An important milestone for government contractors and particularly to negotiated contracts is an adequate cost accounting system. Further, in today’s contracting environment having an adequate accounting system can be a pre-requisite for contracts. Today many Requests For Proposals (RFP) require it.

The need for a compliant accounting system depends on the contractor’s circumstances and contract types. For instance negotiated fixed price contracts do not normally require an adequate accounting system (except when progress payments are requested), only that the cost or pricing data submitted meets the cost or pricing data requirements. These requirements are defined by FAR 15.4. The accounting system should report certain financial data to support the cost or pricing data requirements under fixed price contracts such as indirect cost rate data. An adequate accounting system subject to DCAA preferences is most relevant to cost reimbursable contracts. Under cost reimbursable contracts the accounting system must be adequate and approved by the government under FAR Subpart 16.3. Securing approval is a significant accomplishment in this industry. In some cases the government requires adequate accounting systems under time and material contracts as well. DFARS 252.242-7006 now requires it for DoD contracts.

To gain approval normally an audit is conducted by DCAA. Now, DCAA will not conduct this audit simply because the contractor wants an approved system. DCAA conducts audits on behalf of procurement agencies at their request. Contracting officers request DCAA perform these audits when there is a government need. So the first thing to do is get government sponsorship. This government agency can request the audit. This request is normally associated with an open RFP or contract.

What Does It Take to Get Approval?

For non-major contractors, I refer to twelve (12) key elements that you must pass. These are must haves, no exceptions, to secure approval for cost-reimbursable contracts. Below not only have I listed the 12 key elements, but I have also elaborated on what these 12 items mean to prepare the contractor for its approved DCAA cost accounting system. In order for an accounting system to be approved, it must demonstrate the ability to meet these 12 key elements. Each of these elements is described below.

Key Element No. 1: Segregate direct costs from indirect costs.

This means the contractor must demonstrate its system adequately segregates direct costs from indirect costs. First, the accounting system must pool the direct costs and indirect costs separately by account. Second, it should maintain a policy that describes the criteria for charging costs direct to contracts and indirect to indirect cost pool accounts. Third, it must demonstrate that the personnel responsible for coding costs fully understand the criteria for costing transactions direct and indirect. Finally, the contractor’s cost history must show that it adequately and consistently charges costs direct and indirect.

Key Element No. 2: Accumulate contract costs by cost element and by cost objective or contract

This means the contractor must maintain an adequate job costing system that is integrated with the accounting system. The contractor might need to have proper business bank accounts (similar to those listed on the blogpost: Best Business Checking Account – Our Top 6 Picks for 2022) so that they can demonstrate the costs that are accumulated by the cost element and by the project accurately. This is typically accomplished by setting up a job number system and charging transactions to jobs by cost element account. The summary of all these jobs should equal the direct costs of each direct cost account in the company’s general ledger. Typically a summary report must be generated by a job or project demonstrating the above. These reports can be created by a business accountant that a company may hire (probably, by searching online for keyphrase such as a small business accountant near me) to manage the corporate finances and taxes. Often DCAA will request a job cost subsidiary ledger that agrees with the general ledger. A job cost subsidiary ledger lists each transaction charged to a job or project. The summary of all project subsidiary ledgers must add up to the direct cost balances in the general ledger.

Key Element No. 3: Homogenous indirect cost pools and allocation bases

Contractors are required to maintain homogenous indirect cost pools. This means the indirect costs must be accumulated into separate indirect cost pools combining functions that are not disparate. This means the functions must be similar and have a similar relationship to the cost objectives being managed. A violation would be combining manufacturing functions with engineering or services functions. These are disparate functions and are not homogenous. The most common indirect cost pool structure includes fringe, overhead and G&A.

The allocation bases used must be equitable. This means the allocation base selected must allocate indirect costs in an equitable manner avoiding skewing the allocation to one or a group of contracts. Allocation bases should be selected that best represent the activity being managed. This is normally an input base, an output base or some surrogate of both. The most commonly accepted allocation bases are:

Fringe – Total employee labor
Overhead – Direct labor, B&P/IR&D labor and allocable fringe
G&A – Total cost input or a value added base when the total cost input base proves to be inequitable.

These are not the only acceptable allocation bases but are the most common. Any base that would be considered equitable are acceptable.
Under cost reimbursable contracts, indirect cost rates should be calculated periodically on a year to date basis and compared to the budget or provisional indirect cost billing rates.

To demonstrate compliance, contractors are first expected to maintain a policy on indirect costs and allocation bases outlining the components of the indirect cost pools and their allocation bases. In addition, DCAA commonly will inspect and evaluate the indirect cost pools and composition to determine compliance with this requirement. Allocation bases are also evaluated to determine whether the allocation bases are equitable.

