DCAA Accounting – Are Donations/Contributions and Goodwill Allowable under FAR 31.205-8 and FAR 31.205-49 respectively?Posted on July 9th, 2021
Donations and Contributions including cash, property or services are deemed unallowable, regardless of who receives the donation. There are certain costs such as participating in community service activities which may be allowable under the regulations of FAR 31 205-1 (Advertising and Public Relations costs).
- If you made a charitable contribution to a cancer hospital, it may be an unallowable cost under FAR 31.205-8.
- If you participated in the community service Sunday by providing meals, it may be an allowable cost under FAR 31.205-8.
Goodwill is an unidentifiable intangible asset which is created when there is a business combination of two or more companies. It is the excess amount paid by the acquiring company over the fair value of the acquired company. Any costs for amortization, write off of goodwill, expensing costs are deemed as unallowable. For example –
- You are acquiring a company that has had good reputation for over 10 years and hence have a higher asking price than its fair value, the differentiated cost may not be calculated as an allowable cost under the principles of FAR 31.205-49.
Depending on individual circumstances, the cost may be allowable or unallowable, even if the generic rules state they may not be. Hence, they need to scrutinized in detail before placing them under either of the cost buckets.
DCAA Accounting – Are Bad Debts and Contingencies Allowable under FAR 31.205-3 and FAR 31.205.7 respectively?Posted on July 2nd, 2021
Bad Debt is a monetary amount owed to a creditor that is unlikely to be paid. Any actual or estimated losses arising from uncollectible accounts which are due to be received from customers and other claims and any costs directly associated with them such as collection costs or legal costs are unallowed. Some of the common unallowable Bad debt costs are –
- If your customer has gone bankrupt and you are unable to collect the owed amount, it may be an unallowable cost under FAR 31.205-3.
- If you pre-paid a sub-contractor to complete a job and he ran away without resolving it, it may be an unallowable cost under FAR 31.205-3.
Contingency costs arise from currently known or unknown causes relating to possible future events or conditions, whose outcome cannot be determined at the present time. They may be allowable when arising out of presently known and existing condition and unallowable when they cannot be measured precisely to provide equitable results. Let’s analyze some situations to understand the difference better-
- If you can anticipate the costs for defective work on upcoming project, it may be calculated as an allowable cost under the principles of FAR 31.205-7.
- If you have a pending litigation, the results of which are completely unknown at current point, it may be calculated as an unallowable cost under the principles of FAR 31.205-7.
Such costs are usually unallowable for historical costing purposes. However, occasionally contingency factors may be recognized to help factor them in as allowable. Hence, individual situations must be analyzed in depth before considering them as Allowable cost or Unallowable cost.
DCAA Accounting – Are Precontract Costs allowable under FAR 31.205-32?Posted on June 25th, 2021
Precontract costs refer to the costs incurred before the effective date of the contract. To ensure the precontract costs are considered as allowable costs, the contractor must establish three elements:
(1) That the costs were incurred directly in pursuant to the negotiation of the contract and in anticipation of being awarded the contract
(2) That the costs were necessary to comply with the proposed delivery schedule and
(3) That the costs would have been allowable if they were incurred after the date of awarding contract.
Let’s examine few situations where Precontract Costs may be unallowed.
- If you increased your staff, it may not fall under Allowable cost as per FAR clause 31.205-32.
- If you purchased additional hardware for the office, it may not fall under Allowable cost as per FAR clause 31.205-32.
- If you updated your accounting system and incurred extra costs, it may not fall under Allowable cost as per FAR clause 31.205-32.
- If you prepared a financial plan, cost related to it may not fall under Allowable cost as per FAR clause 31.205-32.
Conclusively, if you are a contractor with a contract award pending, or in negotiations, you may incur selective precontract costs with an expectation of having them reimbursed or included in the contract price. However, they need to be a direct requirement for the contract in order for you to be able to charge it as allowable cost. Each incident is different and needs to be understood in detail to determine its cost bracket.
DCAA Accounting – Are Legal and other Proceedings cost allowable under FAR 31.205-47?Posted on June 18th, 2021
By definition, Legal costs include, but are not limited to –
- Administrative and Clerical expenses
- Costs of legal services; in-house or private counsel
- Costs of services rendered by accountants, consultants, or others retained by the contractor to assist them
- Costs of employees, officers, and directors
They could incur before, during or after the start of an administrative judicial or proceeding which bears a direct relationship to the proceeding. Some Legal costs are covered as allowable while others are not. Let’s look at a few situations where they may not be allowed –
- If you are preparing claims against the government, any legal or consultant fees associated may fall under Unallowable cost as per FAR clause 31.205-47.
