Requirements for Adequate Accounting Systems
FAR 16.3013 Requirement:
“Requires that a contractor's accounting system be adequate for determining costs applicable to the contract prior to the award of a cost reimbursable contract, grant, SBIR, or BAA. An adequate accounting system is not an evaluation criterion. It is a basic contract requirement with a pass/fail determination. ”
“A contract vehicle may only be awarded to an offeror who is determined to have an adequate accounting system by the Defense Contract Audit Agency (DCAA).”
Core elements of an Adequate Accounting System:
1) Conforms With Generally Accepted Accounting Principles (GAAP)
2) Produces Equitable Results Verifiable
3) Applicable to The Contemplated Contract(s)
4) Is Capable of Being Consistently Followed
5) Proper segregation of direct costs from indirect costs
6) Identification and accumulation of direct costs by contract
7) A logical and consistent method for allocation of indirect costs to intermediate and final cost objectives
8) Accumulation of costs under general ledger control
9) A timekeeping system that identifies employees’ labor by intermediate or final cost objectives
10) A labor distribution system that charges direct and indirect labor to the appropriate cost objectives
11) Interim (at least monthly) determination of costs charged to a contract through routine posting to books of account
12) Exclusion from costs charged to Government contracts of amounts that are not allowable pursuant to Federal Acquisition Regulation (FAR) Part 31,Contract Cost Principles and Procedures, or other contract provisions
13) Identification of costs by contract line item and units if required by the proposed contract
14) Segregation of preproduction costs from production costs
Why Accounting Systems Fail:
1) Unallowable costs not accounted for separately
2) No cumulative labor distribution and/or job cost ledgers
3) No written policies and procedures
1) Recording Time on A Daily Basis
2) Recording Time on The Timecard (Ink)
3) Project Numbers, Contract Number, etc…
4) Changes To The Timecard
5) Recording All Hours - Whether Paid or Not
6) Signing The Timecard
1) No official system in place
2) No written instructions/policies/procedures
3) System not linked to accounting system
4) Recording of direct charges only
5) Recording by direct - type personnel only
6) All hours worked are not recorded
7) Improper timecard preparation
Timekeeping System Objectives:
1) The objectives of an adequate timekeeping system ensure that proper and reliable contract labor costs, identified as either direct or indirect, are billed to government via a system of accurate, timely, and complete posting of labor hours on individual employee timecards
2) Many contracts are labor intensive, with preponderance of contract cost comprised of labor charges
3) Labor charging systems are often the easiest to manipulate by the fewest number of people
4) History of timekeeping fraud with government contractors
5) Adequate timekeeping systems are critical in gaining government’s trust in company’s ability to ensure proper charging and billing of labor costs to government programs
6) Inadequate timekeeping system will damage creditability of customer and raise specter of added audit oversight or investigation
7) Deficiencies and irregularities in timekeeping systems have led to more criminal investigations of government contractors than any other type of anomaly found in an accounting system
8) Anytime DCAA notes significant timekeeping deficiencies during an audit the audit scope will be expanded and possible referrals of suspected irregular conduct to government investigative agencies are likely especially if those deficiencies have gone undetected for a long period
Proper Policies & Procedures for Accurate Labor Charging:
1) Employee is given correct project or time charge number via work authorization before work commences
2) Time cards/sheets provided to employee at beginning of pay period
3) Time cards/sheets are pre-coded with pay period, name, etc.
4) Timesheet access controlled; no more than one timesheet provided to employee for each pay period
5) Employee has control or possession of timesheet
6) Employees prepare timesheets daily, in ink - especially important for direct employees
7) Supervisors or other personnel do not prepare timesheets for employees (unless out due to sickness, etc.)
8) Employees make corrections (in ink) on original timesheet that allows audit trail, no white-out, but clear identification of corrected entry
9) Management approval of timesheet corrections noted
10) Explanation of timesheet corrections provided on timesheet or attached document
11) Timesheets not filled out or signed in advance of time worked
12) All time worked recorded whether paid or not (unless immaterial or non-routine)
13) Time in and time out if required by timesheet
14) Timesheet signed by employee at end of pay period
15) Paid absences charged to correct indirect code
16) Indirect duties (training, meetings, etc.) properly charged
17) Timesheets collected by appropriate official and reviewed; supervisory signature noted on timesheet
How DCAA will Audit Compliance with FAR Requirements:
· Floor checks and employee interviews:
a. Select sample of employees and conduct “surprise” onsite review of those employees at work
b. Usually conducted with company official present
c. Interview employee and review timesheets for accuracy
d. Review timekeeping policies
· Verify timesheets and interview results to payroll and labor distribution records
Audit Preparedness Self Assessment:
· Do all employees know how to prepare a timesheet?
· Are all employees aware of fines and prison terms associated with falsification of labor charges?
· Do you have written timekeeping procedures that are up to date?
· Do you have a varied mix of contract types?
· Are your employees given the independence to prepare and correct their own time charges?
· Do your supervisors review all time sheets when submitted?
· Do you perform your own internal floor checks to determine if employees are correctly preparing timesheets?
· Do your employees know what project/task they are working on?
What are the Possible Penalties for Failing to Follow the Discipline?
· False Claims Act - 18 U.S.C 287 – Criminal proceedings:
a. Submission of claim for payment knowing claim is false
b. Intent must be proven
c. Penalty may include fines and prison terms
· False Claims Act - 31 U.S.C 3729 – Civil proceedings:
a. No proof of intent required
b. Generally reckless disregard of truth
c. Civil penalties of not less than $5,000 and not more than $10,000, plus three times amount of damages government sustains
d. Example: submission of public voucher which contains unsupported labor charges
· False Statement Act - 18 U.S.C. 1001
a. Contractor willfully makes false statement knowing it contains false information
b. Includes falsification of accounting data such as timesheet, billing data, etc.
c. Certification of indirect costs that knowingly contain unallowable costs covered
d. Government may seek criminal or civil remedy
e. Fines, penalties & possible prison sentences
· Major Fraud Act of 1988 - 18 U.S.C. 1031
a. Covers contracts/subcontracts exceeding $1 million
b. Obtaining money or property from United States by means of false or fraudulent pretenses, representations, or promises in any procurement of property or services as prime or sub with U.S.
c. Fined up to $1 million, or imprisoned up to 10 years, or both