Key Element No. 4: Contract costs must be controlled by the general ledger

Most accounting system packages address this concern automatically. That is the job cost subsidiary ledger is controlled by the general ledger. As transactions are added or deleted or changed in the job cost subsidiary ledger, the general ledger for these direct cost accounts is updated automatically. A common DCAA test is to compare the summary of job costs by job or project to the direct cost account balances in the general ledger. Failure to demonstrate this test is a formula for failure for sure.
Key Element No.5: Demonstrate compliance with Generally Accepted Accounting Principles.

Compliance requires that the accounting procedures and processes be in accord with generally accepted accounting principles. This means that direct costs and indirect costs must be accounted for on an accrual basis. Cash basis accounting systems are not acceptable. Accrual means that costs are recorded in the proper period as incurred not necessarily when paid. Costs should be accrued or recorded when the contractor is liable for the cost and in some cases the cost should be allocated over periods that the cost represents.

To demonstrate compliance contractors normally show accrual entries and accrual liability accounts. Often DCAA will inspect and evaluate accrual entries and test their validity. The most significant accrual item is labor to match payroll with the timing of timesheets or the timekeeping system. Other common accrual items include, payroll taxes, insurance, rent, depreciation and accrual of material and subcontract transactions. Recently DCAA has also requested in certain cases evidence that revenue is accrued when required by generally accepted accounting principles.

Key Element No. 6: Pre-contract cost accounting

The contractor must record pre-contract costs separately. This is normally accomplished by setting up a pre-contract job or project number to separate pre-contract costs from costs incurred after the award of the contract. Pre-contract costs are incurred prior to the effective date of a contract to meet contract schedule or other significant contract requirements. If the costs incurred as pre-contract costs before the award or effective date of the contract would be allowable if incurred after the award of the contract, the pre-contract costs are generally speaking considered allowable subject to the need to meet contract schedule. Pre-contract costs are generally subject to an advanced agreement, FAR 31.205-32.

Normally to demonstrate compliance with this requirement the contractor should demonstrate the ability of the accounting system to segregate these costs from contract costs including procedures to consistently segregate these costs.

Key Element No. 7: Maintain an adequate timekeeping system.

A crucial item in securing an adequate accounting system is to maintain an adequate timekeeping system. Given that labor is a large component of contract cost and the government focus on timekeeping, it is a must have to be successful. Honestly there really are not any FAR or legal authoritative regulations that define what an adequate timekeeping system requires. It is limited to having a system that accurately records time to accurately charge labor to cost objectives. The timekeeping system requirements or preferences have been developed over time by regulators such as DCAA outlining preferences required. First, the contractor must maintain a written policy on timekeeping describing timekeeping practices. This document should be provided to all employees and periodic training should be provided. Both manual and electronic systems are acceptable. The government typically is indifferent as long as the system used is consistently applied in a compliant manner.

Some of these preferences include:

– Each employee must record all hours worked and complete their time daily. Projects, indirect accounts or cost objectives must be charged by daily tally.
– Provisions for identity and control of time keeping documents.
– Employee must sign the timesheet and it must be approved by the employee’s supervisor at the end of the timekeeping period.
– The system must require correction procedures that meet DCAA preferences. In manual systems this means changes are made by the employee by single line cross out and employee initials and date. The reason for changes are often required. Essentially the ability to track changes to the time record is the concern. Any approach to tracking should be acceptable.
– Time must be recorded based on actual time worked not funding or any other criteria.
– Periodic training of employees regarding timekeeping rules.
– Electronic systems require additional requirements for security and change control/visibility. Under these systems, the most significant difference is all entries, changes, signature and approvals must be tracked by time stamp. In other words, it must answer the question who did what to who and when in regard to timekeeping entries.

It should also be noted that any training session requires a substantial amount of time for the employees to thoroughly understand things. So, whether the training is for timekeeping rules or new responsibilities that you want your employees to take on, you may want to implement microlearning strategies to strengthen your workplace environment by optimizing your training program and delivering learning concepts in a way that aligns more strongly and is better acquired. That can also lead to improved outcomes across the board, from productivity to retention.

Key Element No. 8: Adequate labor distribution systems.

To be considered compliant, contractors must be able to provide a labor distribution report based on the timekeeping system. This report typically includes hours and labor dollars by employee by cost objective (projects) and indirect labor accounts. This report should tie to both the timekeeping system and the payroll system. Typically a reconciliation between the labor distribution report, the timekeeping system and the payroll are required.

