Government DCAA Audit Cost Price Bid Training Paul Gunn

Overhead Rates (Marketing and Continuing Education Costs)

INQUIRY: Dear Paul, I know that marketing expenses are not allowable by the FAR. What about continuing education? What if the education occurs at conventions that require travel, hotel, & meals? Can all of this be categorized as part of the expense of continuing ed & be an allowable part of overhead for negotiating federal contracts? Thank you for your help with this. RESPONSE: The following represent my opinion and response to your inquiry. First of all, not All marketing expenses are unallowable! Some are and some are not. There are several cost principles you must look at to determine if the specific type of expense is allowable or not. Four cost principles to review are, 31.205-1 (Public relations and advertising costs; 31.205-12 (Economic planning costs); 31.205-18 (Bid and Proposal costs) and 31.205-38 (Selling Costs).

H&W Inquiry on SCA Employees

Inquiry: Dear Paul: I attended your conference of months ago sponsored by SBA Office. It was an excellent presentation. I want your opinion on the following because talking to many accountants , I get different answers: 1. If our company benefits, which we offer employees total above the $3.24 do we have to pay the $3.24 in addition to the minimum wage in the WD? Example: Free online training classes, Direct Deposit, Life insurance, Credit Union, FICA, WIC and a certain percentage of their Health Insurance company paid under United health insurance plans. 2. Can we separate out the portion of the $3.24 that is health insurance and only be responsible for paying that portion back into the employees salary? For example if the company contributes $1.00 per hour to health insurance per individual, can we pay that only in addition to the employee that does not want to participate in the company health insurance plans? 3. If we offer and pay a portion of their health insurance, can we require them to sign a waiver or acknowledging their benefits are above the $3.24 health and welfare requirement and that they understand.

The Six Deadly Words to Avoid in Proposals

Six words youd better avoid in your proposals.

1. Best Efforts. Courts have interpreted best efforts to impose a very strict legal obligation, one that goes well beyond a companys normal duty to a client. Alternative: Reasonable efforts.

2. Ensure. This word may create a binding legal obligation that a client can enforce in court. This word can be particularly dangerous in a T&M project, since it may imply that you are committing to a fixed-price/fixed-time obligation. Alternatives: Will assist in or will use reasonable efforts to.

FRAUD INDICATORS Part 3 Indirect Costs

In this article, we review several specific areas on indirect cost fraud indicators. As you review them, you will notice that once again, the allowability and reasonableness of an indirect cost is a factor considered in fraud. In addition, supporting documentation is very important. That is why I focus on FAR Part 31 and the basics of cost and pricing in government contracting. It is the foundational basics that must be strong. Otherwise, one is building the firm, and future, on a shaky foundation. An indirect cost is any cost that is not directly identified with a single final cost objective, but is identified with two or more final cost objectives or an intermediate cost objective. Indirect costs are incurred as a result of business decisions made at all levels of management. Those decisions may be based on established policies or may be a managers choice among several options for achieving an objective. To be allowable, indirect costs must be allowable according to FAR, allocable to the contract, and reasonable. Lets review three selected Fraud Areas for indirect costs: 1. Transfer of costs, 2. Sensitive Accounts, and 3. Certification of Indirect Costs. 1. Transfers of costs are always suspect. The auditor is looking for a sufficient explanation for transfers and may expand the scope of audit to adequately review and evaluate the contractors rationale. In most cases, the auditor cannot accept the contractors explanation without some additional audit work. At major contractor locations, (most of you are non-major contractors), the auditor should review the adjusting journal entries on a monthly basis and pay special attention to cost transfers. The auditor must also be skeptical when costs are transferred between contract line items. Some contracts include different types of reimbursements or fundings. The auditor will try to determine the nature of the work orders/charge numbers involved in the transfers and determine what motive the contractor would have for the cost transfers. That is not to say most transfers are unacceptable

OFPP Executive Compensation Caps

This is for those of you who missed the information on the new Cap on executive compensation. Most are nowhere near this cap! However, you should at least be aware of it. Please note that this limit applies to only the largest contractors. Small and midsized contractors would not normally be able to claim compensation in this amount without being challenged by DCAA. The Office of Federal Procurement Policy published the maximum benchmark compensation amount that will be allowable under government contracts for Cost Incurred 01/01/2021 through 12/31/2021. $568,000

Key Fraud Indicators Part 2:

