This guest blog from our industry partner PVBS‘ Chief Executive Officer, Bernard Mustafa.
In my last blog, I talked about the recent memos circulating throughout the DCAA regarding expressly unallowable costs and penalties. The DCAA auditors have done a fine job finding mistakes contractors make, to the sum of $4.4 billion in reclaimed funds through more than 13,600 audits and reviews (from “2013 – Year in Review”). Maybe your company will be fortunate enough not to be selected, but most contractors will more than likely find themselves going through such an audit at some point.
The easiest way to eliminate any costs of non-compliance is to become compliant. And, as we’ve discussed in other blogs, being compliant is not that difficult of a chore if you have the right systems and processes in place. Of course, the other way to avoid any costs of non-compliance is to not have any government contract, but no one reading this blog wants to consider that.
However, government contractors should implement standard policy and procedures across their company to ensure compliance with government regulations and uniformity within their organization. These policies can be automated in a good accounting system and designate expressly unallowable costs from all other costs. They can segregate costs by division, by project, and by type of expense. Businesses should also consider building controls into their system to limit general ledger (GL) accounts and activity. Furthermore, government contracting businesses should eliminate reclassification of unallowable costs which can be time-consuming and lead to a higher potential for error. By segregating unallowable expenses up front, you reduce the risk of not catching them during the reclassification process.
There are a number of different ways a well-designed software system for government contractors can ensure unallowable costs are correctly classified up front. The PVBS solutions offered through Microsoft Dynamics NAV and Microsoft Dynamics AX provide many different ways to correctly and simply account for unallowable costs. For example, a separate range for unallowable costs can be set up in a company’s chart of accounts. This effectively permits unallowable costs to be easily distinguished from unallowable costs in the general ledger. The PVBS solution can take this one step further by allowing increased segregation of unallowable costs against specific jobs, Tasks, and Departments without the risk of accidentally billing those costs to government clients.
The PVBS solutions utilize several tools to ensure that expenses get booked to the right places. For example, the solutions provide users with the ability to set up Labor and Expense categories which are mapped to specific general ledger accounts. PVBS allows you to place a group of categories into a bucket called a Job Account Group. By assigning a specific Job Account Group to a job, you restrict which categories users are able to select on timesheets, expense reports, and purchase invoices. For example, you could create an expense category for Unallowable Alcohol, and make it accessible on expense reports so users can charge the unallowable costs up front. Through PVBS, you can also make sure that T&M Labor and Mileage get billed out to government clients at the correct labor rates.
You can also create tasks within a project that map to unallowable accounts, and give users the ability to select those tasks on timesheets. The PVBS solutions make sure that users are only able to charge to the Projects, Tasks, Labor and Expense Categories that they have been granted permission to charge, which greatly reduces the need to reclassify costs after-the-fact. PVBS also gives users the ability to design both Organizational and Project-specific approval hierarchy structures, to make sure timesheets, expense reports, and requisitions go through the proper approvals before hitting the books. Our AX solution compounds on that through the use of a Work Flow engine, which allows you to design workflows with an easy-to-use visual tool.
PVBS Government Contractor solutions can also reduce the risk of misclassifying unallowable travel per diem costs through the use of the Per Diem Wizard in the Web Time and Expense System. The system allows you to easily upload the GSA and State Department Per Diem Rates into a database. The system allows users to select their CONUS or OCONUS per diem locations, and will automatically select the correct M&IE and Lodging Rates from the options provided. The user can then key in actual lodging rates, and the amount in excess of per diem will automatically be coded to an unallowable expense code. The system will also automatically reduce M&IE allowances on the first and last day of travel to 75% of total, as well as for meals furnished on government site. All of these controls exist to ensure that DCAA will not be coming after you for unallowable travel expenses further down the road.
Another area in which PVBS helps contractors in dealing with unallowable costs has to do with Project Allocations. FAR 31.201-6 requires costs directly associated with unallowable costs to also be excluded from billings to the government. This includes indirect burdens on unallowable costs. Removing the burdens associated with unallowable costs from billing pools can be time-consuming and error-prone for contractors that rely on manual processes. By segregating unallowable costs onto a separate Job Task, the PVBS solutions ensure that the associated indirect cost burdens will hit the same WBS code when the automated Project Allocation function is run.
However, suppose that even after all of the above controls have been implemented, some unallowable costs still get misclassified. PVBS offers a number of project reporting solutions straight out-of-the-box that acn help you identify these costs before they hit your Incurred Cost Submission! For example, Project Managers can be given access to the NAV Web Portal to analyze Project Costs in detail. Accounting Managers can also examine Bookings by Job, Job Detail, and Labor ANalysis Reports for costs that stand out. Additionall, PVBS has been committed to developing more self-service reporting options for our customers that they can leverage without needing advanced IT support. An early approach using Excel as the front end has been tremendously successful. Using the PVBS OLAP Cubes, users have the ability to drill down from a higher level, such as a divisional level down to a contract or a project manager portfolio.
At PVBS, we are committed to helping government contractors grow their business. One of the prime ways contractors grow is by fostering trust with their government clients. Having a compliant accounting system that can easily identify and weed out unallowable costs can help your company win new business and keep it.