Key Element No. 9: Accounting for unallowable costs

The contractor must demonstrate its ability to meet the requirements of FAR 31.201-6. This means that contractors must segregate costs determined to be unallowable based on FAR 31.2 separately from direct and indirect cost pools. These costs are typically accumulated and segregated in an unallowable cost pool. Unallowable costs must be excluded from the indirect cost pools when developing indirect cost rates. Such costs cannot be included in any billing, claim or proposal.

To demonstrate this capability, contractors must show the unallowable cost pool by account. Also, it should maintain a policy defining the procedures it uses to meet this requirement. It should demonstrate that personnel responsible for coding transactions are adequately trained and knowledgable in FAR 31.2. Generally speaking contractors should make the provisions of FAR 31.2 readily available for employees as a reference document. On a separate note, indirect cost rates must be developed in a manner that allocates indirect costs to unallowable allocation base costs. If a cost is normally included in an allocation base it must be included whether allowable or not. For example any direct, fringe, or overhead cost that is determined to be unallowable per FAR 31.2 must be included in the appropriate allocation base if allowable direct, fringe and overhead costs are included in the allocation base.

Key Element No. 10: Interim Accumulation of Costs

The accounting system needs to be updated or post transactions at least monthly. In addition, the accounting system must be able to present the costs on a current, year to date and cumulative basis at least monthly inclusive of indirect costs to provide a full absorption costing view of a project or contract.

This can be demonstrated with job cost reports on a current period, year to date and inception to date basis. The balances need to be traceable to the job cost subsidiary ledger. Most project accounting systems can handle the accumulation of direct costs by project as described above. Indirect cost allocation tools may be necessary to present indirect cost allocations. The indirect cost allocation can be handled manually as well. Indirect cost allocations must be consistent with the contractors disclosed practices.

Key Element No. 11: Track costs by contract line item

Under certain types of contracts, the tracking of costs by Contract Line Item (CLIN) may be required. This means the project must be segregated by CLIN. The accounting system must treat each CLIN as a project or cost objective and charge costs to the CLIN in the same manner as it charges costs to projects. These CLIN accumulations should be reported or rolled up to the contract level.

Compliance with this requirement can be demonstrated by showing CLIN level project numbers within a contract and reporting costs to each contract line item.

Key Element No 12: Limitation of Cost and Funds/Invoicing Clauses

Many contracts include the Limitation of Costs and Funds clauses. These clauses require the contractor to track funding and contract cost. Contractors are required to notify the contracting officer when the contract costs reach 85% of funding.

Under an accounting system evaluation the government requires costs be tracked and reported on a cumulative basis and be compared to funding. This will permit the contractor to evaluate the cost position as compared to funding.

To demonstrate compliance or capability, reports should be generated showing costs by project on a current, year to date and cumulative to date basis inclusive of indirect cost allocations. This cost presentation is then compared to funding.

There are many different invoicing clauses. The contractor must demonstrate its capabilities to meet the applicable invoicing clause. Under cost reimbursable contracts compliance with the Allowable Cost and Payment clause is required. The major provisions include:

• Demonstrating that costs can be reported by project by cost element on current, year to date and cumulative to date basis.
• Accumulating and invoicing costs by CLIN or other contract funding requirements.
• Use of provisional indirect cost billing rates. This includes providing provisional indirect cost rate proposals on a timely basis
• Timely payment of direct costs that are accrued and billed. This would include labor, materials and subcontract accruals among others. In this case, payment must be made in the normal course of business in accordance vendor or subcontract terms or within 30 days of invoice.
• Procedures to make adequate and timely incurred cost submissions
• Maintenance of records in accordance with government contract record retention requirements
• Invoicing of project costs based on the accounting system. That is, invoice direct costs recorded for the period. This prohibits the invoicing of estimated costs. Invoiced direct costs must agree to the direct costs recorded by the accounting system.

If the contractor can meet these cost reimbursable contract invoicing requirements, it will likely be able to meet progress payment and time materials invoicing terms.

I hope this discussion has been helpful in understanding the government contract accounting system requirements. Should you need help with any of these items please contact me.

Edward D. Moore
Principal
T: 336-880-9040
E: emoore@dcaaconsulting.com
W: www.dcaaconsulting.com

dcaaConsulting LLC is a professional consulting company specializing in Defense Contract Audit Agency audits and related matters, government contract proposals and pricing, the Federal Acquisition Regulation and the Cost Accounting Standards.
dcaaConsulting LLC

A common service I provide for government contractors is mock audits. Mock audits are especially valuable when a contractor is expecting an upcomming audit by DCAA. My mock audit morrors what DCAA will do. The mock audit will identify any issues that would arise in the DCAA audit. In my review I outline in detail any corrective action that is needed to pass the DCAA audit. This provides the contractor the opportunity to correct any deficiencies before the DCAA audit. My clients find the mock audit valuable no surpises approach to DCAA.

