AASHTO UNIFORM AUDIT & ACCOUNTING GUIDE Disadvantaged Business - - PowerPoint PPT Presentation
AASHTO UNIFORM AUDIT & ACCOUNTING GUIDE Disadvantaged Business Enterprise (DBE) Supportive Services Program The contents of this training course reflect the views of the author who is responsible for the facts and accuracy of the data
The contents of this training course reflect the views of the author who is responsible for the facts and accuracy of the data presented herein. The contents do not necessarily reflect the official views or policies of the State of California or the Federal Highway Administration. This course outline does not constitute a standard, specification, or regulation.
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terminology, policies, procedures and sources for applicable Federal Regulations
and procedures as set forth in Title 48, Chapter 1, Part 31.
uniform accounting and reporting procedures
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procedures including but not limited to, labor charging systems, cost accumulation and reporting practices, and the format and content of statements of direct labor, fringe benefits and general
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architectural, engineering, environmental, land surveying, or construction management services are termed Architectural and Engineering Consultants (A&E).
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meet potential audit requirements, a contractor (whether a prime or subcontractor) must have a system of record keeping and internal control.
accounting system does not meet certain criteria set forth by Caltrans or local transportation agencies
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reimbursable, time and materials, cost plus and firm fixed price), the government contracting industry imposes unique burdens on a contractor’s accounting system. It must employ the following basic processes before it will pass a potential audit:
1. A job order cost accounting system considered adequate to identify, account for, record and accumulate project costs. Each project is assigned a job number so that project costs can be segregated and accumulated in the accounting system. 2. Ability to identify and segregate direct and indirect project costs on a consistent basis. 3. Employ a logical and consistent method for the allocation of indirect costs
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4. Costs are accumulated under General Ledger control. 5. A timekeeping system that identifies labor by cost objective and allocates this time properly. 6. While construction contractors must adhere to the cost principles of Title 48, CH1, Part 31, the overhead rates on Construction contracts are developed completely different than A&E contracts. 7. Interim determination of costs. 8. Segregation of unallowable costs. 9. A system of internal control which provides reasonable assurance that assets are protected; financial data, records and statements are reliable; and errors and irregularities are promptly discovered, reported, and corrected.
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can be identified specifically with a particular final cost
specifically identified to the contract or materials purchased specifically for the contract.
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directly identified with a single or final cost objective, but can be allocated to two or more final cost objectives. An example would be administrative costs incurred by corporate headquarter. The administrative costs incurred benefits all projects, but cannot practically be identified with any particular project or final costs objective.
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segregate reasonable, allocable (incurred solely for a project) and allowable (per terms of the contract) costs through the use
(commonly referred to as a job cost accounting system). The following are some attributes which would ideally be found in such a system:
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a. A chart of accounts which includes indirect, direct, and unallowable general ledger accounts. b. Segregation of costs by contract, and in some instances by cost category and milestones (if applicable) c. Proper recording of direct and indirect costs. For example, recording of labor costs should provide that administrative labor hours be recorded on a timesheet and accumulated in the accounting records to a fringe benefit, vacation, sick leave or other indirect cost account/code. Direct project hours should be recorded
project cost account/code.
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d. Consistent accounting treatment of costs in recording and reporting. For example, if copy/printing expense is charged directly to a project, all copy/printing expense incurred on any project should be considered a direct cost. As a result, project related copy/printing, whether reimbursable per the contract terms or not, should not be included as an indirect cost pool.
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e. Ability to trace from invoices submitted to job cost records and original, approved source documents, for example, timesheets, vendor invoices, cancelled checks. f. Ability to reconcile job cost records (i.e, subsidiary records) to accounting and payroll records (i.e., G/L).
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relative benefits received or other equitable relationship, as required by FAR 31-201-4. Such costs need to be grouped into logical categories (i.e. fringe, overhead, G&A, etc.) then allocated to every contract based on a defined
methodology employed should be consistently applied to all cost objectives.
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contract if it: a. Is incurred specifically for the contract; or b. Benefits both the contract and other work, and can be distributed to them in reasonable proportion to benefits received c. Is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.
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allocating indirect costs as follows: a. After direct costs have been determined and charged directly to the contract or other work, indirect costs are those costs remaining to be allocated to two or more final cost objectives. No final cost objective shall have allocated to it as an indirect cost any cost, if other costs Incurred for the same purpose, in like circumstances, have been included as a direct cost of that or any other final cost objective.
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b. The contractor shall accumulate indirect costs by logical cost groupings with due consideration of the reasons for incurring such costs. The contractor shall determine each grouping so as to permit use of an allocation base that is common to all cost objectives to which the grouping is to be allocated. The selected base used is what predominately drives costs, such as direct labor dollars or other equitable basis. The base selected should allocate the grouping on the basis of relative benefits received.
