DCAA COMPLIANCE BLOG

Your Source for DCAA News and Government Contracting Information 

 

Uncompensated Overtime - A DCAA Hot Button

Posted by Tyler Link on Wed, Feb 05, 2014 @ 12:53 PM

One question we always get is how to account for uncompensated overtime. Almost every small business has at least one employee working gazillion hours over a standard 40-hour work week. The DCAA considers these hours "at work labor." They want these hours captured in the name of treating all contractors accounting and pricing systems equitably and consistently.

Not addressing this issue successfully now poses a huge risk since DCAA auditors have no wiggle room in overlooking it as a minor problem. Any deficiency in your accounting system will likely lead to a failing grade, according to the latest DCAA guidance to its auditors (see previous article). This could prevent you from obtaining lucrative flexibly-priced contracts or fixed price contracts financed through progress payments.

The DCAA way
The basic DCAA audit guidance for addressing uncompensated overtime is very simple and straight-forward. They will divide your yearly salary by all the hours you worked and used for personal time off. This results in your "effective" billing rate. The DCAA expects you to adjust your rate in your accounting system each pay period to reflect this effective rate. The drawback to this system is contractors have to make these adjustments in their accounting system every pay period. It also artificially reduces your hourly rate. The DCAA will use this lower rate when evaluating any proposal you have submitted to the government or a prime.

A better way
The DCAA guidance does recognize other methods as being suitably fair and consistent. One approach lets you use your existing timekeeping system to segregate your "extra effort" hours, dollarize those hours, and direct those dollars to the appropriate place on your balance sheet as a liability, similar to how you might already treat regular accrued wages. Periodically, you can bring those dollars back to the income statement as a credit expense in an indirect pool. This reduces your pool costs, which gives the government credit for your extra work. You also won't have to adjust your billing rates in your accounting system or for proposals.

Everyone's happy, even the DCAA. That's what life's all about for government contractors, right?

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Topics: DCAA compliance, government cost accounting, DCAA audit, uncompensated overtime dcaa, uncompensated overtime

Outsourced Accounting and Cloud Computing Means Compliance

Posted by Mike Anderson on Tue, Feb 14, 2012 @ 09:02 AM

How do small businesses survive in the world today, especially when they are primarily government contractors?  The government has such a twisted path of regulations concerning contractors and then they control the amount of fee or profit that the small business can earn.  There is definately a cost in doing business with the government that many businesses don't realize when starting.  One of the constants we have noticed over the years is that experience in government contracting makes a difference.  Small businesses usually can't afford to hire someone with experience on their staff but they can hire a consultant and outsource this experience level on an "as needed" basis.  We have found that fully outsourcing back office services such as bookkeeping, accounting, payroll, contract management and even HR or purchasing can be valuable to the small business.  This allows those services to be performed by "experts" in the area and allows the members of the small business to focus on the tasks that they are experts at - thereby increasing their value to the bottom line.  A web hosted accounting system is a great tool for this scenario because both the outsourced consultant as well as company management can access the financial records at any time.  The following video outlines some of the benefits of such a web hosted solution, just imagine the cloud shared application is your accounting system!

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Topics: business consultants, Government contract consultants, DCAA compliance, Outsourced CFO

Monitor your subcontractor's Incurred Cost Submissions

Posted by Mike Anderson on Mon, Dec 12, 2011 @ 07:20 AM

Tech BizSolutions has noticed another policy change from the DCAA recently that could impact the bottom line of a small business.  One of our clients received a notice from the DCAA that indicated there will be more emphasis on subcontracts.  Specifically this emphasis will be on reviewing policies and procedures related to subcontracting.  Two areas of concern were outlined on monitoring subcontractors  and on requiring subcontractors over $700K to submit Incurred Cost Submissions either to the prime or to your ACO in accordance with FAR 52.216-7.  This has significant impact for many small businesses.   Tech BizSolutions can help any company with preparation of an Incurred Cost Submission as well as your subcontractors (just a reminder that an Incurred Cost Submission is due within 6 months from the end of a company’s fiscal year per FAR 52.216-15).  

