accounting for federal contractors - amazon s3 · 2019-05-07 · score services score, a national,...
TRANSCRIPT
Accounting
for Federal Contractors
SCORE Chapter One – Washington DC Metro Area
washingtondc.score.org 202-619-1000
SCORE Services
SCORE, a national, non-profit Association with over 13,000 volunteers in 364 chapters, is a resource partner of the US SBA. SCORE Chapter One has 50 Mentors, with diverse business and industry backgrounds, across the D.C. Area.
SCORE offers the following services:
• Low-cost workshops - washingtondc.score.org
• Individual free one-on-one counseling/mentoring
• Online workshops, tools, and more at www.score.org
SCORE teams provide counseling to assist you to:
• Increase the value of your business
• Identify and solve operating problems
• Recognize and capitalize on new business opportunities
• Develop business plans
• Find sources and qualify for financing
Workshop Agenda
• Introductions
• Costs
• Contract Types • Firm Fixed Price
• Time & Materials
• Cost Plus
• Pricing Concepts
• DCAA Introduction
• Cash Management
INTRODUCTIONS
NeoSystems Overview
# Of Clients
Leading Back Office Service Provider for:
• Government Contractors • Nonprofit and Trade Associations • Commercial and Federal Divisions
(Enterprise)
Alliance and Partner Network • Leading Deltek Platinum Partner • NetSuite BPO and Solution Provider • Citrix and VMWare Certified Solution
Provider
Comprehensive Suite of Strategic Back Office Services Accounting Association and Member Management Financial Planning & Analysis Human Capital and Recruiting Management IT Infrastructure, Hosting and Security Consulting and Training Systems Integration and Implementation Governance and Compliance
Workshop Instructor
Marty Herbert
Director, Business Process Automation
18+ years of government contracting experience including 5 years
with DCAA on financial and technical/operations audit teams
First Tip: In addition to the Information for Contractors guide, DCAA offers
targeted information to assist with audit issues that relate to small businesses.
ACTIVITY #1
Intros
Compliant Accounting System
Pre Award Post Award Contracting office will conduct a preaward survey to consider the accounting system of the prospective contractor
DFARS defines an acceptable accounting system and subsystems that may be involved
Design of the accounting system is part of the PreAward Survey (SF1408)
FAR and DFARS require: • Segregation of direct from
indirect costs • Total costs = Direct + Indirect • Allowability of costs • Reasonableness • Allocability
You should be prepared to demonstrate how the accounting system satisfies the criteria of the SF1408
COSTS
Cost vs. Price
• Cost – The actual costs incurred or realized in the manufacture of a
product of the providing of a service. “Cost” is the actual amounts paid for the necessary elements of providing a good or service, such as labor, factory overheads, cost of materials, and other relevant support costs.
• Price – Whatever a consumer of a Good or Service is willing to pay
for that Good or Service – or conversely - whatever a provider of a Good or Service is able to charge a consumer for that Good or Service, dictated by the market
Misrepresenting Costs
• Falsifying, concealing, or covering up via:
• Statements or representation of costs incurred
• Making or using any false writing or
documentation
• Penalties
• Fines
• Imprisonment
• Ability to contract with the government
Cost and Pricing Principles
• Reimbursable Costs:
• Allowable
• Reasonable
• Allocable
• Total Costs:
• Direct Costs
• Indirect Costs
Allowability (FAR 31.201-2)
• A cost is allowable only when it complies
with the following:
– Reasonableness
– Allocability
– Terms of the Contract
– Applicable Cost Accounting Standards
– FAR 31.205
Reasonableness (FAR 31.201-3)
• A cost is reasonable if:
– In its nature and amount, it does not exceed
that which would be incurred by a prudent
person in the conduct of competitive business
• It is your responsibility to establish that a
cost is reasonable.
Allocable (FAR 31.201-4)
• A cost is allocable to a government contract if it:
– Is incurred specifically for the contract,
– Benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefit received, OR
– Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.
