Q. We use a fringe benefit and an indirect labor rate but we are being told by our auditor that we must have three rates – fringe benefit, overhead and G&A. Since we have used this rate structure for a long time we would like not to have to change. What do you think?

A. Though I would like to know why he/she is saying you must have three rates, in general I would strongly disagree with the auditor’s position.  It is the responsibility of the contractor, not the auditor or government, to decide what rates it will use and how to apply those rates and as long as the structure is reasonable and does not result in significantly “inequitable” results you have every right to use them even if the auditor may have a preference for some other structure.  In fact, a variety of structures and number of rates are common and generally considered acceptable – one indirect rate (common with smaller firms), your method of fringe and indirect rates, one overhead and G&A rate (where fringe costs are assigned to either overhead and G&A pools) and the three rates the auditor is insisting on.

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