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Requirements for an Acceptable Accounting System

By ensuring that your accounting system is set up properly, Cordia Partners show you how you can limit risk, reduce costs, and improve the quality of financial and operational information that is critical to make informed business decisions. 

The following guidelines have been provided by Cordia Partners, a TBS Consulting Partner.

General Ledger  FAR 53.301-1408(2)(d)

An acceptable accounting system requires a contractor to maintain a general ledger. We recommend that the contractor establish an acceptable general ledger which should provide for the following:

  1. Segregate accounts in a logical fashion, clearly grouping homogeneous accounts together (i.e. overhead accounts should be separately identified from GA accounts).
  2. Unallowable costs should be segregated and identified separately.
  3. Contain cumulative totals.
  4. Posted on a current basis.

Job Cost Ledger  FAR 53.301-1408(2)(b)

An acceptable accounting system requires a contractor to be able to segregate costs by contract. We recommend that the contractor establish a job cost ledger or similar means which would accumulate costs by contract.  An acceptable job cost ledger should provide the following:

  1. Segregate direct costs by contract/job.   
  2. Segregate direct costs by element (direct labor, travel, subcontracts, consultants, materials, etc.).
  3. Contain cumulative totals.
  4. Posted on a current basis.
  5. Unallowable costs should be identified.

Labor Distribution  FAR 53.301-1408(2)(f)

An acceptable accounting system requires a contractor to maintain a labor distribution.  We recommend that the contractor establish an acceptable labor distribution which should provide for the following:

  1. Identify all direct and indirect activities/functions for the company.
  2. Specify account number/contract number to which the labor cost is identified/charged.
  3. Indicate labor charges by employee and if applicable by labor category or other level of detail.
  4. Contain posting references.
  5. Contain the date of the labor charges (ie. pay period ended MM/DD/YY).
  6. Contain totals by account number for each pay period.
  7. Able to trace labor hours/costs to employee timesheets.

Interim Repricing  FAR 53.301-1408(2)(g)  

To be capable of interim re-pricing, a contractor must maintain their books and records on a current basis, and be able to compute interim indirect rates. We recommend that the contractor maintain their books and records on a current basis.

Exclusion of Unallowable Costs  FAR 53.301-1408(2)(h)

An acceptable accounting system requires a contractor to be capable of identifying and segregating the costs that are unallowable in accordance with Federal Acquisition Regulations.  We recommend that the contractor modify the current chart of accounts to provide separate accounts that would be used to accumulate and segregate the various items of unallowable costs.

Costs by Contract Line Item  FAR 53.301-1408(2)(i)

An acceptable accounting system requires that a contractor be capable of expanding their system to the requisite level of detail.  We recommend that the contractor modify their current system to allow for the establishment of separate task numbers which would enable the contractor to accumulate costs by contract line item.  In addition, procedures should be implemented exact level of detail, at which the contract's costs must he accumulated.

Preproduction Costs  FAR 53.301- 1408(2)(i)

An acceptable accounting system requires that a contractor segregate pre-production costs. This ability is essential in order for the contractor to be able to segregate and identify production costs, when re-pricing follow-on contract effort. We recommend that the contractor establish separate task numbers in order to accumulate and segregate the pre-production costs from those costs associated with the production effort.

Proper Segregation of Direct Costs from Indirect Costs  FAR 53.301-1408(2)(a)  

Chart of Accounts

Budgetary Indirect Rates  FAR 53.301-1408(2)(c)

An acceptable accounting system requires the use of a logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives.

Limitations of Costs  FAR 53.301-1408(3)(a)

An acceptable accounting system requires a contractor to be capable of complying with contract provisions related to limitations on costs.  The contractor's systems should be modified to provide for the following, in order to ensure their ability to comply with potential limitations on costs:

  1. A written description of the pool and base costs used to compute each indirect rate should be prepared.
  2. Indirect cost pool must be grouped by pool and subtotaled.
  3. Interim indirect rates must be computed and monitored on a regular basis.
  4. Contract expenditures should he compared to the budget and monitored on regular basis.

