Mastering the Pre-Award Accounting System Webinar – Your Questions Answered!

May 31, 2016

On April 28, 2016, our Aronson LLC Government Contracting specialists Aisha Mian and La-Tasha Patel hosted “Mastering the Pre-Award Accounting System Review” where they provided an understanding of what a Pre-Award Accounting System Review is and the requirement per the FAR. As a follow up to this webinar, Aisha and La-Tasha have prepared answers to attendee questions that we wanted to share with our blog readers.

Is the adequacy letter based on the pre-award or post-award audit?

The adequacy letter does not specify whether it was based on the pre-award or post-award audit.  It will come from your Contracting Officer and state that your accounting system is acceptable in accordance with the terms and conditions of DFARS 252.242-7006 and that the system is approved.  The letter will also state that the adequacy determination was based on an evaluation of your system which was conducted by the DCAA.  The reference to the pre-award or post award will be included in the DCAA’s audit report that was sent to the Contracting Officer.

How would a software upgrade be treated?

An upgrade to software would be considered a material change in the system and would require a full pre-award audit to be performed on the accounting system with the new software.

Is a change in the indirect cost pool structure considered a material change?

A change in the indirect cost pool structure would not be considered a material change.  Therefore, this would not require a pre-award audit to be performed again if the system has already been reviewed.

Can you repeat the specific RFP you mentioned which allows 3rd party CPA and clarify if that was an IDIQ with the possibility for just labor hour rate or FFP contracts instead of all CPFF or T&M why they would even require that?

The RFP that we mentioned during the webinar was the CIO-SP3 proposal.  CIO-SP3 is a ten year Indefinite Delivery/Indefinite Quantity (IDIQ) contract.  This RFP required verification of an adequate accounting system because of the need for contractors to respond to cost reimbursement task orders to be eligible for award.

Does the distribution of salaries have to be through the system?  I do the calculation in Excel and post to the accounts via journal entry.  Auditor was not pleased – insisted that the system need to have this capability.

The labor distribution does not have to be through an automated system and can be done manually via an Excel spreadsheet.   As long as you have the back-up documentation for the journal entry related to the labor distribution, then the manual method is acceptable.  The back-up documentation should show the allocation of employees’ hours and cost to final cost objectives such as a direct project, overhead or G&A account.  An adequate accounting system does not have to be based solely on use of accounting software.

Could you please let me know how to allocate the overtime pay to the direct labor and indirect labor for billing purpose? Our payroll is a semi-monthly, the billing is done monthly.

Overtime hours should be identified as ‘Overtime’ hours on the employee timesheet.  You will want to calculate the employee’s overtime pay and then allocate that cost to the cost objective that is shown on the employee’s timesheet.  For example, for a bi-weekly pay period, you may have 75 ‘Regular’ hours on the timesheet charged to a direct project, 5 ‘Regular’ hours charged to an overhead charge number, and 5 ‘Overtime’ hours charged to an overhead charge number.  The overtime cost should then be calculated based on the overtime rate and then distributed to the charge numbers or accounts that the overtime hours were charged to based on the timesheet.