Having an upcomming audit? Please contact me about audit preparation and the mock audit service.

Online gaming has seen a rapid increase in popularity over the last few years. More people are turning to the internet for their entertainment. Online casinos and gaming platforms offer a wide variety of options. Players now have access to games that were once only found in physical casinos. The ease of use, exciting features, and potential rewards have made online gaming a go-to choice for many. But with this growth, players must also be cautious when choosing where to play. There are plenty of options out there, but not all are trustworthy.

One of the main reasons people choose online casinos is convenience. Players can enjoy their favorite games from the comfort of their homes. There is no need to travel to a physical casino or wait in long lines. The games are available 24/7, allowing people to play whenever they want. This flexibility is a huge draw for many. Plus, online casinos often offer larger game selections than their brick-and-mortar counterparts. From slots to table games, there’s something for everyone.

However, the vast number of online gaming options also means there are plenty of risks involved. Not all gaming sites are created equal. Some might be unreliable or even fraudulent. This is why it’s important to find a trustworthy platform. Choosing the right site ensures that you play on a safe and secure platform. One way to make sure you’re choosing a reputable site is by reading reviews and checking for licensing. This trusted gaming site offers security and a great experience for its users.

When picking an online gaming platform, it’s also important to consider the variety of games offered. A good site should have a wide range of options. This includes slots, card games, and live dealer games. The more options there are, the more fun and engaging the experience will be. Many sites also offer bonuses to attract new players. These bonuses can include free spins, deposit bonuses, or even no-wagering offers. These perks can add significant value to your experience, especially when you’re just starting.

Another factor to consider is payment options. A trusted site will offer multiple ways to deposit and withdraw funds. This can include credit cards, e-wallets, or even cryptocurrency. The more payment methods available, the easier it is for players to manage their funds. Make sure to choose a site with secure transactions. This will give you peace of mind knowing that your money is safe.

Online casinos are also constantly updating their software to provide the best user experience. Many gaming platforms invest heavily in technology to enhance gameplay. This means players can enjoy smoother graphics, faster loading times, and more interactive features. Developers are also ensuring that games are mobile-friendly. This means you can play on the go, whether on your smartphone or tablet. Mobile gaming has become increasingly popular, and more sites are optimizing their platforms for mobile devices.

While the gaming experience itself is important, it’s also essential to consider customer support. The best online casinos offer round-the-clock support. This can be in the form of live chat, email, or even phone support. If any issues arise during your gaming session, it’s crucial to have reliable help available. Fast response times and friendly service are key components of a good gaming site.

Security is another major concern for online gamers. Players need to know that their personal information and financial data are safe. A trusted platform will use encryption technology to protect user data. It will also ensure that games are fair and transparent. Reputable sites are often audited by third-party companies to ensure fairness. This gives players confidence that they are not being taken advantage of.

As online gaming continues to grow, so does the number of players. The popularity of virtual casinos is showing no signs of slowing down. Players have access to an ever-expanding range of games and bonuses. Whether you’re a beginner or a seasoned gamer, there’s a place for everyone in the online gaming world. It’s important to stay informed and choose a site that prioritizes safety, customer service, and a great overall experience.

In conclusion, online gaming has transformed the way people experience gambling. It offers convenience, variety, and the chance to win big. But players should always make sure to choose a reputable site. Look for trustworthy platforms with secure payment methods, a wide selection of games, and good customer support. Whether you are playing for fun or aiming for big wins, a trusted gaming site can provide the safe and enjoyable experience you’re looking for. Always do your research and choose wisely before diving into the exciting world of online gaming.

An important concept in DCAA audits is the authority of DCAA Audits. That is DCAA has very little authority, not any different than a CPA firm in a commercial setting. That is their findings and recommendations are advisory only. It is the authority of the contracting officer only to act or not act on the DCAA findings. The process in these audits is that the contractor must be given the opportunity to respond to findings before the audit report is issued. This response should be written with the contracting officers authority in mind. Your audience is the contracting officer not DCAA. It is imperative that you be given the opportunity to respond to any findings. Granted unless you have a compelling argument, Contracting Officers tend to side with DCAA. In my experience I have swayed many a contracting officer to either ignore or discount DCAA findings. Very important stuff

If a contractor performs cost reimbursable contracts subject to the Allowable Cost and Payment clause, the contractor is required to submit an incurred cost submission annually. The due date is 6 months after the close of the contractor’s accounting year. Most small businesses’ accounting year is December 31. In this case the due date is June 30. DCAA usually requires the incurred cost submission be submitted using their ICE model. It is complex. Contractors should provide for adequate time to meet this dead line. If you need an extension of time it is important to request an extension in advance with the contracting officer.

