Government Contractos are under pressure to allocate resources more effectively, increase client billing rates, and differentiate themselves through innovative service delivery in order to generate greater profit margins in the face of ever-increasing competition and regulatory DCAA compliance. Accounting for every detail of a project or contract, including measuring the degree of project completion, remains a huge challenge for Government Contractors. Join Raffa & BDO to learn how you can solve your accounting, project management, and compliance issues with an effective Microsoft Dynamics solution.​

1. Thrive. Grow. Achieve.
Seth Zarny – Raffa Partner
Kellye Jennings – BDO Partner
Glenn Anstead – Raffa Senior Manager
June 12, 2013
Government Contractors
Financial & Project
Management Systems
Seminar

2. AGENDA
2
• Introductions – BDO, Raffa, & Audience
• Accounting Challenges for Govt Contractors
• Typical Govt Contracting Accounting
Requirements
• Accounting System Overview
– On-demand Financial & Project Reporting
– Project Management & Job Summary Reports
– Earned Value Management
• DCAA Time and Expense Reporting
• Provisional & Indirect Cost Analysis

3. WHO IS RAFFA?
3
Microsoft Gold Competency ERP Partner with offices
in Washington, DC and Rockville, MD
Specializing in Project Management & Accounting
(PMA) solutions for Professional Services, NGO’s,
Government Contractors, and Other Project Driven
Organizations
260 management, accounting, and systems
professionals

4. DO YOU NEED THE NEW
SOFTWARE?
HINT – SOMETIMES YOU NEED TO CHANGE YOUR SOFTWARE!
4

5. OUR SOLUTION
5
• Project Management and Accounting from Microsoft
Dynamics
– An integrated suite of 9 modules that provide
financial accounting, project management and
resource management capabilities
– Key features include: time and expense
management, billing, revenue recognition, cost
allocations, contract management, payroll reporting,
employee and resource utilization, and real-time
project profitability analysis
– Integration with Microsoft Project combines real-
time financial data with best-of-breed project
planning, task scheduling, knowledge management,
and skills management capabilities

6. OUR CUSTOMERS
6
• Business Services, Consulting, IT and Computer
Services, Engineering, Government Contractors,
Public Relations / Lobbying, and Construction
• All size companies in the mid-market spectrum –
typically $5-500M revenue & 25-1000 employees
• Project-centric divisions and departments in large
enterprise

7. CRITICAL REQUIREMENTS
FOR SUCCESS…
7

8. CRITICAL REQUIREMENTS
FOR SUCCESS
WHAT TO LOOK FOR WHEN REVIEWING
INTEGRATED SOLUTIONS?
Out of the Box, Proven Financial and Operational
Software
•Proven management of Indirect and Direct Costs
•Integrated across Finance and Project Management /
Operations
•Business Process Automation
•Setup Flexibility to meet business needs
8

9. BUSINESS PROCESS
IMPROVEMENTS
INDIRECT RATES
• Monitor Trends via Management Reporter
• More Accurate Cost Information for Bidding
• More Accurate Historical Procurement Costs
TRACEABILITY OF SOURCE DOCUMENTS
• Management Reporting Drill Down
• On line Inquiry Screens
• Transaction Level Detail
• Imaging/Document Management
9

10. BENEFITS FOR GOV’T
CONTRACTORS
CONTRACTORS LOOK FOR SOLUTIONS THAT CAN
MANAGE MULTIPLE CONTRACTS AND COST
POOLS. NEED TO SEPARATE INDIRECT COSTS
FOR REPORTING PURPOSES
• Time and Materials
• Fixed Firm Price
• Cost Plus
INTEGRATED TIME AND EXPENSE TO FINANCIALS
WEB BASED ACCESS FOR REMOTE EMPLOYEES
EARNED VALUE MANAGEMENT CAPABILITIES
10

11. MIXED COMMERCIAL &
GOV’T REQUIREMENTS
WHAT IS KEY FOR COMPANIES DOING BOTH
COMMERCIAL AND GOVERNMENT CONTRACTING?
•Consistent Accounting Practices for Both
Businesses
•Allocations must be the same
•Overhead, G&A, and Unallowable pools
11

12. OPERATIONAL BENEFITS
WHAT BENEFITS SHOULD OPERATIONS & PROJECT
MANAGERS RECEIVE FROM MICROSOFT
DYNAMICS?
•Superior Cost Control
•Real time visibility into committed costs
•Immediate access to supporting documentation
via document imaging
•Earned Value Management visibility
12

13. THE DCAA AUDIT
HOW DOES MICROSOFT DYNAMICS STACK UP
DURING THE AUDIT?
• Successfully completed years of DCAA
audits
• Provides timely access to information
• Reduces the time required by internal staff
during the audit process
13

14. MICROSOFT INTEGRATED
SOLUTIONS
• Dynamics ERP
• SharePoint
14

15. WHAT IS MICROSOFT
DYNAMICS?
• INTEGRATED FINANCIAL AND
OPERATIONAL/PROJECT MANAGEMENT
SOFTWARE
• FAMILIAR TO YOUR EMPLOYEES
• GOVERNMENT CONTRACTING INDUSTRIES:
• Professional Services
• Contracting
• Manufacturing
• Distribution
• ACCEPTED BY DCAA
15

16. FUNCTIONALITY PROVIDED
BY DYNAMICS
•FINANCIALS
•ACCOUNTING
•FRINGE, OVERHEAD AND G&A RATE CALCULATIONS
• Cost Segregation – Allowable vs. Unallowable
•JOB COSTING
•PURCHASING & REQUISITION MGMT
•MANUFACTURING
•INVENTORY MANAGEMENT
•SALES ORDERS
•SERVICE MANAGEMENT
•CUSTOMER RELATIONSHIP MANAGEMENT
16

