Building a Successful Building a Successful Foundation for DCAA Foundation for DCAA

ComplianceComplianceLarry Mocniak – CFOLarry Mocniak – CFO

Phoenix Phoenix InternationalInternational

K.D. “Ken” Bricker, Senior K.D. “Ken” Bricker, Senior PartnerPartner

Goodman & Company, LLPGoodman & Company, LLP

Microsoft Government Contractor SummitMicrosoft Government Contractor Summit

5-200 Section 2 --- Preaward 5-200 Section 2 --- Preaward Surveys of Prospective Surveys of Prospective

Contractor Accounting SystemsContractor Accounting Systemsand Post Contract Award and Post Contract Award

Accounting System AuditsAccounting System Audits

DCAA CONTRACT AUDIT DCAA CONTRACT AUDIT MANUALMANUAL

5-202 Preaward Survey of a Prospective Contractor's 5-202 Preaward Survey of a Prospective Contractor's Accounting SystemAccounting System

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

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

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

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

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

DCAA CONTRACT AUDIT MANUALDCAA CONTRACT AUDIT MANUAL

5-203 Post Contract Award Accounting System Audits5-203 Post Contract Award Accounting System Audits

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

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

DCAA CONTRACT AUDIT MANUALDCAA CONTRACT AUDIT MANUAL

5-204 Audit Reports5-204 Audit Reports

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

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

DCAA CONTRACT AUDIT MANUALDCAA CONTRACT AUDIT MANUAL

General Accounting

Budgeting

ReportWriter

s

Payroll/HRCustomerAddress

Job CostAccounting

DATA BASEDATA BASE

AccountsPayable

AccountsReceivable

FixedAssetsFixedAssets

Purchasing

Contract/Service Invoicing

Contract Change

Management

Contract Change

ManagementTime Entry/PR/HR

Dynamics SL 6.5 TechnologyDynamics SL 6.5 Technology COMPANY has established a COMPANY has established a

standard for managing the standard for managing the labor and O.D.C. associated labor and O.D.C. associated with government and with government and commercial contracts for commercial contracts for effective accounting and effective accounting and management utilizing management utilizing Microsoft's Dynamics SL Microsoft's Dynamics SL software.software.– Dynamic SL SystemDynamic SL System

• Financial ReportingFinancial Reporting• Project ReportingProject Reporting• Time & AttendanceTime & Attendance• Labor DistributionLabor Distribution• Rate StructuresRate Structures• PurchasingPurchasing• Contract ManagementContract Management

New SystemNew System

Introduction to theIntroduction to theChart of AccountsChart of Accounts

SetupSetup

•DivisionDivision

•Project NumbersProject Numbers

•Natural Account StructureNatural Account Structure

•Work Breakdown Work Breakdown Structures (WBS) / TaskStructures (WBS) / Task

Chart Of AccountChart Of Account•What is it?What is it?•Why is it Why is it used?used?

•How it is How it is used?used?

CHART OF ACCOUNTSCHART OF ACCOUNTS

What is it?What is it?•Chart of Accounts is a list of Chart of Accounts is a list of

Numbers and Names Numbers and Names arranged in the order in arranged in the order in which they customarily which they customarily appear on Financial appear on Financial Statements & ReportsStatements & Reports

Why is it used?Why is it used?• To collect financial data based on cost To collect financial data based on cost

objectiveobjective

• Project Job Cost ReportsProject Job Cost Reports

• To create Financial Statements and To create Financial Statements and Management reportsManagement reports

• To retrieve historic dataTo retrieve historic data

• Trend AnalysisTrend Analysis

• Financial Planning (budgeting)Financial Planning (budgeting)

• To compare Actual expenses to Planned To compare Actual expenses to Planned expensesexpenses

How is it How is it used?used?

