DCAA Accounting System Compliance with Deltek Costpoint

The Costpoint group at Redstone Governtment Consulting concluded a great event with Deltek in April during which DCAA representatives gave a keynote session on Accounting System Requirements (or SF1408). Just reading the SF1408 can be confusing or make the requirements seem complicated. However, if you understand the basics and know how Deltek Costpoint can achieve the requirements it can be easier to ensure you are ready for a DCAA review.

As mentioned in our previous article which covered the basics and can be found here, you cannot purchase an “approved accounting system.” It is not the system itself that is approved, but the design, use, and procedures surrounding the system that are approved. This is crucial to remember! Costpoint is a system that has the controls in place to keep you compliant when used correctly.

Before we dive too deep into Costpoint’s controls that will help you reach DCAA compliance, I would like to remind you of the 3 components that make up your transactions. These are the accounts, orgs, and projects. The account tells you what the transaction is, the org tells you who the transaction is for, and the project tells you why the transaction is occurring. Every transaction in Costpoint will have an account and org, most will also have the project. Keep these 3 key components in mind while you enjoy this article.

DCAA Approved Accounting System Requirements and Deltek Costpoint

DCAA is going to be concerned with CAN the system meet the following criteria:

1. Adequately Segregate Costs Between Direct, Indirect and Unallowable

You need to be prepared to explain to the auditor how your Deltek Costpoint system is set up to segregate your direct, indirect, and unallowable costs.

1. Cost is segregated in the Chart of Accounts by a clear and concise numbering scheme. Looking at the example below there is a clear difference not only between direct, indirect, and unallowable costs but also between the different types of indirect costs (G&A, overhead, fringe, etc). Be prepared to show it to the auditor and make sure you can explain the segregation of costs!
   
2. Project numbering is used to properly segregate cost as well. Remember that all transactions have an account and org, most will also have a project. Everyone’s project numbering looks different, below is an example of how you can structure direct versus indirect projects for clear segregation by direct, indirect, and unallowable costs.
   
3. Deltek Costpoint also uses the Project Account Groups or PAGs to segregate cost. These PAGs limit the GL accounts (Section 1a) that can be used in combination with a project (Section 1b) on a transaction. For example, on my direct projects I would assign a PAG that ONLY has the direct accounts linked. Similarly on indirect overhead projects I would assign a PAG that ONLY has the overhead accounts linked. The system cannot force you to choose the correct GL account but the controls in place can help limit the “incorrectness.” Meaning I will not have a transaction with an unallowable account to a direct project or a direct account to a G&A project and so forth.

2. Distinguish Timesheet Labor by Direct and Indirect

We discussed the different ways cost is segregated in Costpoint. You need to be prepared to show the auditor how this is presented on the employees’ timesheets. Our recommendation is to set up projects for anything an employee would need on their timesheet. If you refer to the project structure example above the two charging levels are 01002.01.01.003.003AF.BK and FRG10.HOL. This is clear to the employee and to the auditor what is a direct project charge versus holiday time.

You will need to understand and explain to DCAA how an employee knows to charge their time between indirect, direct, and indirect projects. You will also need to explain how an employee knows to charge their time between multiple direct projects. This is all handled through the Project Labor set up screens in Costpoint. Most importantly the Workforce set up screens. The use of these screens limits employees to certain projects ensuring they can see ONLY the projects they should be working.

3. Identify Direct Costs by Contract and Contract Requirements

How you design your project structure in Deltek Costpoint is vital to the life of your project. Project design is driven by 3 key components: billing requirements, funding requirements, and internal/external reporting requirements. It is important to include the WBS as defined in your contract as well. Any information defined in your projects structure will print on reports. If it isn’t defined and/or tracked in the system, we cannot pull the information out of the system. One more time, repeat it with me now, if it isn’t defined and/or tracked in the system we cannot pull the information out of the system.

Let’s look at the direct project example from above. With this project structure I can track costs as laid out in the contract requirements by contract year, task, CLIN, SLIN, and ACRN. This allows for proper invoicing into WAWF by CLIN, SLIN, and ACRN, proper funding tracking by ACRN, and proper reporting at any level of the project.

It's time for my soapbox. Every project in your system does NOT have to fit the same template. You want to design each top-level project to fit the specific contract requirements. Remember those 3 key components we just discussed? Billing, funding, and reporting? If we build this information into our project structure, we can properly invoice, track funding, and report on that information. If it isn’t defined in the system, we cannot pull the information out of the system. Taking the extra time at the beginning of a project to plan the project structure will save you hours of offline reporting and data entry later.

I’ve mentioned both internal and external reporting. The external reporting is easier to define since it is specified in the contract. That internal reporting is generally where accounting and program control live. What are they tracking? Once we’ve met the contract requirements in our project structure, we want to then define the internal reporting requirements. Trust me, your program control will love you if you include their wants and needs in the project structure.

4. Limit Costs and Billings Based on Contract Requirements

What does DCAA mean by “limit costs and billing based on contract requirements?” We are talking about a variety of limits that may be specified in your contract.

Be prepared to discuss the different mechanisms that are available in Costpoint that you are using to limit the costs, burdens, or fees as defined in your contracts. You will need to show DCAA where in the system you have the settings, explain how the settings work, and why those settings work to meet your contract requirements.

DCAA will ask you how you monitor contract and funded values and ensure that you do not bill over those values. Be prepared to present where modifications are entered and how they tie to contract values in your modifications. You will also need to discuss the process of how costs are monitored through project reporting and who is monitoring those costs.

5. Allocate Indirect Costs Logically and Consistently

You need to be able to show DCAA that you are accurately and consistently accumulating and allocating your indirect costs to your direct projects. Deltek Costpoint has a cost pool set up where you define how the cost will be accumulated and then allocated. Once this is set up, the system does the rest for you through a series of processes. You need to be able to show DCAA where this is set up in the system. You will also need to show DCAA how you are monitoring your provisional versus actual rates through the cost pool process each month.

Additional DCAA Requirements

While the auditor is verifying the system can meet the criteria discussed above, DCAA is also going to check IS the system:

1. Being Used Regularly and Consistently as Described in Policies and Procedures

You will need to provide DCAA your written policies and procedures (P&Ps) and show them that you follow those P&Ps. As a rule of thumb if your P&Ps are more than 5 years old you need to review and update them accordingly. You want to ensure that your P&Ps match your daily practices and are followed. Our team at RGCI can assist with your P&P review and documentation.

2. Including Regular and Consistent Reviews, Approvals and Reconciliations

At a minimum, are transactions entered into your system being seen by at least 2 sets of eyes? DCAA is looking for one person to enter the transaction and another person to approve this transaction. Deltek Costpoint has approval processes that can be configured. This would allow system tracking to meet this requirement. However, you do not have to use the system approval processes to accomplish this. Whatever your process is for approval, make sure it is clearly documented and can be shown to the auditor.

Even the best designed Costpoint system can be found deficient if it is not being used consistently and according to your stated procedures.

Good news is that if you are using Costpoint correctly you will be able to easily prove that your system CAN perform the items listed above. It is up to you to make sure you ARE using the system and have appropriate processes in place to support that system. We, the Costpoint group at Redstone GCI obviously think Deltek’s Costpoint is the best option for an accounting system that will meet DCAA requirements, and we’d be happy to go into greater detail about the benefits of Costpoint. Redstone GCI also has resources that can help prepare policies and procedures that match your business practices and get you prepared for a system review in whatever system you use. We’re just a phone call or email away.