If you have questions about this subject please contact me.

Gaming Industry in the Philippines

The gaming industry in the Philippines has grown rapidly in recent years. This growth has been driven by both online and land-based gaming options. The country has positioned itself as a regional leader in the gaming sector. Local and international players recognize the Philippines as a hub for entertainment and gaming opportunities.

Government Support and Regulation

The Philippine government supports the gaming industry. It has created clear regulations to ensure safe and fair practices. Agencies like the Philippine Amusement and Gaming Corporation (PAGCOR) oversee gaming operations. Their role is to regulate, license, and monitor gaming businesses. This ensures players enjoy reliable and secure experiences.

A Thriving Market for Online Gaming

Online gaming has become a major trend in the Philippines. More people have access to the internet and smartphones today. This trusted gaming in the Philippines makes online gaming more accessible than ever before. Players can now enjoy games from the comfort of their homes. Online casinos and sportsbooks are especially popular among Filipino players.

Many gaming platforms operate under licenses from PAGCOR. These licenses ensure that operators meet strict rules and regulations. Trusted gaming in the Philippines gives players confidence when they play online. They know their personal information and funds are secure. Online platforms also use modern technology, such as encryption, to protect their customers.

Land-Based Casinos: Entertainment Hubs

In addition to online gaming, the Philippines is home to world-class land-based casinos. These establishments attract tourists from all over the world. Cities like Manila host some of the biggest casino resorts in Asia. Resorts World Manila, Okada Manila, and Solaire Resort are among the top destinations.

These casinos offer more than just gaming. Visitors can enjoy fine dining, luxury hotels, and entertainment shows. This combination of gaming and leisure makes the Philippines a top choice for tourists and players alike.

Ensuring Fair and Responsible Gaming

The Philippine government promotes responsible gaming. PAGCOR has introduced measures to protect players. These measures include age restrictions, self-exclusion programs, and limits on gambling activity. Players can also find resources for help if they feel they are at risk.

Gaming platforms must comply with fair play standards. These standards include random number generation (RNG) systems. RNGs ensure that games are fair and unpredictable. Players can trust that their gaming experience is not manipulated. This creates a safer environment for everyone involved.

Economic Benefits of the Gaming Industry

The gaming industry contributes significantly to the Philippine economy. It creates thousands of jobs for locals. These jobs range from dealers and hospitality staff to technology and administrative positions. Gaming operators also pay taxes that help fund public services and development projects.

Tourism is another area that benefits from gaming. Many tourists visit the Philippines to experience its casinos and resorts. They also explore other attractions in the country. This boosts businesses in hospitality, travel, and retail.

Choosing the Right Platform for Gaming

Players need to choose the right platform for their gaming needs. Safety and reliability are key factors to consider. Licensed operators are the best choice for both online and land-based gaming. Players should look for licenses issued by PAGCOR or other recognized authorities. These licenses guarantee that the platform follows strict standards.

Customer support is also important. Reliable gaming platforms offer 24/7 support to help players with questions. Payment methods should be secure and easy to use. Many platforms now accept local and international payment options, making it more convenient for players.

Why the Philippines Stands Out

The Philippines stands out as a gaming destination in Asia. The combination of strong regulations, world-class casinos, and advanced online gaming platforms makes it unique. Tourists and locals trust the Philippine gaming industry for a safe and enjoyable experience.

Trusted gaming in the Philippines is not just a promise. It is a standard upheld by regulators, operators, and gaming professionals. As the industry continues to grow, players can expect more innovations and improvements. Whether online or in-person, gaming in the Philippines remains a top choice for entertainment.

The Future of Gaming in the Philippines

The future of gaming in the Philippines looks bright. Technology continues to drive new trends, such as mobile gaming and virtual reality. More operators are also investing in advanced security systems to protect players.

The Philippine government remains committed to fair and responsible gaming. New policies and innovations will keep the industry strong. As more players look for trusted gaming experiences, the Philippines will remain a key destination.

Conclusion

In conclusion, the gaming industry in the Philippines offers a safe, reliable, and exciting experience. Both local and international players can enjoy a variety of gaming options. With strong regulations, advanced technology, and world-class establishments, the Philippines is set to maintain its reputation as a leading gaming hub in Asia.