17. MICROSOFT SHAREPOINT
WHAT IS MICROSOFT SHAREPOINT?
A FOUNDATION FOR CONNECTED INFORMATION
• Team Collaboration
• Dashboard
• Key Performance Indicators
• Dynamics Business Portal
• Integrated with Project Server
17

18. WHAT WILL YOU GET FROM
THE INTEGRATED SOLUTION?
ORGANIZED FLOW OF INFORMATION
• Project Management
• Resource Allocation
• Financial Reporting
SEAMLESS INTEGRATION OF INFORMATION
ONE VIEW OF THE DATA
TOOLS YOUR TEAM IS FAMILIAR WITH…
18

19. PROJECT MANAGER
SUPPORT
19
• WEB ACCESS TO YOUR DATA
• Immediate access to Projects profitability
• Maintain projects
• Assign resources to projects, tasks or subtasks
• Create initial and subsequent budgets
• Set maximums for Projects and Tasks
• Store and share Project invoices in a document
repository
• Enter time remotely supporting your companies
needs: bi-weekly, semi monthly…

20. REPORTING VS.
DASHBOARDS
Many people use the terms interchangeably
What is the purpose of a report in Government
Contracting company?
• Compliance
• Company Directed
What is the purpose of a dashboard?
• Drive user towards decision
How do you know what the Dashboards should be?
• Key Performance Issues of Company
What are KPI’s?
• Key Performance Indicator
20

21. DYNAMICS SL OVERVIEW
PROJECT DASHBOARD
21
• Real-time
visibility
into your
data
• Project
P&L
• Labor
hours
statistics

22. 22
DYNAMICS SL OVERVIEW -
CREATE NEW PROJECT

23. 23
DYNAMICS SL OVERVIEW -
CREATE NEW PROJECT

24. DYNAMICS SL OVERVIEW -
ASSIGN RESOURCES
24

25. 25

26. 26
Benefits Beyond The
Norm
Traditional
Project Management
• On time versus original
schedule estimate
• Within budget versus
original cost estimate
• Within scope versus original
deliverables
• Meet or exceed
customer expectations
• “Best available” resource
utilization
Project Management
& Accounting
Reduced time to market
and/or cycle time
Project revenue, cost,
and profitability
Business value of
services delivered
Alignment with
business and client
objectives
“Best fit” skills-based
resource optimization

27. 27
Other Measurable
Benefits
• Better Prioritization of Projects and Services
It is shocking how many “projects” operate below the radar
screen with no plans, controls or accountability
• Shorten Billing Cycles
Better allocation of resource T&E to project schedules and
invoicing, and faster resolution of billing disputes
• Minimize Revenue Leakage
Eliminate errors from manual entry or redundant systems used
to invoice client services
• Improved Service Agility
Quicker response to sudden or unexpected changes in
business priorities, competitive pressures, new technology,
and economic downturns

28. 28
Bringing it All Together
A SINGLE VIEW OF OPERATIONAL DATA
• Discover the one truth for your business
• Provide people access and empower them
with simple but sophisticated tools
• Focus on what is important and act!
• Institute the command and control you need
to meet goals

29. DYNAMICS SL OVERVIEW
Exec Mgmt Dashboards
Real-time visibility
into your data
Top 10 Customers
Year over year
Sales and Margin
29

30. DYNAMICS OVERVIEW
Increased Visibility
Real-time visibility
into your data
Labor statistics by
Customer
30

31. DYNAMICS OVERVIEW
Web based Timecards
Online Timesheets
31

32. DYNAMICS OVERVIEW
Project Visibility
Online Project
visibility – multiple
levels…
32

33. DYNAMICS OVERVIEW
Project Visibility
Online Project
visibility – multiple
levels…
Commitments &
Budgets
33

34. DYNAMICS OVERVIEW
Self Service Access
Online Project
visibility – multiple
levels…
Self-service –
Project profitability
34

35. DYNAMICS OVERVIEW
Ability to drill into the details
Online Project
visibility – multiple
levels…
Self-service – Drill
into the supporting
details
35

36. WEB BASED EE EXPENSE REPORT
36

37. DYNAMICS RATE TABLE SETUP
37

38. DYNAMICS CLOSING AT ACTUAL
38

39. PROVISIONAL VS. PTD ACTUAL
REPORTING
39

40. PROVISIONAL VS. YTD ACTUAL
40

41. STATEMENT OF INDIRECT EXPENSE
41

42. PROJECT – GL RECONCILIATION REPORT
42

43. JOB SUMMARY REPORT
43

44. EMPLOYEE LABOR DISTRIBUTION
44

45. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
GOVERNMENT CONTRACTS FINANCIAL &
PROJECT MANAGEMENT SEMINAR
KELLYE JENNINGS, PARTNER, AUDIT – KJENNINGS@BDO.COM

46. AGENDA
• THE REGULATORY ENVIRONMENT
• BUSINESS SYSTEMS
• TIME AND EXPENSE CHALLENGES AND REQUIREMENTS
• JOB COSTING
• Definition and allocation of direct and indirect costs
• Allocation bases
• How rates are calculated

47. AGENDA (CONTINUED)
• OTHER ISSUES
• Provisional versus actual rates
• Types of government contracts
• Government audits
• QUESTIONS?

48. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
SECTION 1 – THE REGULATORY ENVIRONMENT

49. THE REGULATORY ENVIRONMENT
HEAVILY REGULATED:
• Many potential pitfalls for the naïve or unwary seller
• Compliance costs (personnel, systems, procedures) require up front investment
FEDERAL ACQUISITION REGULATION (FAR):
• Covers all aspects of contracting for the Federal Government
• Includes “Cost Principles” and many other administrative procedures
AGENCY SUPPLEMENTS (E.G., DFARS):
• Provide additional Agency-specific guidance
COST ACCOUNTING STANDARDS (CAS):
• Provide guidance on acceptable cost accounting practices

50. THE REGULATORY ENVIRONMENT
KEY REGULATORY COMPLIANCE ISSUES INCLUDE:
• Identification and Segregation of “Unallowable” Costs:
o As discussed further below, Government contractors are required to identify, segregate, and exclude
certain types of costs from proposals, billings, and claims.
o “Flexibly priced” contracts may require certification of proposed indirect cost rates.
• Government Property Control Requirements:
o Contractors are required to identify, track and maintain Government Property, including items acquired in
performance of a contract.
o Lost, damaged, stolen or destroyed property must be promptly reported.
o Periodically, inventories of Government Property must be performed and submitted to Government
customers.

51. (FAR) FEDERAL ACQUISITION REGULATION VS.
(CAS) COST ACCOUNTING STANDARDS
FAR COST PRINCIPLES DETERMINE ALLOWABLE COSTS
COST ACCOUNTING STANDARDS GOVERN COST ACCOUNTING PRACTICES USED
FOR
GOVERNMENT CONTRACTS:
• MEASUREMENT OF COSTS
• ASSIGNMENT OF COSTS TO COST ACCOUNTING PERIODS
• ALLOCATION OF COSTS

52. WHAT IS “FAR”?
THE FEDERAL ACQUISITION REGULATION (FAR) IS THE
PRINCIPAL SET OF RULES IN THE
FEDERAL ACQUISITION REGULATION SYSTEM. THIS SYSTEM
CONSISTS OF SETS OF
REGULATIONS ISSUED BY AGENCIES OF THE FEDERAL
GOVERNMENT OF THE UNITED STATES
TO GOVERN WHAT IS CALLED THE "ACQUISITION PROCESS,"
WHICH IS THE PROCESS THROUGH
WHICH THE GOVERNMENT PURCHASES ("ACQUIRES") GOODS
AND SERVICES. THAT PROCESS
CONSISTS OF THREE PHASES:
(1) NEED RECOGNITION AND ACQUISITION PLANNING,
(2) CONTRACT FORMATION, AND
(3) CONTRACT ADMINISTRATION
THE FAR SYSTEM REGULATES THE ACTIVITIES OF
GOVERNMENT PERSONNEL IN CARRYING
OUT THAT PROCESS. IT DOES NOT REGULATE THE
PURCHASING ACTIVITIES OF PRIVATE SECTOR
FIRMS, EXCEPT TO THE EXTENT THAT PARTS OF IT ARE
INCORPORATED INTO GOVERNMENT
SOLICITATIONS AND CONTRACTS BY REFERENCE.

53. PURPOSE OF “FAR”
THE PURPOSE OF THE FAR IS TO PROVIDE "UNIFORM POLICIES AND PROCEDURES
FOR
ACQUISITION." FAR 1.101. AMONG ITS GUIDING PRINCIPLES IS TO HAVE AN
ACQUISITION
SYSTEM THAT
(1) SATISFIES CUSTOMER'S NEEDS IN TERMS OF COST, QUALITY, AND TIMELINESS;
(2) MINIMIZE ADMINISTRATIVE OPERATING COSTS;
(3) CONDUCT BUSINESS WITH INTEGRITY, FAIRNESS, AND OPENNESS; AND
(4) FULFILL OTHER PUBLIC POLICY OBJECTIVES. FAR 1.102(B).
THE FAR ALSO INCLUDES SOCIOECONOMIC REQUIREMENTS, SUCH AS REQUIRING
CERTAIN
ITEMS TO BE PURCHASED FROM THE UNITED STATES FIRMS ONLY AND THAT
LARGE
ORGANIZATIONS TO USE SMALLER BUSINESSES AS SUBCONTRACTORS.

54. WHAT IS “CAS”?
The Cost Accounting Standards (CAS) are methodologies and techniques
used to
guide and consistently measure the cost accounting practices amongst
government contractors.
The Cost Accounting Standards Board (CASB) consists of members from the
Office of Management and Budget (OMB), Department of Defense (DOD),
General Services Administration (GSA), and private sector.
To promote consistency across agencies, the Cost Accounting Standards which
address the assignment of costs to government contracts are different from
the ‘Cost Principles’ which provide guidance for cost allowability. Some of
the principles are based upon certain cost accounting standards and should
be referenced to determine if a cost is unallowable. Cost accounting can be
categorized into the following three areas:
(1) measurement of cost (market vs. present value),
(2) cost accounting period assignment (accrual vs. cash basis), and
(3) allocation of costs (direct vs. indirect)

55. PURPOSE OF “CAS”
The purpose of the CAS is to ensure your cost accounting practices as a contractor are fairly
standard, practical, yet flexible across the industry, while remaining consistent with your
disclosed practices, procedures, and policies for cost recovery:
(1) CAS should be considered during the design and configuration of your financial systems,
(2) CAS directly affect compliance
(3) CAS have a direct impact on your ability to recover costs
Your disclosed (submitted statement, if applicable) cost accounting policies and
practices must also be adequate and compliant and should be the basis for your
accounting and financial system design

