Adequate Accounting Systems for Cost-Type Work

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2 Adequate Accounting Systems for Cost-Type Work Breakout Session #: C03 Presented by: Donna Dominguez & Aisha Mian Date: July 24, 2017 Time: 4:00 pm 2

3 About Aronson LLC Aronson LLC provides a comprehensive platform of assurance, tax, and consulting solutions to today s most active industry sectors and successful individuals. For more than 50 years, we have purposefully expanded our service offerings and deepened our industry specialties to better serve the needs of our clients, people, and community. From startup to exit, we help our clients maximize opportunity, minimize risk, and unlock their full potential.

4 About Aronson LLC Thinking ahead for clients for more than 50 years 225+ professionals located in Rockville, MD 80+ professionals dedicated to supporting government contractors Aronson helps clients rethink the way they approach their business through innovative, industry-specific services and advice: Audit, Assurance and Tax Deltek Systems and Outsourcing Financial and Contract Compliance GSA Schedules News and trends and insight for today s savvy government contractor

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6 Awards / Accolades / Affiliations INSIDE Public Accounting Top 100 Once again, Aronson has earned a spot in the top 100 of this prestigious list, released by INSIDE Public Accounting. This is the longest running, most comprehensive and accurate independent analysis focusing on management and operations of America s large local, regional and national firms. Accounting Today Top Firm In 2013, Aronson was once again named to Accounting Today s list of the top 100 firms in the country. Accounting Today is a leading provider of online business news for the tax and accounting community. Washington Business Journal Best Places to Work Aronson has been recognized five times as one of the Metro area s Best Places to Work. The award recognizes a company s achievements in creating a positive work environment that attracts and retains employees through a combination of employee satisfaction, working conditions and company culture. Washington Business Journal Top 25 Aronson is ranked #12 on the Washington Business Journal s Top 25 Accounting Firms in the DC Metropolitan area. Montgomery County Chamber Corporate Social Responsibility Award In 2010, Aronson was honored to receive the MCCC s Corporate Social Responsibility Award based on the depth and breadth of the company s energetic commitment to support young people, in the areas of education, housing and health. The Gazette of Politics & Business Exceptional 53 Business Award In 2012, Aronson received the PB53 award for the third year in a row. The program acknowledges the top businesses and organizations in Maryland based on criteria that includes the company s annual revenue, employee growth, noteworthy product or service innovations, community service efforts and more. 6

7 Agenda The Basics of 1408 or the 5Ws Who May be any federal contractor with prime or subcontract agreements What a review of the accounting system to ensure proper safeguards and procedures are in place to perform work on cost reimbursement contracts and/or task/delivery orders When prior to award of a flexibly priced prime or subcontract Where Part of it will be performed via desk audit, part will be at client site Why FAR (a)(3) A cost reimbursement contract may be used only when the contractor s accounting system is adequate for determining costs applicable to the contract or order

8 Agenda Understanding the Standard Form 1408 Criteria Results of Standard Form 1408 Conclusion and Q&As

9 The Basics - Who

10 The Basics Who Who triggers the request for audit? Common misconception is that contractors can request the audit when they need it. Contractors cannot simply request the audit! The request must come from a Contracting Officer Who performs the audit? Performed by the DCAA or other Cognizant Federal Agency at the request of a CO or Administrative Contracting Officer (ACO). The auditor serves as the technical advisor to the CO or ACO Certain agencies or a prime contractor may accept third party CPA firms to perform the assessment.

11 The Basics - What

12 The Basics - What A Pre-Award Accounting System Review (DCAA Activity Code 17740) involves: Evaluation of the design effectiveness, not the operating effectiveness of the system A mix of inquiry of appropriate personnel, observation of the entity s operations, and inspection of relevant documentation Walkthroughs of the accounting system that include a combination of the above procedures Perform risk assessment and gain understanding of internal controls

13 The Basics - What The 1408 is not a detailed testing of transactions, rather it is an assessment of the controls and design effectiveness and a review of the Accounting Policies & Procedures. Policies & Procedures Direct Versus Indirect Costs Allocation of Indirect Expenses Accounting for Unallowable Costs Time and Expense Reporting Policy Invoicing Subcontractor Costs Policy

14 The Basics - When

15 The Basics When When bidding on a proposal which requires an adequate accounting system per FAR (a)(3) When you already have an adequacy letter from a cognizant federal agency, how long is it good for? The adequacy determination is valid typically for three years or until a material change in the system occurs. Material Change: Change in software Immaterial Change: Addition of a new overhead pool for additional contract work, minor revision to the policies and procedures