Key Fraud Indicators Part 2: Understanding the indicators that can raise red flags. In this review Selected Material and Subcontract Cost Fraud Indicators Lets review the auditors role and thought process shared in Part 1: Designing audits to find fraud indicators and recognizing those indicators requires creativity and knowledge, along with a common sense level of professional skepticism and suspicion. Approaching each audit with fraud indicators in mind provides the auditor with the proper alertness and awareness needed to assess the different situations. Auditors are not responsible for proving fraud. This is the job of the investigator. Finding and reporting fraud indicators are an auditors responsibility and he/she should .think fraud. when performing a review. This awareness factor cannot be overemphasized. In cases where a Government official or agency may appear to have approved a suspected irregularity or illegal act, the auditor is still responsible for making a referral. The key issue is whether the auditor would have referred the suspected irregularity if the government official(s) or agency had not acted. On the other hand, an auditor must not automatically conclude that every contractor commits fraudulent acts or that every fraud indicator denotes fraud. By looking for fraud indicators and properly assessing them during an audit, the auditor is taking the proper approach to uncovering fraudulent acts and, thereby, protecting the Governments interests. Incurred Cost Audits of Direct and Indirect Costs and Rates: In the past, the highest number of fraud referrals have been found in incurred cost-type audits. Now lets look at: MATERIAL COSTS Material includes raw material, purchased parts, subcontracts and inter-company transfers. The cost of material is usually charged direct to a contract.

Fraud Indicators

Key Fraud Indicators Part 1: Understanding the indicators that can raise red flags. In this review Selected Labor (Direct & Indirect) Fraud Indicators Lets look at the auditors role and thought process: Designing audits to find fraud indicators and recognizing those indicators requires creativity and knowledge, along with a common sense level of professional skepticism and suspicion. Approaching each audit with fraud indicators in mind provides the auditor with the proper alertness and awareness needed to assess the different situations. Auditors are not responsible for proving fraud. This is the job of the investigator. Finding and reporting fraud indicators are an auditor's responsibility and he/she should .think fraud. when performing a review. This awareness factor cannot be overemphasized. In cases where a Government official or agency may appear to have approved a suspected irregularity or illegal act, the auditor is still responsible for making a referral. The key issue is whether the auditor would have referred the suspected irregularity if the government official(s) or agency had not acted.

Fully Burdened Labor Rates

As a firm that invoices based on Fully Burdened Labor Rates using Commercial Market or Catalog Labor Rates, are the methods, as we discussed and information reviewed, used to support and invoice our customer appropriate and adequate? What level of detail do we need in supporting our fully burdened rates for audit? What about the level of detail for our accounting system and information we request from our subcontractors? Response Summary: From the review of your contract agreement,it appears your level of effort is based on a Time and Materials type contract. In other words, you bill them fully burdened labor rates for all Direct Labor Hours worked. In addition, you bill them for any Other Non-Labor Direct Costs, including Subcontracts, Consultants, and Travel that is specially charged to the contract. The agreement is between your company and the Prime Contractor.

Compensatory Time

Inquiry What would you call time that contract employees work one week but can take off the next week? This is for Gov contracts and we cant call it comp time. They dont get paid overtime for this contract so they have to take the time off. We need to track the time on the time sheet for contract reasons to name a few. Do you have any suggestions? Response In response to your inquiry, first we must determine what you mean when you say contract employees. The answer depends on a persons interpretation of the terminology. Do you mean contract employee as you have contracted with a consultant, or are these purchased labor type employees, or do you mean they are your company exempt employees, or company non-exempt employees that are dedicated to a contract? There could be a difference based on each. In most of the cases above, except for the last one, there is typically no compensatory time off. If someone works 50 hours one week then the employee would only work 30 hours the next. Period. Nothing else to record. However, we must consider

Reflecting the Impact of Inflation in Your Price

How do you reflect the impact of inflation in your contract price over the contract performance period? Its a true cost, and in a time of uncertainty, inflation can be difficult to determine. Let me provide some guidance for you. There are essentially two (2) ways to reflect the impact of inflation: 1. In the most widely used method, the proposed contract price includes current estimates of Wages (Direct & Indirect Labor) and Prices (All Other Direct & Indirect costs) that are expected to be experienced during the contract period of performance (POP). The Preferred Bases for current estimates are:

