Whitepaper: The Audit World's Biggest Myths
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Whitepaper: The Audit World's Biggest Myths
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From our GovCon Commmunity

Capital Edge Consulting combines their unique backgrounds and experience in consulting, public accounting, industry, and DCAA to provide you with unmatched government contracting expertise. This breadth of specialized experience allows our team to share their experience and knowledge with some of the most common questions and answers.

*Each case has its own specific set of circumstances so specific answers may vary. We recommend you reach out to our experts to assure the answer matches your unique circumstances. We also welcome you to post in our LinkedIn ASK an EXPERT: Government Contracting Group hosted by Capital Edge Consulting.

Is it important to have an acceptable project accounting system if we only do firm fixed priced contracts?

We will ignore for the moment the question of why you would not want to understand your cost for purposes of value engineering or other cost reduction initiatives.

From a government contracting perspective, it is important to ensure your project cost accounting system accurately accumulates costs incurred. This is particularly important if you price contract effort based on historical cost data, are required to submit certified cost or pricing data, or request progress payments based on cost.

If cost or pricing data is required, the Truth in Negotiations Act (TINA) requires a contractor to show the cost incurred on similar projects. There is no requirement to estimate using the historical data, but relevant historical data must be disclosed to the customer. If the accounting system does not properly accumulate the cost, the data will not be accurate and, therefore, be in violation of TINA requirements.

So the short answer is “Yes” – you should ensure you have an acceptable project accounting system even if all you do is firm fixed price contracts.

Is the method I use to allocate indirect costs to contracts important?

Absolutely. The way indirect costs are allocated to contracts can have a tremendous impact on cost recovery and thus overall profitability. It is important that the composition of the allocation base be understood.


Should I understand the composition of my costs? Is it important to know what portion of my overhead is fixed and what is variable?
The fixed versus variable classification of cost is useful in some instances, but for most contractors all indirect costs are fixed over the relevant range. This is particularly true for larger contractors. Why is this important? This information can be very helpful. For example, if the contractor is negotiating a cost incentive type contract and knows that the fixed price component of overhead is $0.60 per direct labor dollar the customer can be told that the share ratio has to be greater than 60% before the contract is truly incentivized.

It can also come in handy when your marketing mavens want to bid at less than full absorption costing.

Who must submit an Incurred Cost Proposal?
An incurred cost proposal or incurred cost submission is required for Federal contractors who have flexibly priced contracts or subcontracts containing FAR 52.216-7 – Allowable Cost and Payment clause. 
Do you have any Tips to Prep for the Audit While you Prepare a FAR Incurred Cost Submission (ICS)?

An Incurred Cost Submission is required for all federal contractors holding cost-type or time and materials (T&M) contracts. Our ICS Audit experts identified the key 5-ways to start DCAA audit preparation for the incurred cost audit, while preparing the current annual ICS.

  1. Documentation is critical for a successful Incurred Cost audit outcome.
  2. Spread the knowledge wealth.  Continuity is essential as there will likely be a lag in time between submission and an audit of the incurred cost proposal.
  3. Prepare supplemental schedules, even though they are not required for a submission to be deemed adequate by DCAA.
  4. Keep a “working copy“ of the incurred cost proposal.  This version of the file should be fully linked and contain all completed supplemental schedules.  It will prove invaluable during the incurred cost audit.
  5. Understand audit expectations. Clear communication and setting of expectations at the beginning of an audit can smooth the process.

→Click to visit our Incurred Cost Submission Page for more on ICS Compliance.  

What is the current Contractor Compensation limit?

The Office of Federal Procurement Policy (OFPP) has not published the 2020 compensation cap amounts.  However, the OFPP did post the formula to be used to calculate the cap.  The cap has also been released by DCAA in MRD 20-PSP-004(R) dated August 20, 2020.

  • 1/1/22 – 12/31/22: $589,000
  • 1/1/21 – 12/31/21: $568,000
  • 1/1/20 – 12/31/20: $555,000
  • 1/1/19 – 12/31/19: $540,000

Cap is for contracts awarded after June 24, 2014.→Need more information? Check out the ICS Services Page.

Who is subject to Cost Accounting Standards (CAS)?

Any organization who received single or net CAS-covered awards with a total equaling more than $50 million in its most recent cost accounting period shall submit a Disclosure Statement. Need more information on Cost Accounting Determination and Compliance? →Check out the CAS Services Page

What steps can a contractor take to assist the DCAA with their pre-audit risk assessment process?

A few things are primary, and, if performed effectively should enhance the opportunity for a low or medium risk determination.  First, timely and thorough responses to DCAA’s initial requests for information.  Responses need to specifically address the DCAA requests or questions and demonstrate how the response satisfies the related compliance requirement or audit objective.  Second, identification and submission of relevant written documentation demonstrating the use and effectiveness of key controls.  Written documentation may be policies, procedures, process flows, or other material.  And third, a comprehensive business system demonstration or walkthrough of the processes, procedures, and internal controls applicable to the principal components of the business system. Need more information on DCAA Compliance? →Check out the DCAA Services Page Resources

What is the Federal Acquisition Regulation?

The Federal Acquisition Regulation (FAR) is the regulatory compliance foundation comprised of the rules and requirements that the federal government and government contractors are obligated to comply with when pursuing, executing and performing contracts with the Federal government.

FAR 1.102(a) states “The vision for the Federal Acquisition System is to deliver on a timely basis the best value product or service to the customer, while maintaining the public’s trust and fulfilling public policy objectives. Participants in the acquisition process should work together as a team and should be empowered to make decisions within their area of responsibility.” Need more details on FAR compliance?  →Check out the FAR Services Page

What Are the Most Common Acronyms in Government Contracting?

Our Experts know Government Contracting regulations can be difficult to manage, but terminology should not be. The GovCon industry uses a lot of acronyms so our team put together some of the most used terms as a quick resource. →Check out the Government Contract Acronyms Resource Sheet

About Capital Edge Consulting

Capital Edge government contract consultants support Government Contractors and Federal Grant Recipients. Our consultants specialize in the regulatory compliance matters you need.

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Whitepaper: The Audit World's Biggest Myths
Download Now
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