56. COMPLIANCE IS YOUR FRIEND
GOVERNMENT CONTRACTING INDUSTRY IS HEAVILY REGULATED
• Many potential pitfalls for the naïve or unwary seller
• Compliance costs (personnel, systems, procedures) require up front investment
FEDERAL ACQUISITION REGULATION (FAR)
• COVERS ALL ASPECTS OF CONTRACTING FOR THE FEDERAL GOVERNMENT
• INCLUDES “COST PRINCIPLES” AND MANY OTHER ADMINISTRATIVE PROCEDURES
AGENCY SUPPLEMENTS (E.G., DEFENSE FEDERAL ACQUISITION REGULATION SUPPLEMENT - DFARS)
• PROVIDE ADDITIONAL AGENCY-SPECIFIC GUIDANCE
COST ACCOUNTING STANDARDS (CAS)
• PROVIDE GUIDANCE ON ACCEPTABLE COST ACCOUNTING PRACTICES
COMPLIANCE GENERALLY LEADS TO A COMPETITIVE ADVANTAGE. NONCOMPLIANCE
MAY LEAD TO IMPOSITION OF PENALTIES, SUSPENSION, DEBARMENT, AND NO AWARD

57. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
SECTION 2 - BUSINESS SYSTEMS

58. BUSINESS SYSTEMS RULE
SIMPLY STATED… THE CONTRACTOR SHALL ESTABLISH AND MAINTAIN
ACCEPTABLE
BUSINESS SYSTEMS…
• Establishes criteria for mandatory adherence of requirements
specifically related to a contractors business systems to ensure best
practices are maintained for all government contracts.
• Criteria reflects a combination of existing requirements as found in
CAS, FAR, DFARS, and those historically enforced by DCAA, DCMA,
cognizant audit agency, etc.
• Identifies the relevant business systems, corresponding guidelines and
compliance requirements.

59. BUSINESS SYSTEMS RULE (CONT.)
• Provides for mandatory financial penalties for any
noncompliance that is deemed a “significant deficiency”
• Allows for discretion (as exercised by government audit
agency and reviewers) in how compliance will be achieved;
final determination resides with ACO, CO directs withholding
decision
• Defines grace period for implementing corrective action plan
to rectify deficiencies

60. ACCEPTABLE / DEFICIENT
“DEFICIENCY” IS DEFINED AS A
SHORTCOMING IN THE CONTRACTORS
BUSINESS
SYSTEM(S) THAT MATERIALLY AFFECTS
THE
ABILITY OF OFFICIALS OF THE
DEPARTMENT OF
DEFENSE TO RELY UPON INFORMATION
PRODUCED BY THE SYSTEM THAT IS
NEEDED
FOR MANAGEMENT PURPOSES.
“ACCEPTABLE CONTRACTOR BUSINESS
SYSTEMS” ARE CONTRACTOR BUSINESS
SYSTEMS WHICH ARE FOUND TO BE IN
COMPLIANCE WITH RELEVANT LAWS AND
REGULATIONS [COST ACCOUNTING
STANDARDS (CAS) CLAUSES AND FEDERAL
ACQUISITION REGULATIONS (FAR)
PRINCIPLES] AS REVIEWED BY YOUR
COGNIZANT AUDIT AGENCY.

61. WHAT HAPPENS IF FOUND
“DEFICIENT”?
You must respond in writing to your Contracting Officer (CO) within 30 days of receiving your
determination of identified business systems deficiencies to include your comments –rationale
for disagreement CO may issue a notice of intent to Contractor to withhold amounts from
interim billings not to exceed:
• 5% for one or more identified significant deficiencies in any single business system
• 10% significant deficiencies in multiple business systems

62. WHAT HAPPENS IF FOUND “DEFICIENT”? (CONT.)
If you correct the deficiencies or submit an acceptable corrective action plan
(one that includes milestones and steps taken to eliminate issues) within 45
days of notice of intent to withhold, and as verified by the cognizant audit
agency (auditor), the CO may:
• Decrease the withholding percentage until such time all deficiencies have been
corrected and verified
• Discontinue withholding and release previously withheld amounts (if not related to
other system deficiencies) and verified by auditor
• If no determination of the corrective action plan by the CO has been made within 90
days, withholding could be reduced by 50%, but not release payment for previous
withholdings
If the corrective plan is not followed and the deficiencies continue to exist, the
CO may:
• Increase the withholding percentage if the corrective action plan is not followed and
deficiencies continue to exist

63. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
SECTION 3 – TIME AND EXPENSES

64. OBJECTIVES OF TIMEKEEPING SYSTEM
• Ensure that proper and reliable contract labor costs, identified as either direct or
indirect, are:
–Accumulated
–Reported
–Billed
• Billings to the government via a system of accurate, timely, and complete posting of
labor hours on individual employee timecards

65. T&E SYSTEM BEST PRACTICES
• Employee understanding of procedures for preparing time sheets/cards/entering time, and
preparing expense reports
• Employee independence in preparing and correcting time sheet/expense report and adequate
management review and submission to accounting
• Adequate written policy and procedures that employees and management must follow
• Traceability of changes
• System for detecting errors/required changes

66. T&E SYSTEM BEST PRACTICES
(CONTINUED)
•Proper coding of expenses to corresponding accounts.
•Inclusion of sufficient business purpose on expense reports.
–A business purpose of “miscellaneous reimbursement” is not adequate and does not provide
transparency into the nature of the expense.
•Detail regarding number of attendees for meal expenses on expense reports
(dependent on Company policy)
•Itemized receipts for expenses relating to meals (dependent on Company policy)

67. BASIC REQUIREMENTS OF TIMEKEEPING
SYSTEM
• Employee is given or mapped to correct project or charge number via work authorization before work commences
• Time cards/sheets or access to system provided to employee at beginning of pay period
• Time cards/sheets are pre-coded with pay period, name, etc., if manual
• Employee has control or possession of timesheet (if manual) or sole access to electronic system
• Employees record time daily
• Supervisors or other personnel do not prepare timesheet entries for employees (unless out due to sickness, etc.)