- If there is any cost incurred in connection with a patent infringement litigation, it may fall under Unallowable cost as per FAR clause 31.205-47.
- If a member of your company has been convicted as a criminal, any legal or other proceedings cost may fall under Unallowable cost as per FAR clause 31.205-47.
- If you undergo a merger or an acquisition while in contract with the government, any costs you subsequently charge to them may fall under Unallowable costs as per FAR clause 31.205-47.
If you are pardoned in any suit for which you have listed costs in the unallowable account, you may be able to move those costs to an allowable account. It is best to consult with an accountant who understands the government contracting requirements and can successfully help you determine which costs must be listed as Allowable and which must be Unallowable.
DCAA Accounting – Are Travel costs allowable under FAR 31.205-46?Posted on June 11th, 2021
Travel costs include costs for transportation, lodging, meals and incidental expenses when on official company business. You can choose to adapt policies for compensating employees for travel expenses based on actual expenses, fixed amount, or a combination of actual expenses (e.g., for lodging) and a fixed amount (e.g., for meals and incidental expenses). However, the allowable costs to Government contracts may not exceed the maximum per diem rates specified in the Government travel regulations. As for airfare, you can only consider the cost of lowest price available for Economy class during normal business hours as allowable cost.
- Relocation expenses for an employee, who is moving specifically to work on the government contract, may fall under Unallowable cost as per FAR clause 31.205-46.
- Use of company issued vehicle for personal use may fall under Unallowable cost as per FAR clause 31.205-46.
- Business class tickets for a domestic flight may fall under Unallowable cost as per FAR clause 31.205-46.
- Dining at an exclusive restaurant with drinks while on work trip may fall under Unallowable cost as per FAR clause 31.205-46.
- Staying in an expensive hotel instead of a budget one for personal convenience may fall under Unallowable cost as per FAR clause 31.205-46.
Occasionally, certain exceptions are made for airfare selection if the travel is during unreasonable hours or if there is extremely prolong travelling involved. Similarly for lodging when you are attending a conference in some particular hotel with available accommodation, you may be able to write the cost down as allowable. To conclude, each case is different and needs to be analyzed accordingly to determine whether it can be deemed as an Allowable Cost or an Unallowable Cost.
DCAA Accounting – Are Interest expenses and other Financial Costs Allowable under FAR 31.205-20?Posted on June 4th, 2021
Interest expenses refer to interest on loans or lines of credit, which were undertaken to build your company. Other financial expenses are the costs of financing or refinancing capital and their associated costs such as legal fees, accounting fees or additional professional fees. These costs are considered unallowable and must be excluded from all billings, claims and proposals.
Following are some examples which may be treated as Unallowable Costs.
- Costs of preparing and issuing stock rights may fall as Unallowable cost under FAR clause 31.205-20.
- Professional fees paid in connection with preparing a prospectus may fall as Unallowable cost under FAR clause 31.205-20.
- Interest charged on your line of credit may fall as Unallowable cost under FAR clause 31.205-20.
- Transfer charges for change of ownership on your securities may fall as Unallowable cost under FAR clause 31.205-20.
- Interest or penalties for unpaid taxes may fall as Unallowable cost under FAR clause 31.205-20.
- Bond discounts may fall as Unallowable cost under FAR clause 31.205-20.
Each transaction cost is variable and must be scrutinized in detail to determine whether it falls under the Allowable cost category or the Unallowable cost category.
DCAA Accounting – Can Fines & Penalty Costs be deemed Allowable under FAR 31.205-15?Posted on May 28th, 2021
Fines and Penalty costs are those which occur when a company violates any Federal, State, Local or Foreign Government Laws and Regulations. These costs fall under the Unallowable Costs’ category. Sometimes the contract terms are explicitly written in a way that some of these costs may be Allowable.
Let’s walk through some examples which may be treated as Unallowable Costs.
- If you received a Parking ticket while you were visiting a Government location for work, it may fall as Unallowable cost under FAR clause 31.205-15.
- If you were Driving under the Influence after an Office Holiday party and received a ticket, it may fall as Unallowable cost under FAR clause 31.205-15.
- If you hire a Legal team to fight abovementioned tickets, the Legal fees may fall as Unallowable cost under FAR clause 31.205-15.
- If you exceed the decided time for contract completion and are charged penalty for the delay, it may fall as Allowable or Unallowable cost under FAR clause 31.205-15.