Direct Costs
• Any cost which is identified specifically with
a particular cost objective on a contract
• Charge directly to the contract
• Cannot have been included in any indirect
cost pool
Direct Costs (continued)
• Examples • Direct labor
• Direct travel
• Consultants
• Subcontractors
• Materials
• Exceptions • Some administrative duties if large workload
• Lowers G&A/Increases direct costs
Indirect Costs
• Found in FAR 31.203
• Any cost not directly identified with a single, final cost objective, but identified with two or more final cost objectives
• After direct costs have been determined and charged directly to the contract or other work, indirect costs are those remaining to be allocated to the several cost objectives
ACTIVITY #2
Fruits and Veggies
Indirect Costs and Rate Calculation
• Fringe Benefits
• Overhead costs
• General & Administrative (G&A) costs
Rate Calculation
Indirect Cost Pool = Indirect Rate
Indirect Cost Base
Fringe Benefit Costs
• Any employer paid payroll tax
• Employer provided insurance
• Paid Time Off (PTO)
• Other employee benefits
Fringe Benefits Cost Pool
• Employer portion of FICA (Social Security & Medicare)
• Federal & State Unemployment Insurance
• Worker’s Compensation Insurance
• Health and life insurance
• PTO, sick leave, & comp time
• Holidays
• 401K Match
• Bonus payouts*
Fringe Benefits Cost Base
• Total Productive Labor
• All wages excluding PTO, sick leave, holidays,
etc.
• Includes:
• Direct, Overhead, and G&A labor
• Business Development/Bid & Proposal labor
• Material Handling labor
Overhead Costs
• All costs not charged directly to a contract
• These costs are typically:
• Incurred for more than one contract
• In support of contracts
Overhead Cost Pool
• Indirect labor and supervision (not charged direct)
• Employee related expenses
• Training Costs
• Indirect travel
• Indirect materials
• Office supplies
• Postage and shipping
Overhead Cost Pool (continued)
• Fixed charges
• Depreciation
• Rent
• Utilities
• Internet
• Electricity
Typical Overhead Cost Base
• Direct Labor dollars PLUS Fringe Benefits
• Unless manufacturing business
• Complex
• Additional variables used as base cost
General & Administrative Costs
• Any general management, financial,
administrative labor, or other expense
• Incurred for the benefit of the Corporation
as a whole
G&A Cost Pool
• Administrative & executive expenses
• Legal, accounting, public relations, & financial services
• Business insurance
• Other taxes, e.g. BPOL
• Independent research & development*
• Bid & proposal**
• Other miscellaneous
Typical G&A Cost Base
• Total Cost Input (TCI)
• Total cost excluding G&A expenses
• Examples
• All direct costs
• Total fringe and overhead costs combined
Rate Build Up
Salary 100,000.00
• Raw Labor $48.08
• Fringe 32%= $15.39
• Overhead 24%= $15.23
• G&A 8%= $6.29
• TOTAL COST= $84.99
• Fee 10% = 8.49
• TOTAL BILL RATE = $93.48
WRAP RATE = 1.944 x Fee Percentage
(DL + FB + O/H + G&A) x Fee % = Amount
x General and Administrative (G&A) Rate
(DL + FB + O/H) x G&A = Amount
x Overhead (O/H) Rate
(DL + FB) x O/H = Amount
Direct Labor (DL) x Fringe Benefits (FB) Rate
DL x FB = Amount
What is Your Basis for Support?
• Supporting schedules?
• Spreadsheets?
• Reports?
• Written Descriptions?
