Category Archives: Cost Accounting Standards

Synergy Part of Microsoft’s New GovCon Alliance; Crafting Forward-looking Solutions for Government Contractors

Alliance to serve government contractors

On June 16, 2014, Microsoft announced the formation of a special GovCon Alliance, a cross-section of Microsoft Dynamics partners with deep experience and understanding of the unique needs of government contractors. With our expertise in solving government-compliance issues with Dynamics SL for midsize companies (from 50 to 2,000 employees), Microsoft invited Synergy Business Solutions to join the Alliance.

The effort is part of a new phase in ours and other Dynamics partners’ ongoing effort to help contractors to the U.S. federal government operate more efficiently, respond more quickly to shifts in federal spending, and comply with a range of regulatory requirements, including those established by FAR, CAS, DCAA, and DCMA, as well as various other audits.

Synergy joins with Microsoft pursuing the guiding principle of this new phase: Compliance and Agility. You no longer have to choose one or the other. For example, Synergy’s solution, Dynamics SL, clearly boosts a project-based company’s or a make-to-order manufacturer’s business agility through its powerful project management and accounting modules. And for government contractors, it goes one large leap further. It easily handles indirect cost pools and rules-based allocations to projects and cost objectives. Or, as we like to say, it’s “Compliance Made Easier.”

To see specifics on what Synergy Business Solutions adds to this powerful Alliance, visit our Government Contractor Solutions pages, which are chock-full of resources, including an on-demand webinar, white paper, and colorful infographic.

4_Keys

If you are currently a government contractor or aspire to be, you’ll want to see this easy-to-read, colorful infographic that spells out four basic keys to success in the federal market. Whether you are under DCAA or another government entity, the four keys have to do with the Rules, Tools, Controls, and Schools necessary to remain compliant with federal regulations in both one’s accounting system and cost-accounting processes.

Understand what’s required in a pre-award system review (Form 1408) and what the FAR and CAS requirements are and who is subject to them. Learn why the right software tools are so important, such as Microsoft Dynamics SL, what processes and procedures are necessary (controls), and how to get your finance department properly trained (schools). To learn more, there’s also a white paper offer that digs deeper into the topic.

Infographic: 4 Keys to Success in the Federal Market

Government Contractor Accounting: Indirect Cost Rates Made Easier with Microsoft Forecaster!

by TJ Paulsen

Government contractors that perform work for the Federal Government under Cost Plus Contracts are required to estimate their indirect cost rates by which allowable indirect costs are allocated to the product or service provided. These are typically Fringe, Overhead, and General and Administrative (G&A) costs, but may also include others. The estimated indirect rates are submitted to the Government Contracting Officer and, if approved, will be used as “provisional” rates during the year.

To calculate the provisional indirect rates that will be applied over the year, companies must first build a corporate-wide budget that segregates Direct Costs and Indirect Costs. The allocable Indirect Costs are grouped into pools and divided by the appropriate bases to obtain the rates (Pool / Base = Rate).

Microsoft Forecaster, a module of Microsoft Dynamics SL, can be configured to be a very useful tool not only to build the budget, but to also calculate the provisional indirect rates, and, if desired, perform the actual allocations in the budget.

Calculating Indirect Rates
The indirect rates are calculated in Forecaster by designing a report to create the pools and bases then using a calculation to obtain the rate. To accomplish this, rollups will need to be setup for both accounts and subaccounts, then, most likely, linked together in the line set to build the pools (see example below).  A calculation is used to total the pool expenses. A similar approach is done for the bases. Once you have the calculated pools and bases, a simple calculation is all that’s needed to divide the pool total by the base total to obtain the rate. Print the report after the budget is completed and you’ll have the rates and the supporting calculations to be used for your costing.

Allocating Indirect Rates
If there is a desire to actually post the allocations in the budget, it can be done using the Allocations component of Forecaster. Setting up the allocation process in Forecaster is simple once the Indirect Rates report is built, as a step-by-step wizard guides you through the process.  Allocations can be based on either plugging in the pre-calculated rates from the report, or using the features built into the allocator to calculate the rates (using the same pools and bases) and allocating the amounts independent of running the report. The wizard will walk you through the components defined in the allocation, including Allocate From (the Pool), Allocate To, Contra, and Basis.

Government Contractors will find Forecaster to be an excellent tool not just for budgeting expenses but also as a way to calculate provisional indirect cost rates and allocate budgeted expenses. I welcome your comments and questions.

Government Contract Accounting: “Home Office” Allocations

by TJ Paulsen

Many government contractors have the requirement to allocate centralized costs across two or more segments. The Cost Accounting Standards Board calls these “Home Office” expenses, and there is a prescribed method for allocating these expenses that contractors need to be aware of.

The goal of this allocation process is to get the home office expenses “to the segments of the organization based on the beneficial or causal relationship between such expenses and the receiving segments”. This sounds daunting, but Microsoft Dynamics SL can automate this process for you once you nail down what you need to do.

CAS 9904-403 says that the organization must get home office cost to the segments in the following ways:

  • Expenses should be directly charged to the benefiting division/project on the basis of a causal relationship.
  • Accumulate significant non-direct costs into homogenous pools and allocate them on bases representing a relationship of the expenses to the division. Example:

  • Any costs remaining are deemed “residual expenses”. The Three Factor Formula is used to allocate the residual expenses. The goal of course is to find a causal relationship to as much of your home office expenses as possible so that your residual expenses are very small. Typical residual expenses are the expenses of the CEO and CFO.

The Three Factor Formula is the arithmatical average of the following three factors:

  1. Segment’s payroll as a percentage of the total
  2. Segment’s operating revenue as a percentage of the total
  3. Segment’s average net book value (tangible assets plus inventories)
    as a percent of the total.

The percentages of each of these factors can be calculated as shown:


And that’s the allocation process. If you have any questions, don’t hesitate to email me.