Increased frequency of accounting system reviews by the government and the hiring of new employees from the commercial sector have led to numerous requests to provide written information on screening unallowable costs. The following can provide a useful reminder to veteran employees, highlight the basics for new employees and provide some essential checkpoints for preparing written policies for screening unallowable costs, an essential element for “adequate” internal controls.
A government contractor must, at some point, demonstrate its accounting system can identify and exclude – screen - unallowable costs from proposals, billings and incurred cost submittals. FAR 31.201-6 and CAS 405 are the guiding regulations for screening and accounting for unallowable costs. A determination of inadequacy in this area can range from a recommendation to make improvements to the conclusion the contractor’s accounting system is inadequate for government contracting purposes. This determination, in turn, can result in failure to award a contract until adequacy is demonstrated, suspension of progress payments and vouchers and/or inability to obtain government work in the future.
Unallowable costs include:
1) Costs Identified by Pertinent Laws and Regulations. These are the costs identified by FAR 31.205 cost principles and separate agencies’ cost principles which are continuously being interpreted by court and board decisions, expert opinion and the Defense Contract Audit Agency.
2) Contract Specific Costs. Contracts often specify criteria that must be met for a cost to be allowable or that may express a ceiling limitation. Common examples include travel and subcontracting costs must be approved, overtime over a specific level is not reimbursed and indirect cost rates are capped.
3) Advanced Agreement. These agreements are commonly negotiated with Administrative Contracting Officers to affect one or more costs.
4) Directly Associated Costs. These normally allowable costs are unallowable because they would not have occurred had not the unallowable cost been incurred. For example, reasonable travel costs associated with attending a golf event is unallowable.
{TAG_FORM_TITLE}
To discuss your needs, contact Bill Lennett, Principal, at 1-925-362-0712 or email him at
This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
.
