Inside Scoop: Calculating Indirect Cost Rates Is The #1 Topic Amongst Our ClientsOctober 3, 2019
It's a hot topic, to be sure, and perhaps the most important in your efforts to meet all of your DCAA Compliance requirements. After all, how can you submit an accurate proposal without accurate indirect cost rates?
There is a lot at stake.
Get your indirect cost rates wrong and you could risk losing everything, or risk owing the government a lot of money. It's a real fear among many federal contractors. You could also lose the trust and confidence of your customers if your indirect rate calculations are (grossly) inaccurate. The good news, of course, is that Kline & Company can help you.
In fact, we are very busy this year, preparing Incurred Cost Submissions (ICE) to calculate indirect cost rates for our clients. Of course, your adequate DCAA-compliant accounting system will help ensure accuracy in your ICE, as well as ensure best practices are being followed.
Look at the big picture; consider the importance of accuracy in all cost categories!
- Direct costs
- Indirect costs
- Unallowable costs
Your general ledger must separate costs in accordance with 45 CFR 75, Subpart E; direct costs, indirect costs and unallowable costs. Straight from the FAR, regarding indirect costs, FAR 2.101 defines an indirect cost as "any cost not directly associated with a single, final cost objective but identified with two or more final cost objectives or an intermediate cost objective. It is not subject to treatment as a direct cost." Direct costs are incurred for one specific contract. Overhead costs provide support for two or more contracts. G&A costs refer to expenses of running the business rather than supporting a single or multiple contracts. Of course this is only one topic and you must be very familiar with all areas of the FAR. Better to call us -your DCAA Compliance team. Together let's make sure your numbers are right.
We recommend that you become familiar with the DCAA document found here:
PS: About "non-compliance":
If your cost accounting system is inadequate for the government, or non-compliant, you may be locking yourself out from future federal contract opportunities or putting your current contracts at risk. Profits or cashflow are at risk due to potential penalties or payment delays, which could ultimately cause a net loss or cash shortage. The negative impact of non-compliance is both direct and indirect:
- Ineligible for contract award
- Suspension of interim billings
- Disallowance of costs
- Increased audit oversight
- Contract termination
Many factors contribute to the adequacy of your accounting system. Our team is working to ensure that all points are addressed, starting with a careful review of your accounting system’s ability to accurately track costs.If you are concerned about non-compliance or have any questions about DCAA Compliance, please call us to discuss the issue. The sooner it is addressed, the sooner we can help you maximize your profits.
If you have questions or are ready to put our team to work for your company, call us now at 603.881.8185, or email us at CPA@klineco.com