Setting Up Your Ajera System to be FAR (DOT) Compliant By: Michael J. Brennan, CPA

Transcription

1 The purpose of this courseware is to educate Ajera users on how transactions are mapped (get assigned General Ledger account numbers) to the General Ledger(GL), provide a working knowledge of the Federal Acquisition Regulation (FAR) in regards to classifying and accounting for costs, and how to setup an Ajera system to be FAR compliant. Goals 1) Capture, map, and maintain transactional data in the system to a. Prepare Required Management Reports b. Properly File Income tax, payroll tax, and other compliance returns c. Capture Costs and calculate an Overhead Rate in Compliance with the FAR 2) Create and maintain a system of capturing, mapping, and maintaining transactional data that is not so overly complicated and convoluted that is requires excessive accounting staff to administer it. (This is the daily double). Labor Costs Labor is typically the largest component on the Profit and Loss Statement and the cost most subject to misclassification, so let s begin there. The FAR mandates the separation of labor into three categories. Direct Indirect Unallowable Ajera s basic standard functionality allows for labor to be segregated into four categories. This functionality is driven from the eight Billing Types available at the Phase level of the Work Breakdown Structure (WBS). See the below image for an example of how these Billing Types map entries to the GL.

2 There is one exception to the above illustration. That is the WIP status of NonBillable. When a WIP entry is changed from the Manage Client Invoices menu to this status, it will change the account in the GL from its original account to the account associated with Non-Billable. Elements That Affect Setup and Functionality From a simple standpoint (buckets required vs. buckets available), Ajera s functionality is able to handle the requirements of the FAR. What typically makes the setup and configuration more complicated are the following four items: 1) The number of accounts in the GL used to track labor (before setup for FAR). a. Two: Direct Indirect(Overhead) b. Three: Direct Proposal - Indirect (Overhead) c. Four or more: Direct Indirect(OH) Proposal - Marketing Vacation Holiday - etc 2) Functionality limitations within Ajera. 3) Misguided requirements demanded by management or accounting itself 4) The convoluted regulations contained in the FAR Reference Note 1: There is not one clear winning configuration setup for Ajera in compliance with the FAR. The setup depends on many variables that are specific to each firm. Some of the variables that affect the setup configuration are: 1) Use or nonuse of the Business Development Functionality of Ajera. 2) Requirements to track proposal and other marketing costs in the GL. 3) Items discuss above. Reference Note 2: All software have limitations or issues of some sort. The focus in the next section should not be on what Ajera does not do, but how we can make Ajera work in an acceptable fashion with the functionality that is does have. Reference Note 3: Certain labor costs can be tracked and determined simply and easily without tracking them to the GL. Ajera is after all a job cost system. By charging time to a job or series of jobs, the total labor charged for a specific event or category can be easily determined. The costs do not have to be segregated in the GL to determine this amount. The Number of Accounts Used to Track Labor in the GL If two accounts are used to track labor in the GL, then configuration for compliance with the FAR will be very quick and efficient. In general, the more accounts that are used to track labor the more difficult the FAR configuration will be.

3 Functionality Limitations within Ajera 1) Other than time charged to an overhead project, there are no GL account overrides in Ajera. Therefore, labor cannot be split between allowable and unallowable within a billing type. This is not an issue for billing types of Billable and NonBillable, but it is an issue for Marketing. 2) When setting up an overhead group, only projects that have a billing type of Overhead appear on the available project list and can be selected for use for configuring the overhead group. As a result, unallowable marketing labor must be routed through an overhead project, or all time charged to a phase with a billing type of marketing should be classified as unallowable. 3) Overhead group overrides do not engage when time is charged above the line on the timesheet. In order for time entries to flow to their desired accounts in the GL, users must ensure time is charged to not only the project and phase, but from the proper location on the timesheet. Ensuring time is charged from the proper location of the timesheet is very attainable and should not be of major concern. 4) Labor costs can be routed to the proper account in the GL without the use of an overhead project, only the use of an account. However, the standard utilization report is dependent on all time being charged to a project (Activity). Any time charged on a timesheet that is not associated with a project will cause the standard utilization to be out of balance. Misguided requirements demanded by management or accounting itself This item typically manifests itself into the form of requiring more than three accounts to track labor in the GL. I believe my informal research has traced the origin of this logic to: 1) Limitations of Prior Accounting Systems Accounting software is relatively new. It was born in the early 1980 s. Most of these systems were limited in their functionality and reporting capabilities. In order to be able to report on specific metrics, costs had to be segregated in the GL to accomplish them. As a result, labor was split into Direct, Indirect, Proposal, Marketing, Vacation, Holiday, etc. 2) Accounting Heads that worked in other non-job cost industries People are creatures of habit and they have comfort zones they will retreat to when pushed outside of them. If an accounting professional is new to this industry, then they are most likely new to Ajera and other industry specific software. New to the industry typically translates into an underutilized and inefficiently configured system. 3) Management that is stuck in the past and who want to follow how things were done in the past. This will typically lead us back to item 1 above. The Convoluted Regulations Contained in the FAR Without going into great detail, I think it is generally agreed that the persons responsible for authoring the FAR had way too much time on their hands and they got lost in the details. The processes that need to be implemented and the additional staff hired that have to administer the separation of allowable from unallowable costs have probably caused a greater cost to the government than the costs themselves. Separating time spent collecting bad bets from other accounting time is just one example

4 of a set of convoluted rules that wreak havoc government contracting firms. This is especially true of smaller firms with limited accounting resources. Assumptions For the purposes of this article, we will make the following assumptions about the firm we will configure for FAR compliance. 1) The firm separates labor into more than four accounts 2) The firm is open to using as many overhead groups as necessary to simplify the process and ensure a better system of segregating costs is established and documented. 3) The firm tracks proposals and uses the BD functionality of Ajera. 4) The firm has one full time marketing staff that performs both allowable and unallowable marketing work. 5) The firm performs Not to Exceed projects for the local DOT. From time to time WIP associated with those projects has to be written off or written down. 6)

