Environmental Management Consolidated Business Center (EMCBC) - PowerPoint Presentation

Environmental Management Consolidated Business Center (EMCBC) April 9, 2019 cost accrual BASICS

What are Costs? What is an accrual ?Automated (Default) STARS’s Accrual vs FAST Accrual AdjustmentActual Costs vs Accrued CostKey Components How to make a FAST Accrual Adjustment Adequate SupportBenefits of properly making Accrual adjustments AGENDA

3 What are costs? Costs are the dollar value of items or services received, expenses incurred, assets acquired, construction performed, etc.   Why are costs important? Federal government financial rules require that costs incurred, but not yet paid, be accrued. Under/Over reported costs would distort the Department’s financial reports. Costs are a key program/project performance indicator and they are used to support the budget formulation process .

What is an Accrual ?An un-invoiced projected estimate of cost incurred for goods or services received for a scope of work. Business transactions: expenses (cost) , revenue, and liabilities incurred but not yet received (invoiced). Accrual basis recognizes financial effect of events that impact an entity for an accounting period regardless of whether cash was received or spent. Matching principle of Generally Accepted Accounting Principles (GAAP) cornerstone of Accounting matching revenues (invoices) & expenses (costs) within same period.

Importance of Accruing Compliance with Department’s Financial Policy & COR delegation. Under/Over reported cost can impact Department’s Financial Report. Project Program Office not accruing may appear the work scope is either under funded or under-running costs. Achieve a fair statement of program/project expense for period of time. Adequate basis for any selected Audit from our External Parties (KPMG Auditors), Headquarter CFO Department, Field Accrual Reviewer.

6 What can happen if we don’t accrue enough cost? Under-costing gives the appearance that the program/project has had minimal activity and has more funding than it needs. Under-costing might result in a Program/Project losing obligational authority.   What can happen if we accrue too much cost? Over-costing gives the appearance of poor project management and/or an impending cost overrun. Over-costing might be seen as program/project managers trying to ‘hide’ available obligational authority.

Actual Costs vs Accrued Costs Actual costs are recorded when an invoice is approved or cost report is received that covers a set performance period. Accumulate throughout the year and deplete obligations available for expenditure. Once an invoice is approved it’s recorded in STARS as an actual cost . Accrued Cost are projections of unbilled costs that have been incurred. Recorded at month end as placeholders for an invoice. Reversed the following month out of the Accounting System on 1 st day of accounting p eriod.

Default(Automated) vs FAST Accrual Adjustment Default (automated) STARS generated estimate available in FAST on 2nd & 3 rd workday of each month.Default is an automatic calculated formula billing xs payment for last 12 months. Serves an place holder for pending invoice.FAST Accrual Adjustment is an adjustment performed by Approving Officials, Program Specialist, Contracting Specialist, or designated proxy. FAST Accrual Adjustment is adjusted upward, downward, or zeroed out.

9 When are FAST accrual adjustments required ? FAST Cost Accrual Adjustments can only be made on the 2nd and 3rd workdays of the month . All adjustments will be added to or subtracted from the prior month’s costs. For example, cost accrual adjustments made on the 3rd workday in Jun-18 impact I-Manage Data Warehouse (IDW) cost reports for the period ending May-18. Once all of the adjustments are made on the 2nd and 3rd workdays, the results are compiled and the entries are recorded against the preceding accounting period. All accruals are immediately reversed on the first day of the accounting period in anticipation of receiving the actual invoice or cost report . For example, May-18 Accruals are reversed in June 18.

10 How do I determine what my cost accrual should be? Accrual limitations Total of actual costs plus accruals cannot exceed total obligations. O bligations are usually the total dollar value of the contract . The cost accrual represents projected costs incurred that have not yet been invoiced . First Step : Determine the uncosted obligations balance (a.k.a. “undelivered order balance” or “receipts available” balance) for the accounting period . The easiest way to determine this amount for a specific purchase order (or CID) is by looking at the grand total of the “receipts available” column on the Monthly Accrual screen in FAST. This amount already incorporates the STARS default accrued costs which can be seen in the adjacent column to the right. Second Step : Determine what the accrued costs should be (based on uncosted obligation balance). There are several Cost Accrual Methods.