Progress Payments/Public Vouchers  FAR 53.301-1408(3)(b)

An acceptable accounting system requires that a contractor be capable of properly preparing progress payments/public vouchers. In order to prepare these billings properly, the contractor's accounting system should provide for the following:

  1. Interim billings should be prepared directly from the books and records.
  2. Invoices should be reconcilable to claimed current and cumulative costs.
  3. The contractor should have current approved indirect rates.
  4. Unallowable costs should be excluded.

Adequate Reliable Data  FAR 53.301-1408(4)

An acceptable accounting system requires a contractor's system to be capable of generating adequate reliable data.  In order to fulfill this requirement, we recommend that the contractor's system be modified in order to ensure that reconciliations are performed on a regular basis.  In addition, the reconciliations should be relatively easy to perform, without requiring extensive adjustments to achieve these reconciliations.

Timekeeping System  FAR 53.30l-1408(2)(e)

An acceptable accounting system requires a contractor maintain an acceptable timekeeping system. Labor costs are usually the most significant cost incurred in the performance of Government contracts.  Labor dollars are often the single largest element of cost and form the basis for estimating labor for future contracts.  It is therefore imperative that contractors establish and maintain a sound system of internal control over the labor charging function. The following internal controls should be implemented as part of an acceptable timekeeping system.

Listed below are internal controls which should be implemented as part of your timekeeping system:  

a. All employees are responsible for preparing their own timecards/timesheets in accordance with the following procedures:

  1. Employees must be provided clear written instructions of the work to performed and job number to be charged.
  2. Timecards/timesheets must be prepared in ink.
  3. Timecards/timesheets must be filled out as work is performed, but no less often than daily.  Informal records of start and stop times should be used when multiple jobs are in process.
  4. All hours worked must be recorded on the timecards/timesheets including direct and indirect hours worked.

b. Timecards/timesheets must be signed by employees and the supervisors only after they are filled out.

c. Errors are to be crossed out and a new entry made with no erasures or whiteouts.

  1. Corrections are to be initialed by the employee and supervisor.
  2. An explanation must be provided for corrections.

d. Distribution and collection of timecards/timesheets must be controlled.

  1. Only one card is to be prepared per employee per period.
  2. Timecards/timesheets are to be preprinted with employee name and identification number.
  3. Timecards/timesheets must he turned in to a designated timekeeping office or collected by an authorized person.

e. New employees must be fully indoctrinated on proper timecard/timesheet procedures.  Employees must be made aware of their independent responsibility for accurate timecards/timesheet preparation.

f. Periodic internal reviews are to be performed of the timekeeping system in order to assure compliance with system controls.

  1. Independent persons will review timecards/timesheets for adherence to approved preparation procedures (ie. signed by employee and supervisor, corrections initialed and explained, prepared in ink, etc.).
  2. Independent persons will reconcile job time charges with total hours paid per the payroll, and verify their agreement with attendance records.
  3. Independent persons will periodically sample labor charges through surprise floorchecks of employees as those employees record their time, in order to determine the validity of the job charged for the work being performed. The sample must subsequently be traced to the accounting records to verify that they accurately reflect the time and job charged.

g. Overtime hours are to be approved in advance, and should be justified in writing.  

When overtime is worked, the related hours should be indicated on the employee's timesheets. This should be done even if the overtime is not billed to the Government, or paid to the employee. The hourly rate of those employees working overtime and not being compensated should be adjusted to reflect their annual salary divided by the total hours worked, by not adjusting the hourly rates for actual hours worked, certain contracts may be penalized.

h. Rework and idle time are to be controlled by charging a separately authorized job number.

i. A list of supervisors authorized to approve timecards/timesheets is to be maintained, along with signature cards kept on file by the timekeeping office.

 

These guidelines have been provided by Cordia Partners, a TBS Consulting Partner.

Cordia Partners
8320 Old Courthouse Road
Suite 320
Vienna VA, 22182

Ph: 703.42.6200
Fax: 703.462.6235