- If you hired an Employee and need to pay Legal fees for filing his US visa status change, it may fall as Allowable or Unallowable cost under FAR clause 31.205-15.
Any costs that arise out of Mischarging on Government contracts are strictly Unallowable Costs. This comprises of Alteration or Destruction of records or False Charging or Recording of costs. It also includes the costs incurred for making Remedies or Correcting the Mischarged costs.
While there are strict rules to help identify Allowable Costs from Unallowable Costs, in reality, each incident needs to be scrutinized in detail to determine the cost bracket it should be put under.
DCAA Accounting – Is Entertainment Cost Allowable under FAR 31.205-14?Posted on May 21st, 2021
Costs of Amusement, Diversions, Social activities, and any directly associated costs such as Tickets to shows, Meals, Housing, Rentals, Conveyance, Gratuities, Membership in social, dining, or country clubs fall under Entertainment Costs. These costs are considered as Unallowable costs, including any Associated costs, except for specific costs which have a special purpose and are authorized with a written approval from the Federal Awarding Agency. Alcohol is Explicitly Unallowable under all circumstances.
- Playing golf with a prospective client? It may fall as Unallowable cost under FAR clause 31.205-14.
- Participating in an Exhibition? It may fall as Allowable or Unallowable cost under FAR clause 31.205-14
- Hosting a Dinner & Drinks Holiday party at the office? It may fall as Unallowable cost under FAR clause 31.205-14
- Dinner at office for all employees working after hours to complete a project on time? It may fall as Allowable or Unallowable cost under FAR clause 31.205-14
- Visiting a Winery with few out of town clients? It may fall as Unallowable cost under FAR clause 31.205-14
- Sending Basketball game tickets to a potential client to win their contract? It may fall as Unallowable cost under FAR clause 31.205-14
Certain costs among these entertainment costs may be deductible expenses for tax purposes, however, that does not make the cost of that activity allowable such as business meals or corporate celebrations.
Certain costs may have overlapping reasoning such as getting a budding clients business but through marketing, in which case the cost incurred may be allowable as marketing expense. Hence, each of these costs need detailed inspection to determine where they are Allowable or Unallowable.
DCAA Accounting Compliance for Software & Information Development CompaniesPosted on May 14th, 2021
As IT companies prepare to bid for the Federal Government contracts, they are required to obtain an Audit Certificate issued either by the Federal Government, the Defense Contract Audit Agency (DCAA) or a Certified Public Accountant (CPA). Companies are judged on the design of their accounting system through a Pre-award Survey (SF 1408).
If they win the bid, the DCAA undertakes an audit to verify DCAA /FAR (Federal Acquisition Regulation) compliance with their Accounting System. Some of the common items being inspected through the audit are – direct costs, indirect costs, allowable costs and unallowable costs.
Often due to wrongful segregation of direct costs and indirect costs, inclusion of unallowable costs, multiple ongoing contracts or timekeeping errors, companies fail to pass the DCAA audit.
We can help you obtain the Audit certificate by helping align your accounting system with the required set of DCAA and FAR rules. We also coordinate on your behalf with the DCCA while they audit your accounting system. Simultaneously, we can help you with the regular maintenance of your purchasing system, billing system, estimating system and accounting system.
Please follow the link below to understand subject matter in depth.
Tax Reforms Change the Divorce Alimony SystemPosted on May 21st, 2018
- The new tax laws are now allowing divorce alimony recipients to no longer have to pay taxes on their received income, hence creating a purely tax-free alimony for all recipient spouses
- The days of tax deductions for spouses paying alimony are over as new tax laws are forcing those paying the alimony to also pay the taxes for the amount they pay
INITIATION OF NEW RULES
- The new rules being implemented on account of the tax reforms will be put into action on December 31st, 2018
Tax Plans for Payer of Alimony
- Finalizing your divorce before December 31st, 2018 is essential in order to avoid losing your alimony-based tax deduction
- Retaining money is only possible if you push for the majority of the money to be allocated towards alimony payments
- Avoid allocation of money to Child support as it will cost you high amounts
Tax Plans for Recipient of Alimony
- Completing all divorce settlements after the date December 31st, 2018 will allow for you to save yourself from the burden of having to pay taxes on the Alimony you receive instead of getting tax free cash from your ex-spouse
- Receiving the most money possible from the settlement is only possible if you allocate more money towards Child Support
- Avoid allocating money to alimony payments at all costs as it will cost you potential winnings