But lessons to be learned for contrtactors….
But lessons to be learned for contrtactors….
A DCAA auditor recently contacted a client with a concern about their incurred cost submission for 2014, The auditor asked the following (contract information redacted):
1) In comparing on Schedule I to Schedule H, Schedule I, cell G30 ($38,287) and Schedule H, cell P36 ($34,579) are both values for FYE 2014 Costs, Subcontract XXXXXXXXXX. What accounts for the difference between these two numbers?”
If you could not guess, this was the T&M section of the Schedule I. This section of the Schedule I records the government’s costs while the section referred to in the Schedule H records the contractor’s costs. Under any reasonable circumstances they should not tie. A careful reading of DCAA’s own adequacy checklist confirms this (link to Schedule K not H).
Answering this type of question is a conversation I try to have over the telephone or in person. I avoid putting our response in writing due to the fear of focusing the adequacy discussion on the government and not the contractor.
I telephoned the auditor and she immediately agreed with my response but insisted that I reply in writing to provide a record of the response. This is when I guessed that the question originated with her supervisor and not herself. Apparently, a supervisor who survived the DCAA Internal 2008 Adequacy Crisis and is now a supervisor.
Here are some of the requirements from the Department of Homeland Security’s latest SBIR RFPs
“Additional deliverables in this phase include the following (templates to be provided later by the federal Program Manager):
I recently participated in a Navy SBIR conference where one of the other panelists encouraged contractors not to worry about the budgets on their SBIR Phase One. It appears that may no longer be the case.
I had a dim memory of the DOD program staff asking for similar reports years ago. I went to look and found one form so old that I cringed at the title: “Fund Man Hours Expenditures”. I imagine an updated version of this is in many small business contractor’s futures.
All of this underlines the importance of doing it right from the start. Contractors starting out should start out with a cost accounting system that will meet their needs and the government requirements.
In 1998, I listened to an IT staff member from a large contractor proceed to chew out the contractor’s accounting staff for ‘losing’ a folder stored on the company’s servers containing all of the year-end closing work. He proceeds to call the staff “idiots” and ignorant while glossing over the fact that the IT department’s backup of the critical data had failed the night before.
He noticed my smile and could not decide if I was agreeing with him or laughing at him, so he asked me what the F**K I was smiling about. I replied,
“I want to thank you. For years people have criticized accountants as being unresponsive to the company’s needs, speaking a language no one else understands, and not really caring about the success of the company. People now say this about IT people instead”.
A few weeks later a software consultant, with full access to all of the IT systems, destroyed the company’s general ledger by using direct access to the database to create new balances in 146 general ledger accounts. The consultant then spent months trying to fix the error while hiding it from the company. Nine months later, one of the company’s employees printed out a general ledger report that showed a WIP balance of a little over two million dollars while the subsidiary ledger showed an amount several times larger.
What saved us was the trial balance that I had printed out the day before the consultant screwed up the general ledger. I took the printout with me as a resource for my work for them with DCAA.
As a result of this lesson, and too many others, I started asking myself twenty years ago about the relationship between accounting and IT. Part of my thinking can be seen in the name I chose for my later technology company: “Accountable Technologies”. I would love to say that Edward Snowden was the final nail in the coffin, but there are thousands of accidental and deliberate Snowdens scattered across American businesses, large and small.
I personally believe that IT personnel should have episodic access to the accounting system; not at will. Perhaps you do not agree with this, fine.
But, you should take advantage of the new cyber security requirements adopted by the Department of Defense to think about the issue, to develop your own policies and procedures.
DARPA put up an excellent guide for small business with links to expanded materials. Take a look and think about it.
By, the way, if you were wondering what happened to the missing folder, an employee visiting from another location to document procedures, had moved the folder to her personal files for future reference thinking she had copied it. We discovered this a couple of hours later when she wandered in to the office.
More at www.dcaacompliance.com
I can take this one of two ways:
The following is from the New ICE Manual .
“The following Schedules and information are not required for submittal of an adequate proposal; however, the information will be required to complete the audit. ICE contains Supplemental Schedules A-1, A-2, A-3, A-4, B, C, and O that can be utilized by the contractor to provide information as noted below:
SUPPLEMENTAL MODEL INCURRED COST PROPOSAL INFORMATION
These schedules may be used for comparison of prior year actual costs; however comparative analysis of budgetary data will also be required by the auditor.
DCAA receives it overdue external peer review from DOD OIG. Unfortunately, it is not the stellar report we hoped for.