A Perfect Accounting System Deals With Dcaa Indirect Costs Effectively
Posted by dcaa Consultant on August 23rd, 2017
When it comes to federal contracts it is not only the direct cost rates that you should be concerned with but also know about the indirect cost rates as well. Direct cost rate is easily quantifiable as it includes simple things like cost of materials, wages, subcontractors and others. On the other hand, indirect cost needs great effort to calculate which I compulsory if you have to deal with federal contracts. This is necessary as the cost is reimbursed and it is with DCAA compliance that you can assure of fair and equitable reimbursing. The indirect costs are incurred across several businesses and are used for Incurred Costs Proposals as well.
The Categories Of Indirect Cost Rates
According to the system, the DCAA indirect costs play a very significant role. Indirect cost rates that are also known as Facility and Administrative rates are only recognized by Federal Acquisition Regulations when grouped in a logical manner. Usually, there are three categories of it. The first is the employee benefits such as health, pension plans, paid leave and others. Next is the overhead cost that includes all expenses to run the business like research and development, heat and electricity, shared facility costs and others. Lastly, it is the general and administrative costs associated with the business management. This includes a cost of office space, management salaries, wages of workers and others.
Preparation Of Indirect Proposal
It requires a lot of effort and skill to prepare the indirect proposal for which you will have to know first the indirect rate to receive a federal grant. This must be handled by a specialist and contact the relevant authority to know about the grants that are valid for a year only after which a new rate is calculated. It is therefore elementary that you have an experienced accountant who is well versed with DCAA accounting system requirement so that you can prepare the indirect proposal correctly as per the relevant norms.
Factors Affecting Indirect Rates
There are several factors that will affect the indirect cost rate which you need to know for the incurred cost submissions. These factors are the business type, the size, an age of your business and also the location of it. According to FAR, you will have to submit the Incurred Cost Proposal within a time frame of six months of the fiscal year. If you fail, then the DCAA will send several reminders until the time it becomes due. This stage should be avoided for your own benefit as then the DCAA may decide to make unilateral recommendation that will be based on historical rates for contractors of similar category. It is also important that all data submitted are accurate and in proper formats, as there will be government audits conducted after the proposal is received.
Checking Of The Accounting System
The DCAA auditors will not only check the proposal but will also ensure that the accounting system meets all the norms and is DCAA compliant. The will take Generally Accepted Accounting Principles or GAAP into consideration and do various tests with the accounting system. They will look at the controls for direct charging of indirect expenses and vice versa. It will also check the Job Cost Ledger which is also the accounts receivable register. It will also check the pools or groups of indirect costs, timekeeping system, general ledger, labor distribution system, monthly postings, exclusion of unallowable costs, segregation of cost, interim billing and much more.
