Microsoft Government Contractor Summit

Building a Successful Foundation for DCAA Compliance

Larry Mocniak – CFO Phoenix International K.D. “Ken” Bricker, Senior Partner Goodman & Company, LLP

DCAA CONTRACT AUDIT MANUAL 5-200 Section 2 --- Preaward Surveys of Prospective Contractor Accounting Systems and Post Contract Award Accounting System Audits

DCAA CONTRACT AUDIT MANUAL 5-202 Preaward Survey of a Prospective Contractor's Accounting System

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The audit is made at the request of a contracting officer to determine the acceptability of a contractor's accounting system for accumulating costs under a prospective Government contract.

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The audit scope should be limited to obtaining an understanding of the design of the prospective accounting system

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Special emphasis should be placed on the ability of the accounting system to generate the specific cost information required under the anticipated contract and on inequities that might occur if the prospective contract were executed.

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The auditor should determine the equity and consistency of direct charging as generally applied by the contractor and as it is intended to be applied to the proposed contract.

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Evaluate the acceptability of the design of the contractor's accounting system for accumulating costs under a Government contract

DCAA CONTRACT AUDIT MANUAL 5-203 Post Contract Award Accounting System Audits

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The major objective of the post contract award accounting system audit is to determine if the contractor's accounting system is adequate for accumulating and billing costs on Government contracts.

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The post contract award accounting system audit program includes comprehensive steps to gain a detailed understanding of the contractor's accounting system (e.g., tracing costs billed to source documentation) sufficient to render an opinion on the adequacy of the system.

DCAA CONTRACT AUDIT MANUAL

5-204 Audit Reports

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The pre-award survey report provides an opinion on whether the design of the accounting system is acceptable, not acceptable, recommendation that a follow-on accounting system audit be performed after contract award or acceptable with a

http://www.dcaa.mil/cam/Chapter_05_-_Audit_of_Accounting_and_Management_Systems.pdf

Purchasing Accounts Payable General Accounting Budgeting Accounts Receivable Fixed Assets Time Entry/ PR/HR Report Writers DATA BASE Job Cost Accounting Payroll/HR Customer Address Contract Change Management Contract/ Service Invoicing

New System

Dynamics SL 6.5 Technology

COMPANY has established a standard for managing the labor and O.D.C. associated with government and commercial contracts for effective accounting and management utilizing Microsoft's Dynamics SL software.

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Dynamic SL System

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Financial Reporting Project Reporting

• • • • • •

Time & Attendance Labor Distribution Rate Structures Purchasing Contract Management

Introduction to the Chart of Accounts Setup

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Division Project Numbers Natural Account Structure Work Breakdown Structures (WBS) / Task

Chart Of Account

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What is it?

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Why is it used?

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How it is used?

CHART OF ACCOUNTS What is it?

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Chart of Accounts is a list of Numbers and Names arranged in the order in which they customarily appear on Financial Statements & Reports

Why is it used?

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To collect financial data based on cost objective

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Project Job Cost Reports

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To create Financial Statements and Management reports

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To retrieve historic data

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Trend Analysis

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Financial Planning (budgeting)

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To compare Actual expenses to Planned expenses

How is it used?

• • • • • •

Project Job Costing Labor Tracking/Time Sheets Invoicing Vendor Invoices Expense Reports Purchase Orders

DYNAMICS SL Chart of Accounts Introduction

• • •

NATURAL ACCOUNT STRUCTURE PROJECT NUMBERS WORK BREAKDOWN STRUCTURE (WBS) / TASK

Natural Account Prefix Value

4 Characters Numeric

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4XXX = Revenue

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5XXX = Direct Cost

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7XXX = Overhead

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8XXX = G & A

Natural Account Numbering System (Chart of Account)

Direct Cost 5XXX 5170

5171 5172 5173 5174 5175 5176 5181 5182 5183

5240

5241 5242 5243

5310

5311 5312 5313 5314 5315 5319 • • •

O/H 7XXX 7170

7171 7172 7173 7174 7175 7176 7181 7182 7183

7240

7241 7242 7243

7310

7311 7312 7313 7314 7315 7319

5XXX = Direct Cost 7XXX = Overhead 8XXX = G & A G & A 8XXX 8170

8171 8172 8173 8174 8175 8176 8181 8182 8183

8240

8241 8242 8243

8310

8311 8312 8313 8314 8315 8319

Common 3 digit code UNALLOWABLE TRACKING ACCOUNT DESCRIPTION TRAVEL EXPENSE

Air Fares Meals Lodging Rental Cars Taxi / Mileage Travel Other Air Fares - Unallowable Meals - Unallowable Lodging - Unallowable