11 How do I determine what my cost accrual should be-? Continued Accrual limitations Cost Accrual Methods: In order of Preference . Unbilled Costs Directly From Vendor Percentage of Completion Method Average Invoice or Prior Invoice Me thod Method 1: Unbilled Costs Directly From Vendor Contacting the vendor directly and requesting an estimate (preferably in writing via e-mail ) of the unbilled costs for the latest performance period is provides for the most accurate cost accrual . For e.g., if the vendor provides an estimate that shows unbilled costs for May-15 are $100 and the FAST STARS accrual amount is $75, an upward adjustment of $25 is required on either the 2nd or 3rd workday of Jun-15 .

12 Cost Accrual Methods: In order of Preference. Unbilled Costs Directly From Vendor Percentage of Completion Method Average Invoice or Prior Invoice Method Method 2: Percentage of Completion Method Contacting the Contracting Officer’s technical monitor to determine the percentage of completion is the 2 nd most accurate method. Under this method, use the following formula to determine the true uncosted balance:   Cumulative Obligations * (1 - % of completion) = True Uncosted Balance.   [ For example, if as of May 31, 2015, cumulative obligations on PO AB000001 were $100 and the percentage of completion was 75%, the ending uncosted balance for May-15 is really $25. You receive notification from FAST that STARS accruals are ready to be adjusted and you log into FAST on either the 2nd or 3rd workday in Jun-15. You notice that Total FAST “receipts available” are $30. In this case, an upward adjustment of $5 is required to reduce available funding.]

13 Cost Accrual Methods: In order of Preference. Unbilled Costs Directly From Vendor Percentage of Completion Method Average Invoice or Prior Invoice Method Method 3: Average Invoice or Prior Invoice Method Use the average invoice amount (or the latest invoice if that makes more sense) to determine unbilled costs for the latest performance period and adjust the STARS accrual amount by the difference.   Although there are many other acceptable methods of determining unbilled costs, these are the most popular and easily supportable. Whatever method you use, be sure to completely document your methodology and support the amount of your adjustment.

14 ACCRUAL Demo using Financial Accounting Supporting Tool (FAST)

Key Components Access to FAST Default(Automated) monthly accrual Unbilled costs from Vendors or Subcontractors Applicable Cost Reports Invoice History Approving Officials, Program Officials, Contracting Officials or designated proxy

Adequate Support Related invoices for accounting periodUnbilled cost from vendorsApplicable cost r eportReasonable projected cost estimate Audit ready for external partiesRetain support for at 3 years/ General records Schedule 7

Identify Accrual Method

What are Costs?What is an accrual? Benefits of properly making Accrual adjustments Automated ( Default ) STARS’s Accrual vs FAST Accrual Adjustment Actual Costs vs Accrued Cost Key Components How to make a FAST Accrual Adjustment (Demo) Adequate Support WHAT WE COVERED

FAST Access (DOE Headquarters) Heather Harris(865) 576-0879 heather.harris@hq.doe.gov/ Lynda Vinyard (865) 576-1697 lynda.vinyard@hq.doe.gov Cost Accrual Training Overview (EMCBC) Ericka French (513) 246-0506 ericka.French@emcbc.doe.gov (Primary) Roscoe Harris (513) 246-1360 roscoe.harris@emcbc.doe.gov (back-up) Contacts

26 References Cost Accrual Tutorial available in Financial Accounting Support Tool (FAST) at https ://fast.doe.gov/Main.aspx ( You must complete FAST registration to view this tutorial.) DOE Accounting Handbook Chapter 11 (Paragraph 2.e.(4)) is available at: http:// www.energy.gov/cfo/downloads/financial-management-handbook . Cost Accrual Training Presentation – OFM SharePoint at: http://cbcspfe2016/services/costaccrual/_layouts/15/start.aspx #/ Frequently Asked Questions (FAQ)s - OFM SharePoint at: http ://cbcspfe2016/services/costaccrual/_layouts/15/start.aspx #/

Questions? 27