• Have a detailed explanation of:
• How costs are classified and accounted for
• How indirect rates are calculated
Keys to Cover Yourself • Get everything in writing
• Brief your contracts
• Exclude unallowable costs from submissions
• Provide support for all costs
• Notify CO/DCAA of policy changes
• Report any updated info prior to final negotiation
• Consistency
• Maintain files on activity after award
• Use FAR as guide
• Adequate accounting system
CONTRACT TYPES AND
PRICING CONCEPTS
Contract Types
• Firm Fixed Price (FFP)
• Cost-Plus Award/Fixed Fee (CPAF/CPFF)
• Time & Materials (T&M)
Government Contract Spending
Small Business Spending
Contract Type Risks – Govt Perspective
Fixed-Price T&M Cost-Reimbursements
FFP FPI CPAF CPFF
Seller’s(Contractor) Risk
(High) (Low)
(Types of Contracts)
Firm Fixed Price (FFP) Contracts
• When definite performance specifications
are available
• Set price for work to be done
• Found in FAR 16.202-2
FFP Contract Benefits
• Maximum profit potential
• Incentive to
• Control costs
• Improve profits
• Deliver on-time
• Pricing is typically less complex
FFP Contract Risks
• Contractor assumes full cost responsibility
• Both labor and materials
• Lowest price, technically acceptable
• High performance and schedule risk
FFP Contract Best Practices
• In bidding process, know the impacts of ALL
contract requirements and specifications
• Be EXACTLY sure work can be completed
for proposed hours/costs
• Prevent any subcontractor overrun
Time & Materials (T&M) Contracts
• Suitable for use when Seller cannot
accurately estimate the:
• Extent of work
• Duration of work
• Or anticipate costs with any reasonable degree
of confidence
• Found in FAR 16.601
T&M Contract Risks
• Wide Salary variations within labor grades,
salary may not cover costs (provisional
Rates)
• Internal rate changes can increase labor
costs, reduce profit over time
• Can be difficult to staff projects and quickly
respond to customer requirements
T&M Contracts – Neo Tips
• Propose higher than normal rates if highly
skilled/paid talent (esp. key personnel) is
required for the task
• Ensure forward pricing rates cover average
of future costs including reasonable profit
• If hours are limited in contract, limit total
hours, and not by labor category
Cost-plus Fixed Fee (CPFF) Contracts
• Used only when uncertainties involved in
contract performance do not permit costs to
be estimated with sufficient accuracy to use
in FFP type (FAR 16.301-2)
• Allowable profit limited to 2-8%
CPFF Contract Benefits
• Recoup all allowable direct and indirect
costs associated with contract
• Some flexibility when estimating costs
CPFF Contract Risks
• Government not obligated to reimburse contractor for costs in excess of estimates
• Must notify CO if cost estimates change
• Subject to:
• DCAA audits (System and financials)
• Incurred Cost Submissions
• Must ensure costs/billings are in-line with estimates
CPFF Best Practices
• Watch contract costs and funding VERY
closely!
• Notify CO of needed funding so that there is no
need for risk funding
• Monitor contract for scope creep
• Work off of provisional rates and adjust each
year
• Notify CO and DCAA of changes to indirect
rate structures or policies and procedures
• No “Fee on top of Fee”
Cost-plus Award Fee (CPAF) Contracts
• Suitable where mission feasibility is
established, but measurement of
performance/achievement is usually
subjective (FAR 16.405-2)
• Allowable profit limited to 2-8%
CPAF Contract Benefits
• Award Fee may be earned in whole or in
part during contract performance (FAR
16.405-2(a))
• Recoup all allowable direct and indirect
costs associated with contract
• Some flexibility when estimating costs
CPAF Contract Risks
• If performance is unsatisfactory or marginal, no award fee
• Award fee determination and amount are unilateral decisions made solely at the discretion of the customer
• Not subject to appeal
• Subject to:
• DCAA audits
• Incurred Cost Submissions
CPAF Contract Best Practices
• Maintain satisfactory performance throughout contract • Could result in early award fee
• Watch contract costs and funding closely!