68. BASIC REQUIREMENTS OF TIMEKEEPING
SYSTEM (CONTINUED)
• Audit trail for changes made to initial timekeeping entries
• Management approval of timesheet corrections noted
• Explanation of timesheet corrections provided
• Timesheet signed by employee at end of pay period
• Paid absences charged to correct indirect code
• Indirect duties (training, meetings, etc.) properly charged
• Timesheets collected by appropriate official and reviewed and approved

69. WHAT DCAA OBSERVATIONS WILL
ELEVATE AUDIT RISK?
• Mix of cost plus government & commercial contracts
• Lack of written or inadequate t&e procedures
• Significant adjusting entries to G/L labor charges
• Data indicated on timesheet during floor check does not match time sheet after entered to labor distribution
• Significant and non-verifiable changes and alterations to employee timesheets
• Timesheets without employee signature
• Inadequate demonstration of employee training for preparing time sheets

70. HOW DO I KNOW IF I HAVE TIMEKEEPING
SYSTEM PROBLEMS?
• Timekeeping procedure is twelve years old and has not been updated to reflect current electronic
methods
• At end of payroll period, electronic time entries for several employees are changed & then
“approved” by supervisor
• John Doe provides Lisa Smith, another employee (not his supervisor) his timekeeping password so
that Lisa can prepare entries for him while John is in rehab
• Jane Doe, an “exempt” G&A person, often works uncompensated OT, but does not record more than
40 hrs/week
• Company cannot reconcile total payroll to labor distribution

71. TIME REPORTING
• All time worked should be reported, including all time worked in excess of the
standard workweek. This includes all time worked for clients, whether billable or
not.
• All time and expenses associated with an individual contract should be recorded in
a Work Breakdown Structure (WBS) element. Any time or expense related to the
execution of a specific contract should be charged to the correct WBS elements,
regardless of whether or not those time and expenses can be billed. All other time
and expenses should be charged to the appropriate WBS element.

72. LABOR SYSTEM AUTHORIZATION/APPROVALS
• The contractor should have procedures to ensure the segregation of duties for work
authorizations and/or job assignments to the extent practical. Work
authorizations/job assignments should be controlled and issued by individuals
independent of those responsible for performing the work - a critical control is the
procedure used to open and close work authorizations.
• The contractor should have procedures for the preparation of labor
documentation/work descriptions that require clear identification of the nature of
the work performed - trackable to intermediate or final cost objectives
• The contractor should establish a labor charging awareness program to train all
employees, as appropriate, on proper labor charging practices.

73. LABOR SYSTEM AUTHORIZATION/APPROVALS CONT.
• The contractor should assure that labor hours are accurately recorded and that any
corrections to time keeping records are documented including the appropriate
authorizations and approvals.
• The contractor should assure the proper allocation of labor costs to cost objectives.
• The contractor should provide reasonable assurance that labor transfers or
adjustments of the labor distribution are documented and approved.
• The contractor should monitor the overall integrity of the time keeping system.

74. OVERTIME APPROVAL
• Requests for overtime should be made by project managers or department
managers. Overtime must only be authorized when a project or department manager
has documented the following in writing:
–Overtime is necessary to meet delivery requirements,
–Overtime is necessary to meet performance requirements, or
–Overtime is necessary to make up for delays beyond the control
or without the fault or negligence of the contractor
• When required by contract provisions, the project manager authorizing overtime
must obtain the contracting officer's written approval.

75. TIMECARD CHANGES / MODIFICATIONS
• It is improper for supervisors to unilaterally make changes to an employee’s
timecard. Doing so may result in disciplinary action.
• If a time correction is necessary PRIOR TO submitting the time sheet to the Payroll
Department, the employee should ensure that the time sheet correction is made in
ink and initialed. The reason should be clearly documented and approved by a
supervisor.
• When making a correction(s) to reported time SUBSEQUENT TO submitting the time
sheet to the Payroll Department:
–The correction may not be more than 30 days old.
–Employees must indicate the reason for the correction, the job
numbers affected by the adjustment, and the related hours.
–The documentation for the labor corrections must be signed by a
supervisor and submitted to accounting.
–Consider creating a “Labor Correction Form” that will state the
necessary procedures for making labor corrections.

76. DISTRIBUTION OF LABOR COSTS AND LABOR
TRANSFERS
• Written justification is required for any transfer of labor costs to ensure the proper
allocation of labor costs to each project. Each justification should be retained in
accordance with the contractor’s record retention policy. Journal vouchers are
commonly used to document labor transfers.
• The contractor should consider additional procedures for more closely scrutinizing
transfers.
• The contractor should include procedures to address management review and
approval of labor transfers, labor distribution edit errors, and review and correction
of labor errors.
• Labor distribution edit errors should be processed in a suspense account and billed
to customers only after correction.

77. CONSEQUENCES FOR DELIBERATE FAILURE TO
FOLLOW TIMEKEEPING POLICIES AND PROCEDURES
• The contractor should be committed to the enforcement of all timekeeping
procedures. Any clear infraction of the policy stated above will result in disciplinary
action which may include a warning, reprimand, probation, suspension, reduction in
salary, demotion, or dismissal.
• Employees should be aware, in addition to company imposed sanctions, that
individuals directly responsible for deliberate mischarging of time or materials may
be held personally liable for civil penalties and actual damages sustained by the
government as a result of the mischarging. Criminal prosecution may also result
which carries fines and/or imprisonment.