5 Setup Steps in Chronological Order Labor (Payroll Service Configuration) Step 1 Define how the eight billing types will be defined. The below illustration will serve as the definition. (No Ajera Work) Step 2 Define How Many Labor Accounts Will Be Used to Track Labor in the GL (No Ajera Work) In our example company, we will use four. (Direct, Indirect, Proposal, PTO) Setup Unallowable labor accounts in the GL. At minimum there should be two; one for direct and one for indirect. Step 3 Define and Setup Pays needed (Ajera Setup Required) In our example, in addition to the required Unallowable Pay ID, only one additional Pay ID is required to be setup to override the Ajera Default settings. It is PTO. Note: For every GL account needed in excess of the standard four accounts from company preferences, an additional PAY ID is required to be setup.

6 From the Company menu, select Payroll then Pays Click the New button. Enter the description, and GL account. Click Save when finished.

7 Setup the second Pay ID, Unallowable Labor as shown. Click Save when Finished. Step 4 Identify indirect time categories and subcategories (No Ajera Work) Overhead o PTO (a) o Holiday (a) o Other Paid Leave(a) o General Admin(a) o Training / Continuing Education(a) o Community Service(a) o Recruiting(a) o General Unallowable Overhead(u) (Labeled Accounting Use Only ) Marketing o Proposals(a) o Client Development(u) o Trade Shows (Exhibitor) (u) o Project Pursuit(a) Step 5 Identify Utilization Categories and Related Labor Activities Setup any Activities required for the FAR compliance configuration.

8 Step 6 Define Overhead Groups (Number, Assignment by/to, Overhead Lines Assigned to Each) (No Ajera Work) Principals 1. PTO 2. Holiday 3. Other Paid Leave 4. General Admin 5. Training / Continuing Education 6. Community Service 7. Recruiting 8. Proposal Time for Proposals not setup as a specific opportunity 9. Client Development 10. Other Project Pursuit Efforts Accounting 1. PTO 2. Holiday 3. Other Paid Leave 4. General Admin 5. Training / Continuing Education 6. Community Service 7. Overhead Human Resources 1. PTO 2. Holiday 3. Other Paid Leave 4. General Admin 5. Training / Continuing Education 6. Community Service 7. Recruiting Specify additional groups as needed. In the above example, the only difference between HR and Accounting was the recruiting line. There is no limit to the number of overhead groups that can be setup and utilized. An extreme example would be to setup a different overhead group for each employee. The main objective is to eliminate any lines that would not or should not be used by an employee for overhead time. This will mitigate the amount of incorrectly charged time, and provide support of a well-documented system.

9 Step 7 Setup Overhead Groups (Work in Ajera) From the Setup Menu, select Overhead Groups. Click the New button. Enter a Description. In our example, the description is Principals.

10 Enter overhead group line items as shown. Click Save when finished. Setup Steps in Chronological Order Non Labor Step 1 Identify and setup Unallowable Non Labor accounts in the GL. Unallowable Travel (1 st class airfare, Directly Related Unallowable Costs) Unallowable Meals & Entertainment (Alcohol, Directly Related Unallowable Costs) Advertising Charitable Contributions Entertainment Step 2 Identify Expense Items (Activities). These will most likely be directly correlated to the Accounts setup in Step 1. Step 3 Setup any missing Expense Items / Activities or improve the description of existing Activities. From the Setup Menu, select Activities.

11 Complete setup as shown on the General tab Complete setup as shown on the Cost/Expense Tab. Click Save when finished.

12 Optional - Reporting Steps Step 1 Setup a custom field on the GL account record to identify the account Classification. Company Custom Fields Highlight the Account Table and click Select.

13 Click the New button. Assign the Display Name, Internal Name, Tab Name, and Type exactly as shown below. Add the values as shown. Select One Revenue Project Direct Costs Direct Labor Indirect Labor Labor Burden Overhead Unallowable Not Applicable Click OK when finished to close the screen and the work.

14 Step 2 Assign the required custom field to the GL account record. Company Financials Chart of Accounts Assign every Income Statement account to a classification. Accounts that are not included in the analysis should be assigned to Not Applicable. Highlight the account record and Click Edit.

15 Click the Profile Data tab. Assign the DOT classification by selecting the proper choice from the drop down menu. Click Save to finish. Tip: Instead of clicking the Save button, click the record advance button. That will save the current record and advance you to the next record in one step. Assign a DOT classification to each income statement account. Step 3 Create a reporting tool to report Income Statement results per the FAR and calculate your firms overhead rate.

16 Michael J. Brennan, CPA Phone: Michael J. Brennan, CPA is one of the nations leading experts in the management of A&E and professional services firms. Mr. Brennan has twenty five+ years of accounting and consulting experience in Architectural, Engineering, and Construction (AEC) industry. His certifications include: Certified Public Accountant Certified Timberline Consultant Certified Axium Protrax Consultant Certified Axium Ajera Consultant Prior to starting unlockthedata.com he held the position of Controller at the Bentley Company and he was Manager of IT Consulting Services at Lautze & Lautze, a regional accounting firm in San Francisco. Mike is also an accomplished speaker, speaking to hundreds of A&E professionals each year at seminars and professional association conferences. He graduated in 1984 from Western Illinois University, with a BA, Accounting, and passed the CPA in Illinois in Beyond the box is Mike s approach to consulting, not limiting his skills and expertise to consulting on the Protrax and Ajera products. His approach is to help companies identify areas of weakness, and then provide solutions to address those weaknesses.