• Notify CO of needed funding so that there is no need for risk funding
• Work off of provisional rates and adjust each year
• Notify CO and DCAA of changes to indirect rate structures or policies and procedures
ACTIVITY #3
Contract Scenario Illustration
The U.S. Army wishes to procure a WIDGET from ECDC, Inc. on a Firm
Fixed Price Basis ECDC charges $103,500 (Price) and the Army agrees to
pay $103,500
Total Cost
Profit
Price
Profit as % of Cost =
Profit as % of Price =
Army Pays
ECDC Makes (Looses)
85,000
18,500
$ 103,500
21.7%
17.87%
$ 103,500
$ 18,500
$ 98,000
5,500
$ 103,500
5.6%
5.3%
$ 103,500
$ 5,500
$ 118,000
(14,500)
$ 103,500
(-12.2%)
(-14.0%)
$ 103,500
($14,500)
$ 90,000
13,500
$ 103,500
15%
13.1%
$ 103,500
$ 13,500
ECDC Estimate
@ Proposal Scenario 1
Actual Performance
Scenario 2 Scenario 3
Comparative Illustration
Estimated Cost
FCCM
Fixed Fee
Total CPFF (Price)
Profit as % of Cost =
Profit as % of Price =
Army Pays
ECDC Makes (Looses)
85,000
900
9,000
$ 94,900
10.59%
9.53%
$ 94,900
$ 9,000
$ 98,000
1,100
9,000
$ 108,100
9.1%
8.32%
$ 108,100
$ 9,000
$ 118,000
1,300
9,000
$ 128,300
7.6%
7.0%
$ 128,300
$9,000
$ 90,000
1,000
9,000
$ 100,000
10%
9%
$ 100,000
$ 9,000
ECDC Estimate
@ Proposal Scenario 1 Actual Performance
Scenario 2 Scenario 3
Although the Cost of Performance (Price) Increases, Fee Remains the same
(Fixed), as Cost of Performance Increases, Fee as Margin Decreases
Comparative Illustration
The U.S. Army wishes to procure a WIDGET from ECDC, Inc. on a Cost
Reimbursable Basis ECDC has an estimated Cost Plus Fixed Fee of
$100,000
Pricing Principles – Why We Price
GOALS • Cash Flow
• Profits
• Growth
• Past Performance
• Market Share
Credible Characteristics of Pricing
• Clear identification of task(s)
• Broad participation in pricing preparation
• Availability of valid data
• Standardized structure for estimating
• Recognition of inflation
• Recognition of excluded costs/burdens
• Revision of pricing estimates for significant program changes
ACTIVITY #4
Pricing Sources
Sources for Pricing Basic Primary and Secondary Data Sources
DATA Primary Secondary
Accounting Records X
Cost Reports X
Historical Databases X X
Labor Distribution Reports X X
Indirect Cost Reports X X
Contract Briefs X X
Contract Backlog X X
Subject Matter Experts X X
Recruiting X X
Technical Databases X X
Contract Estimates X
Cost Proposals X
Focus Groups X
Research Papers X
Competitor Intel X
Surveys X
Major Risks in Contract Pricing
Uncertainty and risk in contract pricing arise from the following sources:
• Lack of buyer understanding in RFP requirements
• Different interpretation of language
• Haste
• Deception
• Poor cost estimating and pricing practices
Rate Build Up
Salary 100,000.00
• Raw Labor $48.08
• Fringe 32%= $15.39
• Overhead 24%= $15.23
• G&A 8%= $6.29
• TOTAL COST= $84.99
• Fee 10% = 8.49
• TOTAL BILL RATE = $93.48
WRAP RATE = 1.767 x Fee Percentage
(DL + FB + O/H + G&A) x Fee % = Amount
x General and Administrative (G&A) Rate
(DL + FB + O/H) x G&A = Amount
x Overhead (O/H) Rate
(DL + FB) x O/H = Amount
Direct Labor (DL) x Fringe Benefits (FB) Rate
DL x FB = Amount
Pricing Build Up Matrix
Escalation: 3.5%
