RGCI - Cost Accounting Standard (CAS) 416 - Accounting for Insurance Costs

CAS 416 provides criteria for the measurement of insurance costs, the assignment of such costs to cost accounting periods, and the allocation to final cost.

What are the Requirements of CAS 416?

FAR 31.205-19, Insurance and indemnification, requires that the cost of insurance be measured, assigned, and allocated based on CAS 416, whether or not you have CAS covered contracts.

What Does That Mean for Most Contractors?

It depends – the start of all good Government contracting related stories. It depends on the type of insurance you have. There are two basic types:

  • Purchased Insurance – Where you are paying premiums to an unrelated insurance firm.
  • Self-Insurance – Where you have taken on the risk of being insured. This includes premiums paid to a related party, unless the related party is truly an insurance company in the commercial marketplace with a significant number of unrelated parties being insured. Yet another rabbit hole that can be gone down in this area.

The Easy One – Purchased Insurance

The amount of your insurance cost is going to be the total of your payments to the insurance company – provided the premiums are reasonable. If you are competing your business with several commercial insurance companies, reasonableness should be straight forward. There is a shallow rabbit hole here related to credits, refunds, deductibles, and the accounting for any claim payouts – I am not going to get into each of these as they are fact and timing specific. This is basically like sitting on the beach watching the waves come in.

The Hard One – Self-Insurance

The amount of your insurance cost is going to be any self-insurance charge plus insurance administration expenses provided the amount is less than purchased insurance cost would have been. The administration expenses are not that hard to pull together. The self-insurance charge is the deep dark depths of this area. This is where terms like “projected average loss” comes into play. The CAS 416 definition of “projected average loss” states it is “the estimated long-term average loss per period for periods of comparable exposure to risk of loss.” This is much more than a math exercise – you are going to need an actuary. You are no longer sitting on the beach – you are lost at sea with things that can eat you.

One Other Major Trap You Can Get Into

FAR 31.205-19(c)(2) specifically incorporates the requirements set forth in FAR Part 28. FAR 28.308(a) requires you to get approval from the administrative contracting officer prior to charging self-insurance cost to your government contracts when your self-insurance costs are greater than $200,000. DCAA loves to ask you for supporting documentation of this approval years later. Even when the government contract costs were lower due to the use of self-insurance, a rule is a rule – no documentation of an approval they question the cost. No reason to let common sense get in the way of questioned cost.

Takeaway

If you are doing anything in the area of insurance other than paying commercial market premiums – get subject matter expert support and regularly brief the administrative contracting officer on your plan. Make sure you document and keep notes of the briefings to the administrative contracting officer – this documentation could be heart breaking for your DCAA auditor.

Redstone GCI can assist your company by drafting written policies and procedures, as well as providing training on Cost Accounting Standards. This training is available either through learning management courses, webinars or onsite training sessions, depending on your company's needs.

Learn More About Our Cost Accounting Standards (CAS) Services

 

Written by John C. Shire, CPA

John C. Shire, CPA John is a Director with Redstone Government Consulting, Inc. providing government contract consulting services to our clients primarily related to the DFARS business systems, CAS Disclosure Statements, and DCAA/DCMA compliance preparation, advisory, and defense. Prior to joining Redstone Government Consulting, John served in a number of capacities with DCAA/DCMA for more than 30 years. Upon his retirement, he was based in Texas as an SES-level Corporate Audit Director for DCAA, managing a staff of 300 auditors at one of the largest DOD programs. Professional Experience John began his career in the late 80s working in the Clearwater, FL audit office and over the next three decades he progressed through a number of positions within both DCAA and DCMA with career highlights as DCAA Program Manager at Ft. Belvoir, Chief of Technical Programs Division, Deputy Assistant Director-Policy, Director of the DCMA Cost and Pricing Center, the SES-level Lockheed Martin Corporate Audit Director, and Director of Integrity and Quality Assurance. John’s three decades of experience in performing and leading DCAA auditors and DCMA reviewers provides a wealth of expertise to our clients. John’s role, not only in the performance of audits, but also in the development of audit policy affords him unique insights into the defense of audit findings and the linkage of audit program steps to the underlying regulatory framework. He is an expert in FAR, DFARS, and other agency acquisition regulation, as well as a subject matter expert in the Cost Accounting Standards having reviewed and provided audit feedback on many of the largest and most complex cost accounting practices during his tenure with the DCAA. John’s tenure with DCAA and DCMA came at a critical time during each agency’s history where a number of changes were occurring such as the response to the ICS backlog, development of audit approaches to the DFARS Business Systems and implementation of new audit initiatives as a result of Congressional oversight through the NDAA process. John’s leadership at the DCMA Cost & Pricing center saw oversight of all major DOD pricing actions, leadership of should cost review teams, the Commercial Pricing group and many other areas of strategic value to our clients. His involvement in these and other Agency initiatives is of great value to our clients due to his in depth understanding of DCAA and DCMA’s internal policy directives. Education John holds a Master of Business Administration and a B.A. in Accounting from the University of South Florida. Certifications Certified Information Systems Auditor State of Alabama Certified Public Accountant

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

Topics: Proposal Cost Volume Development & Pricing, DFARS Business Systems, Government Regulations, Cost Accounting Standards (CAS), Federal Acquisition Regulation (FAR)