common pitfalls which might prevent you from passing a dcaa pre-award audit

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Presented by: Steve Dasher, CPA Jason Mills, CPA Kelly Ryan, CPA December 11, 2012 Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

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One of the most daunting tasks for small government contractors in being able have their accounting systems determined to be adequate by Defense Contract Audit Agency (DCAA). Per DCAA, "the pre-award accounting system survey is an audit to determine the acceptability of a contractor's accounting system for accumulating costs under a prospective Government contract". Without a good bill of health from DCAA, contractors are limited in the types of contracts that they can be awarded. This presentation covers some of the common pitfalls which might prevent you from passing a DCAA Pre- Award Audit and provides guidance on how to become a successful government contractor

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Page 1: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Presented by: Steve Dasher, CPA Jason Mills, CPA Kelly Ryan, CPA

December 11, 2012

Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Page 2: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

About LRMD

Year end financial statements with consultation meeting

Tax Planning and Preparation

Thirty year foundation and growing

Help contractors develop, grow and build transferable value

Rate developmentDevelop pricing modelsCompliance with FAR and CAS regulationsDue diligence related to M&AIncurred cost submissions

Page 3: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

LRMD Growth Analysis

Vision

Values

Competencies

Capacity

Controls & Procedures

Top-D

own Bottom-up

Transferable value

Page 4: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

DCAA Pre-award Audit of Accounting System

Accordance with GAAP

Internal controls

Billings and timekeeping systems

Proper tracking and segregation of costs

Page 5: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

ELEMENTS REQUIRED BY DCAA

RECORDS IN ACCORDANCE WITH

GAAP

ABILITY TO MONITOR RATES

JOB COST REPORTS RECONCILE TO

ACCOUNTING RECORDS

PROPER ALLOCATION OF EXPENSES

PREVENTING CONTRACT OVERRUNS

COMPLIANCE WITH CONTRACT TERMS

VERIFY LABOR DISTRIBUTION

ADEQUATE TIME KEEPING SYSTEM

FOLLOWING WRITTEN POLICIES AND PROCEDURES

Page 6: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Obtain a Planning Letter!Communicate during Fieldwork!Have a CPA present for your Audit!

Suggestions

Page 7: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Building A Cost Structure

• Directs • Fringe • Overhead• G&A• Unallowables

Define the cost pools

• CLIN: Contract Line Item Number

Direct costs by contract and CLIN if

applicable • Unallowable costs and

• indirect costs

Segregate costs

Page 8: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Indirect Rate DevelopmentWhat fits your company the best?

2 or 3 Tiers (multiple Fringe or OH Rates)

Indirect Rate structure needs to be consistent

Changes must be reported to DCAA

It is designed for compliance and competitiveness

Rate ceilingsContractual requirements (M&H vs. G&A)

Page 9: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Wrap Rate AnalysisMake sure you understand your Company’s Rate

Know your industry and competitors

Company size & business status can impact rate

Know your competitive range

1.5 1.8 2.1

(Average for Small to Mid-Size Service Contractors)

Page 10: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

How to Apply the Wrap RateSample WRAP rate calculation:

3 Tier Structure – Fringe 41%, OH 5%, G&A 8%

WRAP RATE 1.60 FEE @ 5% 1.68

Annual Salary $100,000Hourly Pay $48.08Fully Burdened $76.88BILLING RATE $80.77

Wrap rate = (1.41*1.05*1.08) = $1.60

Page 11: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Financial Metrics

Use indirect rates to monitor company’s financial metrics

Use Analytics •Current

year vs Prior Year

•Current Year vs Budget

•Current Year vs Industry

Page 12: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Financial Metrics

Ratios• Liquidity• Efficiency • Profitability• Leverage

Cash FlowCapacity

Growth Pattern

Page 13: Common Pitfalls Which Might Prevent You from Passing a DCAA Pre-Award Audit

Questions?REMEMBER …..

we are ALWAYS here to help!