Labor Cost Build-up Matrix
Company – Labor Categories Salary Hourly Rate
Fringe
@35.39%
OH @
10.32%
G&A @
16.80% Fee @ 6%
Fully
Loaded
Project Manager $150,000 $72.12 $25.52 $10.08 $18.10 $7.55 $133.36
Senior Application Architect $155,000 $74.52 $26.37 $10.41 $18.70 $7.80 $137.80
Senior Sharepoint Developer $145,000 $69.71 $24.67 $9.74 $17.49 $7.30 $128.91
Intermediate Application Developer $120,000 $57.69 $20.42 $8.06 $14.48 $6.04 $106.69
Senior Application Developer $145,000 $69.71 $24.67 $9.74 $17.49 $7.30 $128.91
Infopath Developer $115,000 $55.29 $19.57 $7.73 $13.87 $5.79 $102.24
Web Developer $100,000 $48.08 $17.01 $6.72 $12.06 $5.03 $88.91
Business Analyst $100,000 $48.08 $17.01 $6.72 $12.06 $5.03 $88.91
Pricing Matrix - Burdened
Company – Labor Categories Company
Base
Period
Option
YR1
Option
YR2
Option
YR3
Option
Y4
Project Manager ABC COMPANY $133.36 $138.03 $142.86 $147.86 $153.03
Senior Application Architect ABC COMPANY $137.80 $142.63 $147.62 $152.78 $158.13
Senior Sharepoint Developer ABC COMPANY $128.91 $133.42 $138.09 $142.93 $147.93
Intermediate Application Developer ABC COMPANY $106.69 $110.42 $114.28 $118.28 $122.42
Senior Application Developer ABC COMPANY $128.91 $133.42 $138.09 $142.93 $147.93
Infopath Developer ABC COMPANY $102.24 $105.82 $109.52 $113.36 $117.32
Web Developer ABC COMPANY $88.91 $92.02 $95.24 $98.57 $ 102.02
Business Analyst ABC COMPANY $88.91 $92.02 $95.24 $98.57 $102.02
Provisional Rate Pricing
• Utilized for both pricing and billing
• Must be reconciled to actual rates at contract closeout for Cost-plus contracts
• Audited by DCAA • Baseline frame of reference for auditors reviewing
proposals and billings
• Used for billing existing contracts and for pricing new work
• Any change must be supported by data regarding actual running rate experience • May start a series of questions by DCAA
Provisional Rate Pricing (continued)
Actuals:
SALARY = $100,000
Hourly Rate= $48.07
Fringe Rate 30%= $14.42
OH Rate 25%= $15.62
G&A Rate 9%= $7.03
Fully Burdened Rate= $85.14
Wrap rate of 1.77
Provisional Rate:
SALARY = $100,000
Hourly Rate= $48.07
Fringe Rate 28%= $13.46
OH Rate 15%= $9.23
G&A Rate 8%= $5.66
Fully Burdened Rate= $76.42
Wrap rate of 1.59
Advantages
• More competitive pricing
• Advanced capabilities in estimating and
forecasting
• Being able to compare Actuals vs. Target
rates
• Ability to monitor and control costs
• DCAA interaction
Best Practices – Cost Volume
• Follow directions!
• Follow directions!
• Follow directions!
DCAA INTRODUCTION
Audit Types and Tips on Staying Ahead
General Areas of Interest for DCAA Audits
• All activities related to proposed or incurred costs
• Indirect Rate Structures
• Contract and Invoicing Files
• Provisional Rate Submittals
• Financial Policies, Procedures, and Internal Controls
• Opportunities to reduce or avoid costs
Tips on Staying Ahead
• Request a list of items to prepare
• Request an estimated time frame/length
• Know your basis of support
• Document audit log
• Contract terms & Conditions
• Ability to provide supporting schedules and other documentation in detail
• Request a copy of audit report
CASH MANAGEMENT, CASH
FORECASTING
What is Cash Flow?