LICENSES & FEES

Permits Licenses & Fees Other

Fines & Penalties-Unallowable

COMMUNICATIONS

Telephone Mobile Phones/Pagers Leased Data Lines Internet Services Satellite Services Communications - Other

Allow Post NO NO

YES YES YES YES YES YES YES YES YES

NO

YES YES YES

NO

YES YES YES YES YES YES

Vocabulary/Terminology

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Project/Department Number = 6 Digit Number used to capture financial data EXAMPLE: Main Project Number = 061234 EXAMPLE: Accounting Department Number = 101

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Natural Account = 4 Digit Number used to captured cost by cost objective.

EXAMPLE: Direct Charge Office Equipment = 5081 EXAMPLE: G&A Charge Office Equipment = 8081

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Work Break Down Structure = up to a 4 Digit Alpha/Numeric used to captures cost by Work EXAMPLE: = 2000 PLEASE NOTE THAT ALL DEPARTMENTS WILL USE “0000” FOR THE WBS CODE Please note that all Natural Accounts in Capital letters are non chargeable account.

Example of Charge Code

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Project = 061234 Rental of a training facility = Nat. Acct 5334 WBS/TASK = 2000 Coding would look like this

Project # Natural Acct WBS/TASK

061234 - 5334 2000

Example of Charge Code

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Accounting/Finance = Dept #101 Office Supplies = Nat. Acct 8112 BLANK WBS/TASK = 00000 Coding would look like this

Dept # Natural Acct WBS/TASK

101-8112-0000 PLEASE NOTE THAT ALL DEPARTMENTS WILL USE “0000” FOR THE WBS CODE

5350

5351 5352 5353 5354

5400

5401 5402 5403 5404 5405 5406 5407 5408 5409 5410

5420

5421 5422 5423

7350

7351 7352 7353 7354

7400

7401 7402 7403 7404 7405 7406 7407 7408 7409 7410

7420

7421 7422 7423

Account Structure

8350

8351 8352 8353 8354

8400

8401 8402 8403 8404 8405 8406 8407 8408 8409 8410

8420

8421 8422 8423

UTILITIES

Electric Water Gas Refuse Removal

COMPUTERS

Work Stations Printers/Other Hardware PC Supplies Hardware Maintenance Software Servers Communication Equip SFW/HDW Outsourcing Fees Software Maintenance Systems Consulting

FREIGHT

Freight Messenger/Courier Freight - Other

NO

YES YES YES YES

NO

YES YES YES YES YES YES YES YES YES YES

NO

YES YES YES travel

Revenue Benefi ts Cell Phones

t produc

Div.

Operating supplies

POOLS

Cas h

Overview

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Capture financial data Project Reporting Sort Data based on Mgmt Requirements Customized Mgmt Report

travel

Benefi ts

t produc Region Cell s Phone

Cas

t

h

Revenu e

Operatin g supplies

SINGLE FRINGE POOL RATE POOLS Company Name OVERHEAD RATES Multiple Locations Location1 Location 2 Location 3 Location 4 Location 5 Location 6 Location 7 G&A RATE

Great follow-on product ImageLink • • • Great follow-on product ImageLink provides quick access to all accounting support records Document access is available from – within Solomon IV (native ImageLink) – a user’s desktop (optional Super Search)

System Summary

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Chart of Accounts is designed to capture cost by cost objective. Used as a Project Management tool Overhead & G&A Rate Calculations Track Allowable and Unallowable Cost Time & Attendance Labor Distribution Customizing of Management Report Financial Planning Actual Cost Vs Planned Cost Most Importantly is to have a Solid Integrated Business System

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Accounting Manual

12.0

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13.0

14.0

12.1

12.2

Expense Reports Travel Reimbursement Purchase Orders FAR Part 31 – Contract Cost Principles and Procedures FAR -- Part 31 Contract Cost Principles and Procedures (FAC 2001-04) 8 February 2002 31.000 -- Scope of Part.