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c. Once an appropriate base for allocating indirect costs has been accepted, the contractor may not fragment the base by removing individual elements. All items properly includable in an indirect cost base shall bear a pro rata share of indirect costs irrespective of their acceptance as government contract costs. The rate calculated would be the contractor’s proposed rate. However, the government’s accepted rate may differ based upon audit
the contractor need be consistent with respect to allocating indirect costs.
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G/L CONTROL
determine if the job cost records and other underlying accounting records can be reconciled to the general ledger. Contractors should job cost records to the G/L at least monthly.
an operable accounting system that is under general ledger control is of paramount importance when performing government contracts.
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administered such contracts that requires the same type of accounting system required for government work. A prospective contractor may not want to install such a system unless awarded a contract. In this case, if the potential government contractor anticipates a contract award, it must have developed (or acquired) a system this is operable, though not necessarily in use. The contractor must be in a position to demonstrate this new system and be ready to implement the system prior to incurring any costs on a government contract.
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system that identifies labor by cost objective and allocates this time properly. This is where many contractors systems
be accounted for, daily by the work activity performed. If the charges are to indirect, they must be allocated in a logical and consistent manner
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following criteria: 1. There should be a segregation of duties for payroll related activities. For example, the responsibility for timekeeping and payroll accounting should be separated from the Human Resource department. 2. Timekeeping policies and procedures should be clearly documented in an accounting policies and procedures manual. 3. Supervisory review and approval of employee timesheets.
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following: 1. Time sheets be prepared, signed and dated by all employees 2. Time sheets be completed in non-erasable ink or in electronic format 3. The correct distribution of time by project numbers, contract numbers or name, or other identifiers for a particular assignment.
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4. To ensure accuracy, a listing of project numbers and their descriptions should be provided to the employee and maintained in the work authorization system electronically or in a hard copy for the employee to refer to it as needed. 5. Timesheet corrections must be crossed out and initialed by the employee. Procedures should be in place that identify the original time charged, the corrected time charge, and documentation form the employee indicating his/her concurrence with the change
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6. Timesheets must be signed/initialed by a supervisor as reviewed and retained on file as required by the contract. 7. Recording all hours charged to the project worked whether direct or indirect hours and they are paid or not, vacation time, sick time and any paid time off if applicable. This is necessary because labor costs and associated overheads are affected by total direct hours worked, not just paid hours
worked are termed “uncompensated overtime”.
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The following individuals can be held liable for violation of the code: a. Employees who fill in and sign the timesheets with the false information. b. Supervisors who approve the timesheets with the knowledge that they contain the false information.
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c. Managers and officers who know or should have known those facts and make claim anyway by submitting the invoice based upon the false information. d. The company, in a case where the falsification is known or should have been known by individuals who submit or who have authority to submit or disapprove the submission of invoices, or who are of a sufficiently high enough level in the company that a court will impute their knowledge to the corporation.
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end closing procedures in place to have a proper accounting
bank reconciliations.
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summarized by cost objective regardless of whether or not they are billable to the government. However, for billing purposes unallowable costs should be backed out and written off against the project. Unallowable costs should be properly coded within the accounting system chart of account for ease of administration.
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which are expressly unallowed such as charitable donations (FAR 31.205.8); travel for entertainment, promotional meetings, ects (FAR 31.205-14); interest (FAR 31.205.20); and government imposed fines and penalties (FAR 31.205.14).
penalty if a contractor claims an expressly unallowable cost in (1) final indirect cost rate proposal or (2) the final statement of costs incurred or estimated to be incurred under a fixed-price incentive contract.
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Treadway Commission (COSO) published a report titled Internal control-Integrated Framework (original framework) commonly referred to as the COSO report. It has since evolved into a principles based framework.
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These components are derived from the way management runs an organization and are integrated with the overall management process.
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which all other components of internal control are based, and it sets the tone of an organization. Through day-to-day practices and actions, management can effectively reinforce the company’s fundamental values and directives.
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There are five principles relating to Control Environment:
particularly of top management, are developed and understood and set the standard of conduct for financial reporting.
exercises oversight responsibility related to financial reporting and related internal control.
and responsibilities in the pursuit of company objectives.
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commitment to attract, develop and retain competent individuals in alignment with objectives.
for their internal control responsibilities in the pursuit of company objectives.
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relevant risks to achievement of its objectives, forming a basis for determining how the risks should be managed. Management considers possible changes in the external environment and within its own business model that may impede its ability to achieve its objectives. There are four principles relating to risk assessment:
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1. The organization specifies objectives with sufficient clarity to enable the identification and assessment of risks relating to
2. The organization identifies risks to the achievement of its
determining how the risks should be managed. This would include for example, identifying risks resulting from (1) changes in operating, economic, and regulatory environments (2) participating in new markets and (3) risks
management override of internal controls.