Cash in (Inflow) • Cash from credit card sales
• Receivables
• Interest Income
• Rebates/Refunds
• Line of Credit
• Other Financing
Cash out (Outflow)
• Payroll
• Benefits
• SUBKs/Consultants
• Rent
• Utilities
• Office Expenses
• Asset Purchases
• Debt Payments
including interest
Common Question: Why is my cash balance negative when my income statement shows profit?
Cash Flow Forecast Benefits and
Best Practices
Benefits
• Short and long-term visibility to demands
• Forecast alerts you when you will potentially have a cash shortfall
• Ability to manage your business more effectively
Best Practices
• Living document - maintain and update regularly short term & long term forecasts
• Weekly, semi-monthly, monthly, and annually
• Daily monitoring
Cash Flow Forecast Methods
Projecting revenue and expenses
• Use historical trends
• Take a conservative approach when
projecting cash inflow • Utilize your AR to determine how often receivables
are paid(e.g., 65% paid within 30 days, 30% paid
within 60 days, 5% paid 75+ days)
Cash Flow Forecast Methods
(continued)
• Take less conservative approach for
projecting cash outflows
– Review Check Register
– Review Budgets and cost proposals
– Review Payroll and Taxes
• Capitalized purchases require a cash outlay
• LOC repayment (plus interest payments)
Sample Cash Forecast
Cost Cutting
Cutting Expenses is a tough thing to do!
• When/What to cut expenses
- Cash outflow is consistently higher than
cash inflow
- Loss of Revenue/Sales
- Discretionary spending
Impacts of Cost Cutting
• “Am I next” concerns
• Employee Recruiting/Retention
– Less generous benefits package
• Same work level - less hands
• Company morale issues
• Business runs more efficiently
• Company can survive
Managing Your Cash
• Know your Key metrics/data
• Proactive collection process – Don’t wait until day 31.
• Control spending
• Accounts Payable terms (net 30)
• Utilize your banking relationships
• Know Tax Payment deadlines (i.e. BPOL, Payroll, Other)
• Avoid penalties & fines – nothing but a drain on your cash.
Cash Flow Tips
• Accounts Receivables
– Invoicing top priority at end of month
– Understand definition of a “proper Invoice”
– Monitor AR - paid within 30 days, 60 days, 70+ days, etc.
– Review receivables for issues on a regular basis
• Accounts Payable
– Use vendor discounts to your financial advantage
– Develop purchasing policies within the company
– Utilize company credit cards when practical
• AVOID OVERLEVERAGING!!!
Cash is KING!
• Still applies to this day and age
• Trusted financial advisors can provide valuable: • Insight to business owners
• Creative financing options
• Minimize financial obstacles and road blocks
• Basis for your solid financial decisions process
• Solid business systems & internal controls
provided a great basis cash management
Successful Cash Flow Management
• Business Growth
– Investments in resources(employees,
infrastructure, technology, etc… )
– Invest in new business markets (verticals)
• Improved employee morale
• Stronger vendor relations
• Less Financial Stress
IMPORTANT BUSINESS
METRICS
Important Business Metrics - DSO
DSO (Day Sales Outstanding) gives insight into
the timing of cash collection
Acme Corp – Monthly DSO
Important Business Metrics - Utilization
Higher utilization higher receivables
Important Business Metrics - Revenue
Revenue trends are valuable because revenue
leads to receivables.
Important Business Metrics – Indirect Rates
Monitor Indirect Rates
Resources
• SBA – www.sba.gov
• DCAA – www.dcaa.mil
• FAR – www.acquisition.gov/far
• FBO – www.fedbizopps.gov
• Gov Store – http://bookstore.gpo.gov
Resources (continued)
• Deltek Costpoint Training Courses
• NeoSystems Blog center