16 The Basics When When a contractor is expecting a flexibly priced award, that means the following: Time & Materials IDIQs with multiple contract types Cost-reimbursement contracts Cost-Sharing Cost plus incentive fee Cost plus award fee Cost plus fixed fee

17 The Basics - Where

18 The Basics Where Initially, the work will be performed remotely during the risk assessment and sampling stage Next, there will be a site visit where they can see reports run from your system. Typically the site visit is 2 to 4 hours. If complex or issues arise, could be 6 to 8 hours. Wrap up with an exit conference via teleconference

19 The Basics - Why

20 The Basics Why Why do contractors need or want an approved accounting system? Golden Ticket!! Benefits to managing all contract types

21 Standard Form (SF)1408 Criteria

22 SF 1408 Criteria Prior to the CO or ACO requesting an audit of a contractor s accounting system, they will ask the contractor to complete the Pre-Award Survey of Prospective Accounting System Checklist Located on the DCAA s website ( Checklists and Tools Pre-Award Accounting System Adequacy Checklist) CO/ACO provides the completed checklist to the auditor of your Cognizant Federal Agency (e.g. DCAA, USAID) Checklist provides documentation to the auditor on how and if your accounting system meets the criteria in the Standard Form (SF) 1408, Pre-Award Survey of Prospective Accounting System

23 SF 1408 Criteria Proper segregation of costs Identification & accumulation of direct costs by contract Logical & consistent method for the allocation of indirect costs Accumulation of costs under general ledger control Timekeeping system that identifies employees labor by intermediate or final cost objectives Labor distribution system

24 SF 1408 Criteria Interim determination of costs charged to a contract through routine posting to books of account Exclusion of unallowable costs Identification of costs by contract line item Accounting System provides financial information required by contract clauses concerning limitation of cost and limitation of funds Required to support requests for progress payments

25 The Results of the Standard Form 1408

26 The Results Compliant with Criteria in SF 1408: The DCAA will submit the audit report with the SF 1408 completed to the CO or ACO The ACO will provide an adequacy letter to the contractor indicating the system was deemed adequate

27 The Results Non-Compliant with Criteria in SF 1408: Auditor will notify both the contractor and the procurement official of the deficiencies Auditor will identify recommendations for correcting the deficiencies Once the required corrective actions have been taken by the contractor to correct the deficiencies, if requested by the CO, the auditor will perform a follow-up audit of the revised system and/or corrected deficiencies

28 In Conclusion If you have prime contracts, try to have CO trigger a DCAA/ other cognizant audit agency to conduct a review If you have prime work and no system determination/review, you can try to claim that the government has already determined you are suitable for award by means of previous contracts awarded (which may work if the prior awards are cost or T&M) Engage a third party to conduct a review if allowed per the RFP Remember an adequate accounting system is beneficial for winning new work and follow work!

29 Questions?

30 Donna M. Dominguez Director, Government Contract Services Group Donna Dominguez is a director in Aronson LLC s Government Contract Services Group, where she provides a wide range of financial compliance advisory services for government contractors. She is experienced in matters related to Federal Acquisition Regulations (FAR), cost accounting standards (CAS), incurred cost submissions, DCAA/cognizant audit support, provisional billing rates, establishing/revising indirect rate structures and cost proposal support. Donna works with contractors to help them grow their business while keeping their accounting systems adequate in the eyes of the government and their billing systems current and relevant. She is also involved in supporting the government contracting community as a frequent guest speaker on a variety of compliance topics. Donna earned her bachelor s degree in accounting from the University Maryland and has completed additional coursework in contracts administration. She is a contributor to Aronson s Fed Point blog and has co-authored articles for NCMA Contract Management Magazine. 3 0

31 Contact Donna Dominguez

32 Aisha N. Mian Managing Consultant, Government Contract Services Group Aisha N. Mian is a managing consultant in Aronson LLC s Government Contract Services Group. She has more than eight years of experience in the government contracting industry, with expertise in both project control and financial compliance. Her professional skills include contract/project financial analysis and various areas of financial compliance, including preparation of incurred cost submissions; support in evaluating, preparing and advising appropriate indirect rate structures; preparation of disclosure statements; and analysis and impact of cost accounting standards (CAS). She has also worked alongside in-house DCAA auditors supporting audits for incurred cost submissions during her time in the industry. Aisha has been a guest speaker on financial and government contracting topics at the GWSCPA Government Contracting Conference and has hosted Aronson LLC webinars related to government contracting topics. She earned her bachelor s degree in finance from George Mason University and her MBA from the Robert H. Smith School at the University of Maryland College Park. 3 2

33 Contact Aisha Mian mian