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3. The organization considers the potential for fraud in assessing risks to the achievement of objectives. This would include for example, developing an appropriate fraud risk assessment and monitoring program. 4. The organization identifies and assesses changes that could significantly impact the system of internal control. This would include for example, changes in information technology.
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procedures to help ensure that management’s directives to mitigate risks to the achievement of objectives are carried out. There are three principles relating to control activities: 1. The organization selects and develops control activities that contribute to the mitigation of risks to the achievement of objectives to acceptable levels. This would include for example, controls over approvals, authorizations, verifications, reconciliations, and reviews
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2. The organization selects and develops general control activities over technology to support the achievement of
to authorized users with various levels of needs, and establishing a backup and data retention policy/schedule specifying how often backups are to be performed, how long they are to be retained, and where the backup media is stored (i.e. server). 3. The organization deploys control activities as manifested in policies that establish what is expected and in relevant procedures to effect the policies. This would include for example, an accounting/HR policies and procedures manual.
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responsibilities in support of achievement of its objectives. Communication occurs both internally and externally and provides the organization with the information needed to carry out day-to- day internal control activities. Communication enables all personnel to understand internal control responsibilities and their importance to the achievement of objectives.
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1. The organization obtains or generates and uses relevant, quality information to support the functioning of other components of internal control. For example, data underlying financial statements are captured completely, accurately, and timely, in accordance with the entity’s policies and procedures and in compliance with laws and regulations. 2. The organization internally communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of other components of internal control. For example, accounting policies and procedures are sufficiently formal that management can determine whether the control objective is met, documentation supporting the procedures is in place, and personnel routinely know the procedures that need to be performed.
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regarding matters affecting the functioning of other components of internal control. For example, implementing policies and procedures for tracking communications from customers, contributors, vendors, and other external parties.
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the two are used to ascertain whether each of the five components
each component, are present and functioning. Findings are evaluated and deficiencies are communicated in a timely manner, with serious matters reported to senior management and to the board.
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1. The organization selects, develops and performs ongoing and/or separate evaluations to ascertain whether the components of internal control are present and functioning. This may include for example, management by walking around and proper supervision at all levels. The physical presence of an owner or manager can facilitate the operation of a good system of internal control.
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2. The organization evaluates and communicates internal control deficiencies in a timely manner in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors as applicable. For example, findings
external sources (e.g. external auditors, regulators) are reported to (1) the appropriate person who is in the position to take corrective actions and, if applicable, (2) at least one level of management above that person.
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used to show the calculation of indirect cost rates. The schedule must be prepared on the accrual basis and based upon historical costs as recorded in the contractor’s general ledger as reconciled to the contractor’s underlying job cost records.
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The statement of direct labor, fringe benefits and general
presented on the basis of accounting practices prescribed by Subparts 9900 and Part 31 of the Federal Acquisition Regulations (FAR). The statement should be supported by a breakdown or schedule of costs included in the rates.
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capital assets that is not a form of interest on borrowings.
1. It is measured, assigned and allocated to contracts in accordance with 48 CFR 9904.414 or measured and added to the cost of capital assets under construction in accordance with 48 CFR 9904.417 as applicable.
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2. The requirements of 31.205-52 which limits the allow ability of cost of money, are followed. 3. The estimated FCCM is specifically identified (e.g. note disclosure) and proposed in cost proposals relating to the contract under which the cost is to be claimed.
money is specifically un-allowed.
guide on how to calculate the FCCM.
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associate with a field office (onsite), a separate field office
allocating total indirect costs based on a companywide (composite) rate.
rates must be fair and consistent. Therefore, the rate must be consistently applied across all business segments and disciplines.
the field office overhead rate.
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costs are incurred and accumulated for allocation to final cost
172.7 (b), indirect cost rates generally are applied for a one- year period.
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highway projects are required to develop indirect cost rates
forth in 48 CFR, Part 31.203
Caltrans) or certified indirect cost rate schedule by a CPA, and to remove potential barriers to competing on federal-aid highway projects
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standard indirect cost rate, the “Safe Harbor” indirect cost rate (SHR), for use by eligible A/E firms on a three (3) year pilot program that runs from 7-1-13 to 6-30-16.
as a base for developing its own internal ICR, OR
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cognizant agency, or an audited (CPA) ICR within the test
system adequate to accumulate and track direct labor and
removing unallowable costs as previously discussed.
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be allowed for past contracts utilizing.
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to use SHR in a contract are required to submit a completed SHR Consultant Certification of Eligibility and Contract Cost and Financial Management System (See handout), and a SHR Questionnaire for Evaluating Consultant Financial Management System (See handout).
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