So there are basically 2 action items required:

1.  You may need to review your Policies and Procedures to make sure you have the proper documents in place for your subcontracts and control of your subcontractors.  Tech BizSolutions can help you by performing a review and providing a “gap” analysis.  Then Tech BizSolutions can help fill in these “gaps” with standard procedures that Tech BizSolutions has developed to handle these situations. Of course, training can be supplied by Tech BizSolutions until you are comfortable that these policies and procedures are working properly to be compliant.

2.  You may need help with preparing your Incurred Cost Submission.  Now is not too early to start getting ready even though it may  not be due for 6 months.  Completing your ICE early can also help improve your positive cash flow.  To help you complete your ICE report, Tech BizSolutions has created two valuable resources to help you prepare for your ICE submission.  Use these resources to ensure you can accurately finish each Schedule from the ICE.  Click on the links below and you will be directed to our website where you can download each today!

Download your copy of “The Ice Date Requirements Checklist” here!

Download your copy of “The ICE Preparation Checklist” here!

Tech BizSolutions can help your company prepare a complete Incurred Cost Submission to ensure you remain in compliance.  Tech BizSolutions staff are experts in completing Incurred Cost Submissions.  We will complete this accurately, quickly, and in the most advantageous fashion for the needs of your company.

    Contact us today to see how we can help you with these important tasks.  In today’s government contracting environment you don’t want to have this done improperly.  Errors in Incurred Cost submissions can take money from your bottom line.  Don’t let that happen.  Call Tech BizSolutions today to see how we can help you protect your bottom line.

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    Topics: Incurred Cost Submission, DCAA compliance

    Budget Cuts, Fraud & Inefficiency Means Stricter Compliance

    Posted by Mike Anderson on Wed, Oct 12, 2011 @ 08:30 AM

    There may be a perfect storm brewing in the government contracting world that will make it harder to do business with the federal government.  It started in July of 2008 when the Government Accountability Office (GAO) issued a report that 3 of 3 DCAA audits showed inadequacies in the DCAA's performance of the audits.  This was followed up with another GAO investigation in September of 2009 that indicated a widespread problem within the DCAA organization.  As a result the DCAA went through 3 directors in a little over a year.  Major reform was announced and the DCAA is performing audits strictly to the book now, with only a "pass/fail" grade issued.  But even with this increasing dose of compliance issues for contractors, there continues to be problems.  Does it seem to you that we are hearing more about federal contractor fraud cases lately?  And then how about the case where government contractor executives are paid excessive salaries?  Many contracts suffer from cost overruns and late deliveries.  Combine all of this with the current economic crisis and the emphasis on cutting the federal budget and we have a perfect storm focused on government contractors.  What does this mean?  I think it will mean more scrutiny on government contractors, more emphasis for compliance and certainly more emphasis on performance.  There will be more difficulty for firms to survive in the government marketplace that do not meet all he compliance issues and/or that don't perform on-time and either on budget or under budget.  The contractors that can do this will be rewarded.  The contractors that cannot perform to this new standard will be rapidly pared from the market.  Companies that have an experienced staff to respond to all the government's compliance issues will prosper.  Companies that do not have significant experience in this area need to shore up that weakness.  Outsourcing this function can strengthen a company and assure survival.  Tech BizSolutions staff has the experience to offer to these companies in need of this service.  Call us today if you need to address a weakness or potential weakness.  We can help.
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    Topics: FAR, DCAA compliance, Government Contractors, DCAA, DCAA audit