This part contains cost principles and procedures for - (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts whenever cost analysis is performed (see ); and (b) The determination, negotiation, or allowance of costs when required by a contract clause.

31.001 -- Definitions.

As used in this part - Accrued benefit cost method means an actuarial cost method under which units of benefits are assigned to each cost accounting period and are valued as they accrue; i.e., based on the services performed by each employee in the period involved. The measure of normal cost under this method for each cost accounting period is the present value of the units of benefit deemed to be credited to employees for service in that period. The measure of the actuarial accrued liability at a plan’s inception date is the present value of the units of benefit credited to employees for service prior to that date. (This method is also known as the unit credit cost method without salary projection.) “Accumulating costs” means collecting cost data in an organized manner

THE DEFENSE CONTRACT AUDIT AGENCY

• • On 8 January 1965, the Defense Contract Audit Agency (DCAA) was formed. Mr. William B. Petty, formerly the Deputy Comptroller of the Air Force, was selected as the Director with Mr. Edward T. Cook, formerly Director of Contract Audit for the Navy, selected as the Deputy Director.

Today, the Defense Contract Audit Agency consists of approximately 4,000 people located at more than 300 field audit offices throughout the United States, Europe, and in the Pacific. The Agency provides standardized contract audit services for the Department of Defense, as well as accounting and financial advisory services regarding contracts and subcontracts to all DoD Components responsible for procurement and contract administration. These services are provided in connection with negotiation, administration, and settlement of contracts and subcontracts. DCAA also provides contract audit services to some other Government Agencies.

SERVICES “TO CONTRACTING OFFICERS”

• • • • • • • • • • • • • • • • • • • • • • DCAA provides a wide variety of products and services to contracting officers:

Preaward Contract Audit Services

Price Proposals Preaward Surveys Forward Pricing Labor & Overhead Rates

Postaward Contract Audit Services

Incurred Costs/Annual Overhead Rates Truth in Negotiation Act Compliance CAS (Cost Accounting Standards) Compliance & Adequacy Claims Financial Capability

Contractor Internal Control System Audits

Accounting Estimating EDP (Electronic Data Processing) Compensation Billing Budgeting Material Management Labor Purchasing Indirect and Other Direct Cost

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AUTHORITY TO AUDIT

Examination of costs. If this is a cost-reimbursement, incentive, time-and materials, labor-hour, or price redeterminable contract, or any combination of these, the Contractor shall maintain and the Contracting Officer, or an authorized representative of the Contracting Officer, shall have the right to examine and audit all records and other evidence sufficient to reflect properly all costs claimed to have been incurred or anticipated to be incurred directly or indirectly in performance of this contract. This right of examination shall include inspection at all reasonable times of the Contractor’s plants, or parts of them, engaged in performing the contract.

(c) Cost or pricing data. projections, related to - If the Contractor has been required to submit cost or pricing data in connection with any pricing action relating to this contract, the Contracting Officer, or an authorized representative of the Contracting Officer, in order to evaluate the accuracy, completeness, and currency of the cost or pricing data, shall have the right to examine and audit all of the Contractor’s records, including computations and – (1) The proposal for the contract, subcontract, or modification; – (2) The discussions conducted on the proposal(s), including those related to negotiating; – (3) Pricing of the contract, subcontract, or modification; or – (4) Performance of the contract, subcontract or modification.

• PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR ACCOUNTING SYSTEM SF 1408 – Is the accounting system in accordance with GAAP?

– Accounting System Provides for: • Proper segregation of direct costs from indirect costs • • • • • • • • • Identification and accumulation of direct costs by contract A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives Accumulation of costs under general ledger control A timekeeping system that identifies employees labor by intermediate or final cost objectives A labor distribution system that charges direct and indirect to the appropriate cost objectives Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31 Identification of costs by contract line item and units if required Segregation of preproduction from production costs

PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR ACCOUNTING SYSTEM (Continued) • Accounting System Provides Financial Information: – Required by contract clauses concerning limitation of cost or limitation on payments – Required to support requests for progress payments Accounting • • Is the accounting system designed, and are the records maintained in such a manner that adequate, reliable data are developed for use in pricing follow on acquisitions?

Is the accounting system currently in full operation?

Questions?

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