• Project Job CostingProject Job Costing

• Labor Tracking/Time Labor Tracking/Time SheetsSheets

• InvoicingInvoicing

• Vendor InvoicesVendor Invoices

• Expense ReportsExpense Reports

• Purchase OrdersPurchase Orders

DYNAMICS SL DYNAMICS SL Chart of Accounts Chart of Accounts

IntroductionIntroduction

• NATURAL ACCOUNT STRUCTURE NATURAL ACCOUNT STRUCTURE • PROJECT NUMBERSPROJECT NUMBERS• WORK BREAKDOWN STRUCTURE WORK BREAKDOWN STRUCTURE

(WBS) / TASK (WBS) / TASK

Natural Account Prefix Natural Account Prefix ValueValue

•4XXX = Revenue4XXX = Revenue•5XXX = Direct Cost5XXX = Direct Cost•7XXX = Overhead7XXX = Overhead•8XXX = G & A8XXX = G & A

4 Characters Numeric4 Characters Numeric

Direct Cost O/H G & A ACCOUNT DESCRIPTION Allow Post5XXX 7XXX 8XXX NO5170 7170 8170 TRAVEL EXPENSE NO5171 7171 8171 Air Fares YES5172 7172 8172 Meals YES5173 7173 8173 Lodging YES5174 7174 8174 Rental Cars YES5175 7175 8175 Taxi / Mileage YES5176 7176 8176 Travel Other YES5181 7181 8181 Air Fares - Unallowable YES5182 7182 8182 Meals - Unallowable YES5183 7183 8183 Lodging - Unallowable YES5240 7240 8240 LICENSES & FEES NO5241 7241 8241 Permits YES5242 7242 8242 Licenses & Fees Other YES5243 7243 8243 Fines & Penalties-Unallowable YES5310 7310 8310 COMMUNICATIONS NO5311 7311 8311 Telephone YES5312 7312 8312 Mobile Phones/Pagers YES5313 7313 8313 Leased Data Lines YES5314 7314 8314 Internet Services YES5315 7315 8315 Satellite Services YES5319 7319 8319 Communications - Other YES

Natural Account Numbering System (Chart of Natural Account Numbering System (Chart of Account)Account)

Common 3 digit code• 5XXX = Direct 5XXX = Direct

CostCost

• 7XXX = 7XXX = OverheadOverhead

• 8XXX = G & A8XXX = G & AUNALLOWABLE TRACKING

Vocabulary/TerminologyVocabulary/Terminology

• Project/Department Number = 6 Digit Number used to capture financial Project/Department Number = 6 Digit Number used to capture financial data data

EXAMPLE: Main Project Number = 061234EXAMPLE: Main Project Number = 061234 EXAMPLE: Accounting Department Number = 101EXAMPLE: Accounting Department Number = 101

• Natural Account = 4 Digit Number used to captured cost by cost objective.Natural Account = 4 Digit Number used to captured cost by cost objective. EXAMPLE: Direct Charge Office Equipment = 5081EXAMPLE: Direct Charge Office Equipment = 5081

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

• Work Break Down Structure = up to a 4 Digit Alpha/Numeric used to Work Break Down Structure = up to a 4 Digit Alpha/Numeric used to captures cost bycaptures cost by

Work EXAMPLE: = 2000Work EXAMPLE: = 2000

PLEASE NOTE THAT ALL DEPARTMENTS WILL USE “0000” FOR THE WBS CODEPLEASE NOTE THAT ALL DEPARTMENTS WILL USE “0000” FOR THE WBS CODE

Please note that all Natural Accounts in Capital letters are non chargeable Please note that all Natural Accounts in Capital letters are non chargeable account.account.

• Project = 061234Project = 061234

• Rental of a training facility = Nat. Acct 5334Rental of a training facility = Nat. Acct 5334

