your allowable expenses and don’t bill the
government for them.
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The Unallowable Pitfalls
 If
you are an SBIR
company you must be
very careful incurring
unallowable expenses
because they normally
result in losses.
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The Unallowable Pitfalls
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Not all agencies allow the same costs
◦ NSF does not allow Internal R&D
◦ NIH does not allow Internal R&D
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Timekeeping
Information found in Section 2-302
Labor Charging System
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Timekeeping
You must have a written policy
 All employees made aware
 Record time daily
 Record all time worked
 Use timecard in Ink, or electronic system
 Sign timecard at end of each work period
 Supervisors to sign and approve
 Nature of work, not available funding
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Timekeeping
DCAA auditors perform floor checks
 Penalties for labor mischarging
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Criminal charges
Employees
Supervisors
Managers and Officers
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DCAA Pre-award Survey
DCAA may be requested to evaluate the
◦ Contractor's financial capability to perform
the contract
◦ Contractor’s adequacy of the accounting
system to accumulate the type of cost
information required by the contract
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DCAA Financial Survey
May be post award, but they cover:
(1) Financial statements, including those contained
in reports issued to stockholders, lending
institutions, and SEC filings
(2) Cash flow forecasts
(3) Loan agreements and evidence showing
compliance with these agreements,
(4) Aging of accounts receivable and payable
(5) Financial history of the contractor and affiliated
concerns
(6) Employee payroll tax returns (Federal)
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Accounting System Survey
A Plug from DCAA….
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Accounting System Survey
DCAA Systems Audit Affirmation
Requirements
Segregation of direct from indirect costs
 Accumulation of direct costs by contract
Consistent method for allocation of indirect
costs to final cost objective
Accumulation of costs under general ledger
control
Timekeeping system that identifies labor to
cost objective (contract)
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Accounting System Survey
DCAA Systems Audit (Continued)
Labor distribution system that
charges direct
and indirect labor to the appropriate cost
objective
Monthly determination of contract costs
Exclusion of unallowable (FAR 31) costs
Identification of costs by contract line item
Segregation of preproduction from production
costs
System provides for consistency for follow on
purchases
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Qualifying Accounting Software
Quickbooks Pro can work with a lot of
spreadsheet work…(Repeat, “a lot of
spreadsheet work”)
 Deltek Costpoint 7 Software for
government contractors
 Microsoft Dynamics NAV for
Government Contractors
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 Recommended by Innovation Resources, LLC
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Incurred Cost Proposal (ICE)
Annual requirement for Cost Plus Fixed
Fee type contracts
 Proposal “proposes” your final actual
costs of overheads and billings
 May not be reviewed by the government
for two or three years
 Your financial statement notes should
indicate the contingency
 Get help
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Part 3.Your Accounting System
10 May 2011 Yves Rossy - also known as Jetman
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Accounting—Segregation of Direct and
Indirect Costs
A quiz…. (Which are the following?)
1.
2.
3.
4.
5.
6.
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8.
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Materials for deliverable
Design/CAD consultant
Travel to demonstrate the gizmo you were contracted to
develop
Engineering labor
Sales call expense
Metro Expense on your way to the congressional office
Commissions on sales
Administrative staff salary
Lab space rental
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Accounting—Segregation of Direct and
Indirect Costs
A quiz…. (Which are the following?)
1.
2.
3.
4.
5.
6.
7.
8.
9.
Materials for deliverable (direct costs)
Design/CAD consultant (direct cost, unless it is for IRAD)
Travel to demonstrate the gizmo you were contracted to
develop (direct cost if demonstration is a requirement)
Engineering labor (direct cost, unless it is for IRAD)
Sales call expense (indirect cost, unless alcohol is involved)
Metro Expense on your way to the congressional office
(Unallowable Cost)
Commissions on sales (indirect)
Administrative staff salary (indirect)
Lab space rental (indirect)
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Accounting—Chart of Accounts
A Chart of Accounts (COA) is a set of
“post office boxes” in an accounting
system where costs, revenues, assets,
liabilities, and equities are accumulated
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Accounting—Chart of Accounts
General Groupings
Assets
Liabilities
Equities
Revenues
Costs of Goods Sold
Expenditures
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Accounting—Chart of Accounts
Revenues
Must
be able to designate to specific
Job or Contract
Must separate government contract
revenues from
◦Product Sales
◦Service Revenues
◦Other Revenues
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Accounting—Chart of Accounts
Costs of Goods Sold
Must
be able to designate to specific
Job or Contract
Must separate government contract
COGS from
◦Product COGS
◦Service COGS
◦Other COGS
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Accounting—Chart of Accounts
Expenditures
Fringe
Expenses (allocated)
Facilities Expenses (allocated)
General and Administrative
Sales and Marketing
Bid and Proposal
Internal R&D
Unallowable
Expenditures
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Accounting—Chart of Accounts
A sample chart of accounts is provided
as a download from the Indiana
Defense Technology Council Website
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Accounting Overhead Rates
What are allocated expenses?