    DCAA Cost Accounting Basics - Costs

    Posted by Mike Anderson on Thu, Jul 21, 2011 @ 06:32 PM

    Identifying and allocating costs on government jobs is a big part of the government's concern about the contractor's accounting systems.  The Federal Acquisition Regulations (FAR) specify that "Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type."  So the first thing you have to ask yourself as a contractor is what does this mean and how can I do this?  The first task is to itemize and segregate all of the organization's costs.  The costs are segregated into what the government terms "direct costs" and "indirect costs".  A direct cost is generally defined as a cost that is specific to the performance of only one contract.  Indirect costs are generally costs that benefit more than one contract (what you would consider Overhead & G&A) .  Next the contractor must evaluate each cost for what the government calls "reasonableness" and "allowability".  Costs are reasonable if they would be incurred by a prudent person in the conduct of competitive business.  Costs are allowable when it is reasonable, allocable, complies with Cost Accounting Standards (if applicable) - otherwise generally accepted accounting principles (GAAP), terms of the contract and are within the limitations of FAR 31.2.  Accounting practices that are inconsistent with FAR part 31.2 will result in unallowable costs.  Each direct cost must be associated with a specific cost objective (government contract).  In addition, each unallowable cost must be identified and withheld from billing to the government either as a direct cost or an indirect cost.  This results in an accounting system that is typically called a "job cost accounting system".  Obviously, the government has thrown a few more requirements into the system which can be added by knowledgeable personnel (with experience in government contracting).  This is part of what Tech BizSolutions does for small businesses. 
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    Topics: Cost Accounting, Direct Cost, Indirect Cost, Unallowable Cost, DCAA compliance

    Accounting System DCAA Adequacy

    Posted by Mike Anderson on Wed, Jul 06, 2011 @ 05:18 PM

    Over the years we have had many inquiries from government contractors about evaluating their accounting systems for adequacy before they actually undergo a DCAA audit.  This actually makes sense in today's environment.  The risks associated with failing a DCAA audit are greater today than they were even 5 years ago.  The DCAA is also less forgiving today than it was 5 years ago and the combination can have a disastrous impact on a small government contractor.  (Actually it can have a bad impact on a large government contractor too).  The risks of failing the audit include delayed payments (cash flow problems can be the "kiss of death for a small business"), reduced  contract opportunities and even barred from further contracting with the government.  So it makes sense to evaluate your system prior to the DCAA evaluating the system, identify gaps in compliance and then fixing these gaps.  Then you can feel confident that when the DCAA does come in to audit the system that it will pass.  Any system evaluation (we call this an Adequacy Audit) should include a look not only at the accounting system but also a look at the written policies and procedures, the timekeeping system, the purchasing system, indirect rate determinating system and the invoicing system.  This simple evaluation and resulting corrective actions could save many government contractors the pain and problems of failing a DCAA audit.  Visit the Tech Biz Adequacy Audit page to learn more.
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    Topics: DCAA compliance, DCAA audit, Adequacy Audit

    Government Contracting not getting any easier

    Posted by Mike Anderson on Thu, Oct 14, 2010 @ 01:45 PM

    Many of our clients have noticed a "different" DCAA recently.  Other clients have noticed that there is a difference in their subcontracts with major primes.  All of them don't understand how they could have been doing the same type of contracting in the past without this type of scrutiny and why has that changed?  Well, we have to go back about 18 months.  The DCAA was audited by the Government Accountability Office (GAO) and found to have errors in their audits.  A second review by the GAO disclosed further and more widespread problems.  Then the Senate got involved (Homeland Security and Government Affairs Committee) and the DCAA came under close scrutiny.  Shortly thereafter, the head of the DCAA was dismissed.  To make a long story short, the DCAA has come under intense scrutiny and criticism over the last 18 months.  Many changes have been implemented at the suggestion of everyone in authority.  Ok, but what does that mean?  It means that the DCAA's reaction is also severe.  The DCAA is following all the regulations (FAR, CAM, GAGAS, and more) to the letter.  As a matter of fact, some of the GAO criticism and Senate committee criticism centered on the fact that DCAA supervisors over-rode auditor findings and recommendations.  Other findings centered on audits being done too fast without focusing on the quality of the audits.  The DCAA response is obviously to hire more auditors so that they won't fall further behind, while doing more thorough audits.  The other obvious change is that DCAA audit supervisors are resistant to over-ride an auditor's finding.  Well, if the auditor is not using common sense or is just "off-base", it is not getting thrown out like before.  Likewise, previously the DCAA auditor would provide an audit report that "passed with some recommendations".  Today the contrator either passes or fails the audit, no more intermediate grades.  This means compliance is harder, especially for smaller businesses.  This trend is likely to continue for some time.  Contractors will find it more difficult to comply with all the rules, especially if they are not fully accustom to the government regulations.  Government contracting is becoming more difficult.  Most contractors either need to have an "expert" on staff or they need to outsource expertise to insure compliance.  
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    Topics: government contracting, DCAA compliance, DCAA, DCAA audit

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