Most, if not all, current government requests for proposals (RFP’s) require an adequate accounting system for award. Many even give extra points toward contract award if you can show that you have in place and are utilizing such an important business system.
One of the most important aspects of an adequate accounting system lies in the supporting policies and procedures. Policies and procedures are the first thing auditors look for when auditing accounting systems for adequacy.
Where do you start when developing these policies and procedures? One place is the Cost Accounting Standards Board Disclosure Statement, CASB-DS-1. Prepared to establish your accounting practices to comply with Public Law 100-679, this eight-part questionnaire provides a thorough description of your accounting practices and is a good starting point to providing the needed policies and procedures. The following provides a summarized description of each of the eight parts of the CASB-DS-1.
Part I – General Information
Fill it out. It provides general information on your organization and on your accounting system.
Part II – Direct Costs
Describes the identification and accounting for all costs considered direct charge to your contracts either directly as incurred or indirectly through inventory.
Part III – Direct vs. Indirect Costs
Defines what you consider an indirect cost and how you handle these costs that, depending on circumstances, can be considered direct or indirect.
Part IV – Indirect Costs
Defines your indirect cost rate structure and the make-up of each allocation base and indirect cost pool. It also covers the use of service centers for indirect cost allocation purposes.
Part V – Depreciation and Capitalization Practices
Described here are your established criteria and practices for depreciation and asset capitalization, along with handling of expenses associated with the acquisition and disposition of depreciable property.
Part VI – Other Costs and Credits
Addresses your practices related to the handling of fringe benefit costs (i.e., vacations, holidays, sick pay, PTO, etc.), supplemental unemployment benefits and severance pay along with other incidental expenses.
Part VII – Deferred Compensation and Insurance Costs
Covers the measurement and assignment of employee pension, post-retirement benefits other than pensions, and insurance costs.
Part VIII – Home Office Expenses
Applicable to the allocation of home office operation expenses (including home office type operation of subsidiaries, joint ventures, partnerships, etc.).
Some of these sections may not apply to your organization, in part or totally, but what does apply provides an excellent start to the policies and procedures required to support your accounting system. At a minimum you should complete Part II, Part III, and Part IV explaining:
- the types of costs considered direct, indirect, and sometimes direct/sometimes indirect;
- the indirect rates used in allocating indirect costs to cost objectives;
- the functions included in each of the indirect cost pool; and
- the allocation bases used for each indirect allocation rate.
Fill in the missing information with your own policies and procedures when the CASB-DS-1 falls short. Provide a copy of your completed CASB-DS-1 to the government (DCAA) auditor as they start their review of your accounting practices. While this questionnaire is not easy to complete and is extensive and time-consuming, it will be worth the effort to be proactive and meet your compliance needs.
Have questions? Contact a member of PBMares’ Government Contracting Team.