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FAR Training Notes

Accounting System Review


Depends:
1. on type of contract is being rewarded
2. And on if contractor is prime or not
Accounting review occurs when contractor is interfacing directly with
Government and has their first Cost plus fixed fee
Types of Contracts:
Fixed price price on front end, due-diligence done on front end
Time & material various labor categories are determined, there are billable
labor rates, ultimate price is determined by allowable rates and timesheets
government may conduct further audits based upon timesheets (audit time
tracking records)
Cost plus fixed fee pricing of contract determined by costs the contractor
charges in their books. These are priced to the contract. So government
must audit the contractors books as this is where the costs are derived from.
Many Primes require subs to have DCAA compliant accounting methods.
Some may even conduct the accounting review internally according to
DCAAs checklist
DCAA looks for:
1. Contract is established with applicable GAAP
a. General ledger in place
b. Chart of accounts properly classifies liab.s, assets, etc.
c. Proper internal controls
d. Can produce financial reports
e. Reconciling bank statements
f. Uses good supporting documentation
g. Using accrual basis of accounting
2. Proper segregation o direct costs from indirect costs
a. First they must be allowable costs
b. 5 factors of allowable costs:
1. reasonableness
-Four Factors:
1. ordinary and necessary for business
2. generally accepted practices
3. contractors responsibilities
4. significant deviations from practices
2. allocability

3. standards from CAS Board or GAAP


4. terms of contract
5. limitations from FAR subpart 31.2
Costs
Direct Costs vs indirect Costs
Direct identified with a single cost objective
Indirect identified with more then one cost objective
Need policies and procedures for separating these costs
Need to identify and accumulate these costs
Provide a logical and consistent allocation method of indirect to contracts
Allocation rate must be:
Fair
Reasonable
Logical
Consistent
Timekeeping
Must identify by intermediate or final cost objectives
Governments are very interested in time-keeping
-they are looking for certain internal controls
-DCAA looks for:
1. adequate segregation of duties for labor related activities
- separate from payroll accounting
- employees responsible for meeting contract budgets should not
initiate employee time charges
2. Internal Procedures should be clear, reasonable, easy to understand
to mitigate confusion
3. adherence to procedures must be continually monitored
4. individual employees must be regularly reminded of controls that act
as deterrents against violations
changes must be initialed
Floor Check Audit Show up unannounced
-auditor interviews various employees
-reviews current timesheets

generate costs through routine posting to books


-contractors should be able to pull straight from their books the contract cost
reports