The basic requirement of CAS 410 is that G&A expenses be grouped into a separate indirect cost pool and allocated only to FCOs.  For an expense to qualify as G&A, it must be incurred for managing and administering the whole business unit and the appropriate base for those expenses be a cost input base. Those management and administrative costs that can be more directly measured by an allocation base other than a cost input base should be removed from the G&A expense pool. For example, program management, procurement, subcontract management, G&A type expenses incurred for another business unit, etc. should not be accumulated as G&A expenses of the business unit. The standard provides one illustration. The personnel function is divided into two functions: (a) a vice president who establishes personnel policies and overall guidelines and (b) a personnel department handling hiring, testing, etc. The VP is included in the G&A expense pool while the personnel department would be included in other indirect cost pools based on an appropriate beneficial or causal relationship. The following will address some of the specific issues related to which costs to include in the G&A cost pool:

Home Office Expenses. Where an operating business unit also performs home office functions (e.g. pension administration and marketing for the whole company), those expenses must be isolated and treated as home office expenses and not be included in the business unit A’s G&A pool.  However, once isolated as home office expenses, appropriate amounts of home office costs may then be allocated to the business unit A in question in accordance with CAS 403, Allocating home office expenses (see the 1Q07 edition of the GCA DIGEST). Examples are direct allocations (e.g. insurance plans benefiting only our business unit), proportionate shares of centralized services (e.g. central payments), residual expenses or immaterial amounts of expenses properly considered home office but remain in the businesses unit A’s G&A pool for administrative ease. It should be reminded that certain home office expenses may need to be allocated to other indirect expense pools of business unit A. The standard gives an example where home office staff management of manufacturing and engineering functions would be better allocated to manufacturing and engineering overhead pools rather than business unit A’s G&A pool.

G&A Expenses Incurred by One Business Unit for Other Segments.  Certain G&A activities benefiting some but not all segments may be performed at business unit A
e.g. accounting functions for several segments where they need to be allocated to those benefiting segments. A two step process is required: first, those expenses need to be identified and separated from the G&A pool and then, secondly, allocated to the benefiting segments on the basis of a beneficial and causal relationship.

Non-G&A Expenses in the G&A Pool. Many costs normally included in a business unit’s G&A pool are not strictly G&A type activities.  For example, many expenses such as sales and marketing, contract administration, independent research and development and bid and proposal activities are commonly included in G&A expense pools but are not really G&A activities.  CAS 410 permits a contractor to include in the G&A expense pool any costs not satisfying the definition of G&A expenses if the best allocation base is the same base (i.e. cost input) used to allocate real G&A expenses. The standard includes an example of scientific computer operations used to support IR&D rather than management or administration of the company as a whole is properly included in the G&A expense pool “unless they can be allocated to a business unit objectives on a beneficial or causal relationship which is best measured by a base other than a cost input base representing total activity of a business unit.” Another example the standard provides of a cost acceptably included in the G&A pool is selling expenses.  In addition, any insignificant amounts of non-G&A expenses may be included in the G&A expense pool.
When auditors would prefer to see a cost not included in the G&A pool (e.g. when a different allocation would result in a lower price to the government) they will look for a better allocation base for certain costs. For example, selling, personnel, purchasing and data processing costs may be singled out as items having a better allocation base such as cost of sales, headcount, purchase orders and input/output devices, respectively, might be put forth as better allocation bases than total cost.

Combined Pool of G&A and Other Expenses. The standard allows for combining the G&A expense pool with other expenses for allocation if certain conditions are met: (1) the allocation base used for the combined pool is appropriate for each and (2) there is the ability to identify the components and total of the G&A pool separately from the other expenses.  Contractors may want to be able to separate the two types of costs even though on a practical level, the pools are merged having no individual identity.  The standard provides two illustrations.

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