78. CONSEQUENCES FOR DELIBERATE FAILURE TO
FOLLOW TIMEKEEPING POLICIES AND PROCEDURES
CONT.
• Employees must be vigilant in their efforts to accurately record time. The penalties
for knowingly mischarging time can be as severe as termination and other
Governmental ramifications (i.e., False Claims Act).
• The contractor should periodically conduct floor checks to ensure timekeeping
practices are being followed and actual hours worked are accurately recorded.

79. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
SECTION 4 – JOB COSTING

80. JOB COST ACCOUNTING SYSTEMS
• USED TO DETERMINE COST OF A PRODUCT OR SERVICE
• CAN BE USED TO DETERMINE PRICES – GOVERNMENT
CONTRACT PRICES ARE OFTEN BASED ON COSTS
CHARGED TO A JOB
• USED TO RECORD COST OF AN INDIVIDUAL
TRANSACTION
• MAY BE USED TO DISTRIBUTE INDIRECT COSTS TO COST
OBJECTIVES
• Government does not require “on book” distributions
• “Memo records” are acceptable
• Facilitates integration of production data into accounting
records

81. JOB COST ACCOUNTING SYSTEMS
(CONTINUED)
• Costs must be accumulated under general ledger control
o Job costs must be reconcilable and posted to general ledger
control accounts
o Costs must be posted at least monthly to books of account
• Costs must be segregated between direct and indirect
types
o Controls must exist to preclude direct charging of indirect
expenses
• Direct costs must be accumulated by contract
o Must either have a subsidiary job cost ledger or accounts
receivable ledger
o Must be able to “drill down” to at least Contract Line Item
Number (“CLIN”) level
• Indirect costs must be allocated to jobs
o Accumulated in logical cost groupings and allocated based
on causal or beneficial relationships

82. ALLOCATION OF EXPENSES
WHEN A COMPANY INCURS AN EXPENSE, IT IS EITHER A DIRECT EXPENSE THAT IS CHARGED TO
A SPECIFIC PROJECT OR IT IS AN INDIRECT EXPENSE THAT BENEFITS VARIOUS PROJECTS AND
THE COMPANY AS A WHOLE.

83. ACCOUNTING FOR UNALLOWABLE COSTS
An allowable cost in government contracting terms means billable –
it’s allowable if the rules permit it to be included in an invoice to the
government. An unallowable cost is just the opposite; it’s the kind of
cost you can’t bill the government for.
Under the FAR 31.201-2, a cost is allowable only when it meets all of
these requirements:
Terms of the contract
Limitations set for the in FAR 31.201
Reasonable and allocable

84. WHAT IS A DIRECT COST?
IF A COST IS EASILY IDENTIFIED WITH A SINGLE PROJECT, IT IS GENERALLY
CONSIDERED A DIRECT COST.
To help make this determination, ask…
“If we did not have this contract, would we still incur this cost?”
A “no” answer to this question indicates that it is probably a
direct cost.

85. DIRECT COSTS EXAMPLES
• Labor performed while working on a project
• Travel to project status meetings
• Material consumed entirely on a project
• Subcontractors/consultants hired to work
on a project
.

86. WHAT IS AN INDIRECT COST?
AN INDIRECT COST IS A COST INCURRED THAT:
• Benefits more than one contract
• Incurred for the common good of the company
• Impractical to split
• Immaterial direct cost

87. DEFINING INDIRECT COSTS
FRINGE BENEFITS
COMPANY EXPENSES INCURRED FOR THE BENEFIT OF ITS EMPLOYEES
• Employer payroll taxes
• Medical insurance paid by the company
• Company 401(k) contributions
• Paid time off

88. DEFINING INDIRECT COSTS
OVERHEAD
COSTS NOT DIRECTLY RELATED TO COST OBJECTIVES BUT ARE
SUPPORT-TYPE COSTS NECESSARY FOR THE PRODUCTION OF
GOODS OR SERVICES
• Salaries and wages of support and production personnel
• Facilities cost
• Supplies
It is common to find separate overhead pools for engineering,
manufacturing, and for certain off-site activities

89. DEFINING INDIRECT COSTS
G&A
COSTS ASSOCIATED WITH THE GENERAL ADMINISTRATION AND
OVERALL MANAGEMENT OF A COMPANY
• Compensation of company executives and related fringe
• Legal and professional fees
• Administrative personnel and costs
• Business insurance
• Company taxes (except federal income taxes)
• Bid and proposal costs

90. DEFINING INDIRECT COSTS
SUBCONTRACTOR/MATERIAL HANDLING
COSTS ASSOCIATED WITH OVERALL ADMINISTRATION OF
SUBCONTRACTOR AND MATERIALS ACQUISITIONS
• Selecting, negotiating, and managing subcontractors and materials purchases

91. DIRECT OR INDIRECT – GRAY AREAS
EXAMPLE: COMPANY A AND B SHIP MONTHLY PROGRAM REPORTS TO THEIR CLIENTS
Company A
• Charges the shipping expense
against the contract
• Support personnel charge
time to overhead
Company B
• Charges all shipping to overhead
• Administrative staff charge:
o Time supporting projects
o Overhead when working on
support of a general nature
The same approach can be taken on many other types of
expenses, such as photocopies, phone calls, faxes, etc.

