Maximizing Your FAR Overhead Rate Scott Sutton,

Transcript:Maximizing Your FAR Overhead Rate Scott Sutton,:
Maximizing Your FAR Overhead Rate Scott Sutton, CPA, CDA, MSA and Ken Hedlund, CPA, CGMA Lesson Topics Categories of Cost Pools Cost Principles and Procedures Specific Costs Deferred Compensation Learning Outcomes After completing this lesson, you should be able to: Explain and distinguish between the FAR cost principles of allocability, allowability, and reasonableness. Define directly associated costs and explain its applicability to allowability. Evaluate and discuss examples of expressly unallowable cost categories and those costs requiring additional analysis to determine allowability. Direct and Indirect Costs Cost Principles and Procedures Allowable Reasonable Allocable Burden of Proof Documentation Who, What, Where, When, Why (5 W’s) Allowable Allowable Costs Must be reasonable in amount. Allocable to Government contracts Compliant with Generally Accepted Accounting Principles and standards promulgated by the Cost Accounting Standards Board (when applicable) Compliant with the terms of the contract (Billable and Unbillable costs) Not prohibited by any of the FAR Subpart 31.2 cost principles. Directly Associated Costs Cost that is incurred as a result of incurring another related costs. Example – Vehicle expenses related to travel to a trade show. Need to consider directly associated costs when considering direct versus indirect costs. Reasonable FAR Part 31.201-3(a) A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business. Referred to as the “prudent person test” No presumption of reasonableness shall be attached to the incurrence of costs by a contractor… if an initial review of the facts results in a challenge of a specific cost… the burden of proof shall be upon the contractor to establish such cost is reasonable. Allocability Allocating costs to direct or indirect, and if direct, to the appropriate project. Key factor is “why was the cost incurred?” Allocation based on the benefits received. Be sure to document why cost was allocated in a certain manner. Allocability Costs that are allocable to a government contract will fall into one of three categories: Costs incurred specifically for the contract Costs that benefit both the contract and other work, and can be allocated in reasonable proportion based on the benefits received Costs incurred for the overall operation of the business Documentation Requirements Support for business purpose 5 W’s Who, What, When, Where, Why Expense reports, company credit cards, and vendor invoices Adequate documentation is necessary to support FAR Allowability Significance of