• WBS/TASK = 2000WBS/TASK = 2000

Coding would look like thisCoding would look like this

061234 - 5334 - 2000061234 - 5334 - 2000

Example of Charge Example of Charge CodeCode

Project #

Natural AcctWBS/TASK

Example of Charge Example of Charge CodeCode

• Accounting/Finance = Dept #101Accounting/Finance = Dept #101

• Office Supplies = Nat. Acct 8112Office Supplies = Nat. Acct 8112

• BLANK WBS/TASK = 00000 BLANK WBS/TASK = 00000

Coding would look like thisCoding would look like this

101-8112-0000101-8112-0000

Dept #

Natural AcctWBS/TASK

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

Account StructureAccount Structure

Cash

Operating supplies

Div.product

Cell Phones

Benefits

Revenuetravel

5350 7350 8350 UTILITIES NO5351 7351 8351 Electric YES5352 7352 8352 Water YES5353 7353 8353 Gas YES5354 7354 8354 Refuse Removal YES5400 7400 8400 COMPUTERS NO5401 7401 8401 Work Stations YES5402 7402 8402 Printers/Other Hardware YES5403 7403 8403 PC Supplies YES5404 7404 8404 Hardware Maintenance YES5405 7405 8405 Software YES5406 7406 8406 Servers YES5407 7407 8407 Communication Equip SFW/HDW YES5408 7408 8408 Outsourcing Fees YES5409 7409 8409 Software Maintenance YES5410 7410 8410 Systems Consulting YES5420 7420 8420 FREIGHT NO5421 7421 8421 Freight YES5422 7422 8422 Messenger/Courier YES5423 7423 8423 Freight - Other YES

POOLS

OverviewOverview

• Capture financial Capture financial datadata

• Project ReportingProject Reporting

• Sort Data based on Sort Data based on Mgmt RequirementsMgmt Requirements

• Customized Mgmt Customized Mgmt ReportReport

Department

Cash

Operating supplies

Regionproduct

Cell Phones

Benefits

Revenue

travel

RATE POOLSRATE POOLS

Company Name

SINGLE FRINGE POOL

OVERHEAD RATESMultiple Locations

G&A RATE

Location1

Location 2

Location 3

Location 4

Location 5

Location 7

Location 6

Great follow-on productGreat follow-on product ImageLink ImageLink

• Great follow-on productGreat follow-on product

• ImageLink provides quick access ImageLink provides quick access to all accounting support recordsto all accounting support records

• Document access is available Document access is available fromfrom– within Solomon IV (native within Solomon IV (native

ImageLink)ImageLink)– a user’s desktop (optional a user’s desktop (optional

Super Search)Super Search)

System System SummarySummary

• Chart of Accounts is designed to capture Chart of Accounts is designed to capture cost by cost by cost objectivecost objective. .

• Used as a Project Management tool Used as a Project Management tool • Overhead & G&A Rate CalculationsOverhead & G&A Rate Calculations• Track Allowable and Unallowable CostTrack Allowable and Unallowable Cost• Time & AttendanceTime & Attendance• Labor DistributionLabor Distribution• Customizing of Management ReportCustomizing of Management Report• Financial PlanningFinancial Planning• Actual Cost Vs Planned CostActual Cost Vs Planned Cost• Most Importantly is to have a Solid Most Importantly is to have a Solid

Integrated Business SystemIntegrated Business System

Accounting ManualAccounting Manual• 12.0            Expense Reports12.0            Expense Reports

– 12.1           Travel12.1           Travel– 12.2           Reimbursement12.2           Reimbursement

• 13.0            Purchase Orders13.0            Purchase Orders 14.014.0 FAR Part 31 – Contract Cost Principles and ProceduresFAR Part 31 – Contract Cost Principles and Procedures  

FAR -- Part 31FAR -- Part 31

Contract Cost Principles and ProceduresContract Cost Principles and Procedures

(FAC 2001-04)(FAC 2001-04)8 February 20028 February 2002

31.000 -- Scope of Part.31.000 -- Scope of Part.This part contains cost principles and procedures for --This part contains cost principles and procedures for --(a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts (a) The pricing of contracts, subcontracts, and modifications to contracts and subcontracts

whenever cost analysis is performed (see ); andwhenever cost analysis is performed (see ); and(b) The determination, negotiation, or allowance of costs when required by a contract clause.(b) The determination, negotiation, or allowance of costs when required by a contract clause.31.001 -- Definitions.31.001 -- Definitions.As used in this part --As used in this part --Accrued benefit cost method means an actuarial cost method under which units of benefits are 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 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 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 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 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 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 credited to employees for service prior to that date. (This method is also known as the unit credit cost method without salary projection.)credit cost method without salary projection.)

““Accumulating costs” means collecting cost data in an organized manner Accumulating costs” means collecting cost data in an organized manner

THE DEFENSE CONTRACT AUDIT THE DEFENSE CONTRACT AUDIT AGENCYAGENCY

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

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

other Government Agencies.other Government Agencies.