92. G&A OR OVERHEAD
COMPANY A CHARGES HR COSTS TO G&A
WHILE COMPANY B ALLOCATES THE COST
OF HR ACROSS THE ENTIRE COMPANY.
HR BENEFITS THE COMPANY AS A WHOLE,
MEETING THE CRITERIA OF A G&A COST,
BUT HR ALSO BENEFITS ALL EE’S OF THE
COMPANY.
COMPANY B RATIONAL:
• The fundamental costs of the majority
of ee’s are maintained in OH
• HR costs will be allocated between OH
& G&A based on a method such as
using proportionate number of ee’s
Can certain G&A costs qualify as OH expenses?
Deciding to allocate costs between
G&A and OH takes detailed planning
and consideration of materiality and
cost /benefit relationship

93. DEFINING ALLOCATION BASES
ASSIGNING AN INDIRECT COST POOL TO A PARTICULAR ALLOCATION
BASE DEPENDS UPON:
• TYPES OF COSTS INCLUDED IN THE POOL
• WHETHER THE BASE PROVIDES A REASONABLE
REPRESENTATION OF THE RELATIVE CONSUMPTION OF POOLED
INDIRECT COSTS BY DIRECT COST ACTIVITIES
Labor costs are an appropriate allocation base for the fringe expenses.
There is a clear relationship between the two.

94. INDIRECT RATES
INDIRECT RATES ARE EQUITABLE, LOGICAL
AND CONSISTENT PROCESS FOR
ALLOCATING COSTS NOT DIRECTLY
ASSOCIATED WITH A SINGLE PROJECT OR
COST OBJECTIVE.
THE ONLY REQUIREMENT OF THE FAR IS
THAT THE ALLOCATION OF INDIRECT COSTS
BE:
• FAIR
• REASONABLE
• EQUITABLE

95. INDIRECT RATES
KEY POINTS TO ESTABLISH AND MANAGE INDIRECT COST STRUCTURES:
FISCAL YEAR
THE PERIOD FOR ALLOCATING INDIRECT COSTS IS A
CONTRACTOR’S FISCAL YEAR – IT IS NOT RELATED TO A PERIOD
OF PERFORMANCE FOR A GIVEN CONTRACTS.
SIMPLICITY
WHEN SUBSTANTIALLY THE SAME RESULT CAN BE ACHIEVED
THROUGH LESS PRECISE METHODS, A COMPANY IS PERMITTED
TO KEEP THE ALLOCATION SIMPLE AND NOT BE FORCED INTO
MORE COMPLICATED ALLOCATION FORMULAS THAT ARE
TECHNICALLY MORE ACCURATE BUT NOT MATERIALLY
DIFFERENT.
CONSISTENCY
ONCE TREATED AS A DIRECT (OR INDIRECT COST), A COST
SHOULD BE TREATED CONSISTENTLY.
Companies have a great deal of
latitude to determine indirect rate
structure

96. CALCULATION OF INDIRECT RATES
INDIRECT RATE =
Similar cost (pool)
Allocation base
The calculation of indirect rates is
simple math – it is just a matter of
grouping, adding, and dividing.
It’s how and why certain numbers
are grouped together that can be
complex.

97. INDIRECT RATES

98. INDIRECT RATES

99. INDIRECT RATES
METHODS PRACTICED TO REDUCE INDIRECT RATES:
• CHARGE AS MANY COSTS DIRECT AS POSSIBLE. BY CHARGING SHIPPING AND
COPYING DIRECTLY TO A CONTRACT, IT WILL KEEP IT OUT OF OVERHEAD POOL,
WHICH WILL IN TURN REDUCE THE OVERHEAD RATE.
• DIRECT CHARGE UNIQUE COSTS TO A SPECIFIC CONTRACT
• MORE INDIRECT RATES BY SPLITTING LARGE GROUPINGS
• INDIRECT RATES FOR DIFFERENT TYPES OF WORK
• ESTABLISH A SERVICES CENTER
A company with high rates may not really be any more expensive -- though they
are often perceived that way. When developing or evaluating indirect rates, a
company should keep in mind ways to reduce at least the appearance of indirect
rates.

100. INDIRECT COST ALLOCATION CYCLE
INDIRECT COST ALLOCATION TYPICALLY FOLLOWS THE CYCLE DEPICTED IN THE
FOLLOWING FIGURE:
Forward
Pricing
Estimate
Indirect Contract
Costs
Final
Allocation
Allocate Indirect
Costs to
Contracts
Billing
Progress
Payments Cost
Reimbursement

101. INDIRECT COST ALLOCATION CYCLE
FORWARD PRICING- DURING THIS PHASE, THE CONTRACTOR PROPOSES FORWARD
PRICING RATES AND USES THOSE RATES IN CONTRACT PROPOSAL PRICING.
CONTRACT BILLING- PROVISIONAL / TARGET RATES ARE INDIRECT RATE
PROJECTIONS USED ON CONTRACT BILLING THAT HAVE BEEN REVIEWED AND
APPROVED BY THE DCAA OR THE CONTRACTOR’S COGNIZANT AGENCY FOR
PROPOSAL AND ESTIMATING PURPOSES.
FOR EXAMPLE, A COMPANY MAY DEVELOP BUDGETED RATES FOR THE
CURRENT YEAR AND FORECASTED RATES FOR THE NEXT TWO YEARS. ALL
THREE YEARS OF RATES CAN BE APPROVED FOR PROPOSAL PREPARATION
PURPOSES.