Rental/Occupancy/Lease costs Allowable with Restrictions

Cost of renting or leasing real or personal property can be classified under two major categories: Capital Leases or Operating Leases. Auditors are concerned with the proper classification of a lease as either capital or operation. Most small businesses rent/lease their space under an Operating Lease. You know the month-to-month lease you pay for renting space, equipment, or any other real or personal property. Capital Leases are generally involved with a purchase option or transfer of ownership by lease end. I briefly discuss capital as well as related party leases later on in this article,

Commercial Pricing to Avoid Audit

INQUIRY: Hello Paul, I was in the workshop yesterday. I was wandering if I can ask you a quick question. What if the company has a 1-tier system but instead of rates, they had a rate schedule (fully loaded rates) Can we avoid being audited if we had just one set of rates for both government and private? This is what we charge and nothing more. RESPONSE: Ah, the quick question; they always seem quick until you look a little closer. However, let me provide a brief response.

Handling Fees

Are thinking about developing a separate indirect cost pool for handling fees? Have you been told you need to develop a separate indirect pool for materials or subcontractors because the customer does not want to pay your G&A on these types of indirect costs? Well I have a few thoughts on how you can begin to go about the process. There is an e-file spreadsheet for you to download and view.

Inquiry 102(A)

Inquiry: Can we charge the cost of renting a GPS device when we rent a car? They are becoming available in many auto rental areas nationwide. I would think we could since it allows a traveler on government business to save time and therefore improves productivity. Response: At first look, it seems to make sense. I even agree with your point. However, this is the government and they seem to make it clear what their opinion is. The following is excerpted from the March 5, 2007 MEMORANDUM FOR MILITARY AND CIVILIAN ADVISORY PANEL:

Results of A Dishonest Bid

Construction firm founder sentenced to prison in sewer contract scandal So you think low bid, sealed bid, or lump sum type contracts will shield you? Think again! The following is a recent excerpt from USA Today: A federal judge sentenced the founder of a construction firm to 3 years and 9 months in prison for his role in a bribery scandal involving Alabama county sewer contracts.

Determining Base Labor Rates

Can you guide me in determining Base Rates so we can set a standard that we can follow and use in our proposal development We can justify everything beyond Base Rate.I am looking for something like: In determining our Base Rate for this proposal, we compared the proposed labor categories to Dept of Labor

Inquiry

The Government Customer has also instructed Contractor to add another position that was not included in our original proposal. The individual they recommended we hire is making considerably more that anyone albeit at a higher level. We plan to propose a base rate which is slightly higher that this particular individual is currently being paid and add our indirects plus fee. Is it appropriate to propose a base rate that is higher than this individual is currently being paid?

Time and Materials

I have a question regarding time & material contracts. Contractor has a T&M contract that is commencing soon. After award we have determined that some of the incumbent employees that have first right of refusal are making considerably more that we proposed. Conversely, some positions were bid at a rate that affords Contractor some degree of latitude. For example, we bid a base rate of $18.50/hour and we can hire an individual at $17.00/hour.

Immigration Fees-direct or indirect?

Question: Concerning immigration fees incurred by a consulting firm for people hired from overseas as contractors to work in the US on a specific contract. Would these costs be allowable G&A costs or direct costs to the contract? I'm thinking when these people have completed the current contract they will probably stay in the US and be assigned to work specifically on another contract. What are your thoughts?

Private Aircraft

We are currently involved in a time and material to a maximum contract that does not allow us to mark up our other direct costs. We use our private plane and pass along those costs dollar for dollar to our client. They have come back to say that the GSA rates for a private plane are $1.07/mile which is less than what we are paying, which doesn't include insurance or maintenance costs. I would like to know if there is a rule that will allow for a fuel surcharge or any other surcharge that we can use to recover the costs we are incurring for this plane.Response: According to FAR 31.205-46(c) contractors are limited to no more than the...Login to read the enitre article

Advance Agreements FAR 31.109

Let's talk about how advance agreements can protect you. Due to the many different types of accounting systems and varying contract situations that arise, determining the reasonableness, allocability, and the allowability of certain costs may be difficult to determine. So to avoid possible subsequent disallowance or dispute based on unreasonableness, unallocability or unallowability, contracting officers and contractors (you and I) should seek advance agreement on the treatment of special or unusual costs, especially if you are in construction or A&E. It's just good business sense! Let's talk about this a little more...........