SERVICES “TO CONTRACTING SERVICES “TO CONTRACTING OFFICERS”OFFICERS”

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

• Preaward Contract Audit ServicesPreaward Contract Audit Services• Price Proposals Price Proposals • Preaward Surveys Preaward Surveys • Forward Pricing Labor & Overhead Rates Forward Pricing Labor & Overhead Rates • Postaward Contract Audit ServicesPostaward Contract Audit Services• Incurred Costs/Annual Overhead Rates Incurred Costs/Annual Overhead Rates • Truth in Negotiation Act Compliance Truth in Negotiation Act Compliance • CAS (Cost Accounting Standards) Compliance & Adequacy CAS (Cost Accounting Standards) Compliance & Adequacy • Claims Claims • Financial Capability Financial Capability • Contractor Internal Control System AuditsContractor Internal Control System Audits• Accounting Accounting • Estimating Estimating • EDP (Electronic Data Processing) EDP (Electronic Data Processing) • Compensation Compensation • Billing Billing • Budgeting Budgeting • Material Management Material Management • Labor Labor • Purchasing Purchasing • Indirect and Other Direct Cost Indirect and Other Direct Cost

AUTHORITY TO AUDITAUTHORITY TO AUDIT• Examination of costs. Examination of costs. If this is a cost-reimbursement, incentive, If this is a cost-reimbursement, incentive,

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

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

related to negotiating;related to negotiating;– (3) Pricing of the contract, subcontract, or modification; or(3) Pricing of the contract, subcontract, or modification; or– (4) Performance of the contract, subcontract or modification.(4) Performance of the contract, subcontract or modification.

PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR ACCOUNTING SYSTEMACCOUNTING SYSTEM

• SF 1408SF 1408– Is the accounting system in accordance with GAAP?Is the accounting system in accordance with GAAP?– Accounting System Provides for:Accounting System Provides for:

• Proper segregation of direct costs from indirect costsProper segregation of direct costs from indirect costs• Identification and accumulation of direct costs by contractIdentification and accumulation of direct costs by contract• A logical and consistent method for the allocation of indirect A logical and consistent method for the allocation of indirect

costs to intermediate and final cost objectivescosts to intermediate and final cost objectives• Accumulation of costs under general ledger controlAccumulation of costs under general ledger control• A timekeeping system that identifies employees labor by A timekeeping system that identifies employees labor by

intermediate or final cost objectivesintermediate or final cost objectives• A labor distribution system that charges direct and indirect A labor distribution system that charges direct and indirect

to the appropriate cost objectivesto the appropriate cost objectives• Interim (at least monthly) determination of costs charged to Interim (at least monthly) determination of costs charged to

a contract through routine posting of books of accounta contract through routine posting of books of account• Exclusion from costs charged to government contracts of Exclusion from costs charged to government contracts of

amounts which are not allowable in terms of FAR 31amounts which are not allowable in terms of FAR 31• Identification of costs by contract line item and units if Identification of costs by contract line item and units if

requiredrequired• Segregation of preproduction from production costsSegregation of preproduction from production costs

PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR PREAWARD SURVEY OF PROSPECTIVE CONTRACTOR ACCOUNTING SYSTEM (Continued)ACCOUNTING SYSTEM (Continued)

• Accounting System Provides Financial Accounting System Provides Financial Information:Information:– Required by contract clauses concerning Required by contract clauses concerning

limitation of cost or limitation on paymentslimitation of cost or limitation on payments– Required to support requests for progress Required to support requests for progress

payments Accountingpayments Accounting

• Is the accounting system designed, and are Is the accounting system designed, and are the records maintained in such a manner the records maintained in such a manner that adequate, reliable data are developed that adequate, reliable data are developed for use in pricing follow on acquisitions?for use in pricing follow on acquisitions?

• Is the accounting system currently in full Is the accounting system currently in full operation?operation?

© 2006 Microsoft Corporation. All rights reserved.© 2006 Microsoft Corporation. All rights reserved.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.This presentation is for informational purposes only. Microsoft makes no warranties, express or implied, in this summary.

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