102. INDIRECT COST ALLOCATION CYCLE
FINAL PRICING. AFTER THE COST ACCOUNTING PERIOD IS COMPLETED, CONTRACTORS CAN
CALCULATE ACTUAL INDIRECT COST RATES TO DETERMINE ACTUAL CONTRACT COST.
• FOR CONTRACTS THAT REQUIRE FINAL PRICING (E.G. COST PLUS) THE RESPONSIBLE
CONTRACTING OFFICER OR AUDITOR MUST DETERMINE FINAL INDIRECT RATES FOR THE
CONTRACT.
• FINAL INDIRECT RATE PROPOSAL IS SUBMITTED BY THE CONTRACTOR.
• MONTHS OR YEARS MAY BE REQUIRED TO COMPLETE THIS PROCESS. UNDER CERTAIN
LIMITED CONDITIONS, THE CONTRACTING OFFICER AND THE CONTRACTOR MAY AGREE
TO USE ESTIMATED QUICK-CLOSEOUT INDIRECT COST RATES FOR FINAL PRICING.
• DATA USED TO SUPPORT FINAL RATES WILL BECOME PART OF THE DATA AVAILABLE FOR
ESTIMATING FORWARD PRICING AND BILLING RATES FOR SUBSEQUENT ACCOUNTING
PERIODS.

103. GOVERNMENT CONTRACT LIFE-CYCLE
Pre-Award
Award
Accounting
Controls
[Policies,Procedures,Training]
Accounting
System

104. BDO USA, LLP, a Delaware limited liability partnership, is the U.S.
member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of
independent member firms. BDO is the brand name for the BDO
network and for each of the BDO Member Firms.
SECTION 5 – OTHER ISSUES

105. ACTUAL VERSUS PROVISIONAL RATES
• Provisional rates – estimated rates that are required to reimburse contractors on an
interim basis.
o Sometimes referred to as “target rates.”
o Should be adjusted as facts and circumstances change to prevent substantial
underpayments or overpayments.
• Actual rates – final indirect rates that are determined during or after a contractor’s fiscal
period.
o Subject to audit
o Required to be submitted in the final indirect proposal within six months after year-
end
o Used in the contract close-out process

106. BASIC TYPES OF GOVERNMENT
CONTRACTS
• Fixed price – contractor is paid a predetermined fixed amount for a specified scope
of work and has full responsibility for the performance costs.
• T&M and labor hour – contractor is paid fixed hourly rates for direct-labor hours
expended under specified labor categories. Materials and other non-labor costs
are usually reimbursed at actual costs plus allocable indirect costs.
• Cost reimbursement – contractor is reimbursed for allowable incurred costs plus a
fee (if specified).
TIP: DO NOT MAKE YOUR ACCOUNTING SYSTEMS DECISION BASED ON THE
CONTRACT MIX THAT YOU HAVE TODAY.

107. SCOPE OF GOVERNMENT AUDITS
• PROPOSAL / PRE-AWARD
• INCURRED COST
• BUSINESS SYSTEMS
• FORWARD PRICING/ESTIMATING
• SPECIAL
o Termination proposals
o Progress payments
o Financial capabilities
o Other claims
• Other audits
o CAS Compliance
o Defective pricing
o Other

108. THE CURRENT AUDIT ENVIRONMENT
• INCREASED OVERSIGHT ON CONTRACTOR BUSINESS
SYSTEMS AND CONTROLS
• STRINGENT RIGOR APPLIED TO AUDIT PRACTICES,
PROGRAMS AND DOCUMENTATION
o Decreased cooperation with contractors to prevent appearance
of bias
o “Zero tolerance” with respect to meeting control objectives.
o Elimination of recommendations on deficiencies
o Inadequate/adequate findings – no more “inadequate in part”
• As a result, an increasing number of contractors now have
inadequate systems with “significant deficiencies” and
“material weaknesses”
• Most inadequacies have been accompanied with
recommendations to ACOs to pursue withhold of payments
• ACOs face an up hill battle in disagreeing with auditor findings
• Impacting contractors ability to win new awards and sub-
awards

109. THE CURRENT AUDIT ENVIRONMENT
(CONTINUED)
• THROUGH PERIODIC BUSINESS SYSTEMS AUDITS AND FLASH REPORTS –
OPPORTUNITIES FOR INADEQUATE SYSTEMS ARE HIGHER.
• SINCE THERE ARE NO LONGER “INADEQUATE IN PART” DETERMINATIONS, A
SINGLE FINDING IS NOW A “SIGNIFICANT DEFICIENCY” REPRESENTING A
“MATERIAL WEAKNESS.”
• AS A RESULT, A SINGLE AUDIT FINDING CAN NOW RESULT IN A
RECOMMENDATION OF WITHHOLD OF FEES/PAYMENTS.
• SINCE THERE IS A BACKLOG OF AUDITS AND BECAUSE AUDITS > 4 YEARS
OLD ARE NO LONGER CURRENT, THERE IS AN INCREASED NUMBER OF
CONTRACTORS WITH UNAUDITED SYSTEMS.
• DCAA IS WORKING ON REDUCING THE BACKLOG OF OPEN INCURRED COST
AUDITS.
o Data is old
o Personnel may have changed
o Systems may have changed
• RESULTS IN INCREASED AUDIT SCRUTINY (E.G., SUBSTANTIVE TESTING) IN
ALL OTHER AUDITS AND IMPACTS CONTRACTORS ABILITY TO OBTAIN NEW
AWARDS

110. DEALING WITH GOVERNMENT AUDITORS
• UNDERSTANDING WHAT IS BEING AUDITED
o Pre-award – evaluation of whether the contractor is capable
of performing the proposal.
o Post-award – evaluation of accuracy, completeness, and
currency of pricing data submitted.
o Incurred costs – evaluation of whether direct and indirect
costs are properly claimed for reimbursement on flexibly-
priced contracts.
• Be prepared
o Establish an audit liaison
o Understand the programs that the auditor will be using
o Insist on an entrance and an exit conference
o Be prompt in your responses
• Understand that not all government auditors are the same.

111. QUESTIONS?