As 2014 is now upon us, let us not forget one of many important DCAA Memorandums for Regional Directors (MRDs) – Placing Reliance on Scanned Images. Particularly important to note is that this MRD only applies to scanned images of paper invoices as stated in the Frequently Asked Questions portion of the memo. The memo does not address scanned images of financial and cost accounting records.
The August 15th MRD lists audit procedures based on specific requirements covered under FAR 4.703(c) and FAR 4.703(d). These requirements state that the contractor must have established procedures to ensure the imaging process preserves accurate images of original records in order to maintain their integrity (e.g., signatures and other written or graphic images). Also required is the maintenance of an effective indexing system to permit timely and convenient access. For example, keeping an up-to-date index of records, a log of record locations and movement of records will satisfy this individual requirement. Contractors must retain original records for a minimum of one year after imaging to allow periodic validation of imaging systems.
In the current environment where “affordability” is paramount and companies must “do more without more,” it is critical that companies can quickly and efficiently identify their CAS-covered contracts. This is important for two key reasons:
The original CAS Board, in its Working Group Guidance Paper – WG 77-17, recognized the necessity for companies to quickly and efficiently identify its CAS-covered contracts. In WG 77-17, the CAS Board stated:
Start-up government contractors are often confused by the difference between fringe, overhead and G&A expenses. The FAR gives no substantial guidance, leaving each contractor to make their own decisions.
Understanding these concepts will help you protect profits and give you the ability to negotiate new contracts effectively and competitively. Being correct and consistent in how you categorize expenses helps you effectively monitor escalating costs or eroding profit margins.
Rules for government contractors require you to distinguish and segregate direct costs from indirect costs. Common practice is to
One of the DCAA’s focus areas in ICS audits involves the evaluation of direct versus indirect costs. Auditors are paying close attention to the costs accumulated in your indirect cost pools and inquiring whether any of these costs should in fact be classified as direct. The key here is to remain consistent with how costs are treated. Otherwise the DCAA will question costs based on violation of consistency in allocating costs for the same purpose (CFR 9904.402). If there is a case for which you have to treat a like cost different, you must be able to demonstrate that this particular cost is treated as an indirect cost “but for the fact” related to a specific contract, you are treating it as a direct cost. Additionally, you must demonstrate that the Government will not be charged for this cost twice, that is, via both direct charge and indirect cost allocation. Best practice is to stay consistent in allocating cost for the same purpose but be aware if you find yourself having an exception. Document the exception and be prepared to provide back-up to the auditors.
In the Memorandum for Regional Directors (MRD) released by DCAA on March 22, 2013, it clarifies the FAR 31.205-46(a)(2) clause for determining contractor’s claimed per diem costs. The latest instruction emphasizes existing Agency guidance of one ceiling when determining the maximum allowable travel per diem rates for contractors. More importantly, it confirms that the daily per diem claimed by contractors would be questioned only if the total cost of lodging plus meals and incidental (M&IE) expenses exceeded the total ceiling amount set forth in the applicable Government travel regulations.
For the most part, the Federal Travel Regulation (FTR), Joint Travel Regulations (JTR) and Statement Department’s Standardized Regulations (SR) apply primarily to Government employees. The parts that do apply to contractors are the definitions of lodging, meals and incidental expenses and the maximum per diem rates. Nevertheless, if you are a contractor, the Federal Acquisition Regulation (FAR) should be the starting point for any questions on travel costs.