What are pools?
What are bases?
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Allocated Expenses
Allocated expenses is a cost accounting
term
 The general idea is to take a group (pool)
of similar expenses and fairly distribute
them proportionately over a grouping of
other expenses (a base)
 For example, Fringe Benefits…
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Fringe Benefits Allocation Example
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Pool of Fringe Benefits Expense
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Employer paid health care insurance
State and Federal Unemployment
Social Security paid by company
Vacation accrual
Holiday time
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Fringe Benefits Allocation Example
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Base expense for allocation is total labor
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Labor COGS
Sales Labor
G&A Labor
Unallowable Labor
Total Labor Cost
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Fringe Benefits Allocation Example
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Fringe Pool--$4,500
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Fringe Base--Total Labor $14,062
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Fringe Rate = Pool/Base
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32%=$4,500/$14,062
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Fringe Rate is 32%
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Fringe Benefits Allocation Example
So, now let’s apply this to a Billable…
Billable Monthly Contract Direct Labor $5,450
X Fringe Rate 32%
Billable Fringe $1,744
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Common Allocated Cost Pools
Labor Overhead pool (Base: All labor)
◦ Facility cost pool
◦ Fringe pool
 Material handling cost pool (Base: Materials Purchased)
 Manufacturing overhead pool (Base: Product Direct Costs)
 General and Administrative pool (Base: Total Input Costs)
◦ Finance, accounting, legal costs
◦ Corporate pushdown costs
 Sales and marketing pool (Base: Same as G&A)
 Bid and Proposal pool (Base: Same as G&A)
 Internal research and development pool (Base: Same as
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G&A)
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Proposal Pitfalls
Many companies propose their
PHASE II SBIRs without
adequately forecasting costs
other than the direct costs of
the project.
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Questions?
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Supplemental Slides
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Innovation Resources Back Office
Basic accounting services (for companies not requiring
full Department of Defense compliant systems)
Fully GAAP (Generally Accepted Accounting Principles)
compliant system
 Multiple project accounting system
 Purchase Order, receiving, voucher/invoice management,
accounts receivable processing
 Check preparation (no signature authority)
 Monthly billing and invoicing
 Monthly reporting
 Basic accounting policy templates for agency audit purposes
 Employee payroll is supported through APS, Lafayette, Indiana,
or other third party
 Income Tax Filings are supported through your CPA tax advisor
 Services may be provided on either Microsoft Nav or
Quickbooks Pro
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Innovation Resources Back Office
Department of Defense add-on features (not included
in above basic accounting services)
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Microsoft Nav for Government Accounting platform
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DOD, DHS, NIH, and NSF Compliant system
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Fully independent, isolated virtual server with redundant live backup
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Indirect costs rates tracking
◦ Fringe Rate
◦ Facilities Rate
◦ G&A Rate
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DCAA/DCMA audit support
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Funding agency audit support
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Annual Incurred Cost Proposal Preparation
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Indirect costs rates tracking for provisional, actual, forecasted
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Annual Budget setup and monthly comparisons
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Complete and customized internal operating policies
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Secure internet timekeeping and purchase requisition access
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Innovation Resources Back Office
Consulting resources provided at hourly billing rate
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Proposal review assistance
Proposal budget prep
Proposal commercialization plan
Business financial plan
Driver-based budget and forecasting, multi-year, by month on MS
Excel platform
Contracting Officer negotiations
Board meeting financial preparations and presentations
Capital structure and funding advisory
General business planning and advisory
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David M. Shelby, MBA—Brief Bio
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FLIR Systems (Legal Entity: Griffin
Analytical Technologies, LLC, an Indiana
Limited Liability Company) Feb 2003 –
Jan 2010
Role: VP Finance and Business Operations
(CFO, Griffin Analytical Technologies, LLC)
Managed Series A financial capital rounds
Provided all forecasting and Accounting
Transitioned the company through
QuickBooks to a full MRP/ERP accounting
system: Made-to-Manage
Managed due diligence merger activities at
Griffin for Acquiring company
Managed Human Resources, grew company
to 50 employees
Managed Government Program contract
revenues in excess of $5.75M per year
Managed outsource contracting for
contracting
Served as business unit financial operations
manager
Assisted with strategy and execution of
product development and commercialization,
bringing five mass-spectrometer products to
market
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David Shelby (Business Operations and
Finance Consultant) Jan 2000-Jan 2003
Served in multiple roles for small businesses:
CFO of Seed Company, General Manager
startup optics company, Business operations
advisor
Product assessments, finance plans
Old National Bank (Merger from The
Citizens State Bank) 1990- Jan 2000
Senior VP, Commercial Lending Officer
Managed Branch loan Portfolio in
Commercial, Real Estate, and Personal loans
Trust Officer
Commodity lending specialist
Managed portfolio with <1% loss over course
of a decade of lending
SBA loan program specialist
Education:
MBA, Indiana Wesleyan University, 1996
(Outstanding Professional Award)
B.S., Economics, Purdue University,
West Lafayette, Indiana
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