Indirect Rate Calculation Setup – Mysteries Unveiled author avatar

Have you ever wondered how to set up your indirect rate structure in PROCAS? The good news is, if you’re a new contractor, and you don’t have a rate structure yet, the system already has a default setup that works for most of our clients. It’s a standard 3-tiered structure with (1) fringe, (2) overhead applied to direct labor plus fringe, and (3) G&A.

If you are more experienced, you may want to make changes to your rate structure from one year to the next but don’t know what options to pick in the system. One nice thing about how it works in PROCAS is that it is easy to use our ‘point and click’ setup to make changes and then test the calculation.

There are 2 basic setup elements the system needs to calculate the rates—(1) selections on the Rate Calculation Setup form and (2) the Cost Pool assigned to each expense account in the Chart of Accounts. Generally, your selections determine how many rates you have, what intermediate rate allocations are made, and what makes up the bases for each rate. Every expense account you use is assigned to a cost pool on the Chart of Accounts form. The Cost Pool assigned determines what type of expenses is being accumulated in that account.

Since the default chart of accounts already has appropriate cost pools established for each expense account, I will focus on the options on the Rate Calculation Setup form.

Rate Calculation Setup form – Tab 1: Establishes defaults used when calculating rates.

Date Range – we recommend selecting Accounting Year since you must calculate your indirect rates for the accounting year-to-date for DCAA compliance. Management may want to see rates by Accounting Period but that should be for internal purposes only.

Costs to include in Pools – we suggest using Allowable Only as your default. This selection will exclude unallowable costs from the pools for calculating your claimed rates. When Allowable & Unallowable is selected, you are calculating your full rates which include all your costs. While you need to know your full rate to make informed business decisions, you cannot claim your full rate for reimbursement from the government.

Transactions to include – using Posted & Unposted transactions as your default will ensure everything recorded in the general ledger is included when you calculate your rates. Choosing Posted Only will ignore any transactions that are not posted within the period and could be misleading.

Rate Calculation Setup form – Tab 2: Determines how many rates you have for each cost pool.

We always recommend keeping your rate structure as simple as you possibly can, for as long as you can. Using all consolidated rates means you have only one rate per cost pool. However, at some point, you may need to make some changes. This tab gives you the flexibility of establishing rates by division, location, and/or work site, in any combination.

Most often, we see clients moving from a consolidated Overhead rate (pictured above) to Overhead calculated by Site. This allows for more than one overhead rate—typically one for company site and one for client site. Keep in mind, that you will have to track your costs at whatever level you select. Since switching to a 2 Overhead rate structure is common, we start our clients off on day one by tracking direct and overhead expenses by company site (e.g., 100 cost center) and client site (e.g., 105 cost center). This makes the transition to the 2 Overhead rate structure seamless. All you have to do is select the Site checkbox in the Overhead row and you are ready to go.

Rate Calculation Setup form – Tab 3: Determines whether you have a dollar or hour/unit base for each cost pool.

Most commonly, we see clients using a $ Base for each cost pool. Using a dollar base is simplest. It does not require any additional work on your part. The system will just need the amounts you’ve already recorded in the general ledger.

However, quite frequently we see Facilities with an Hour/Unit Base. In many cases, it makes sense to use square footage or head count as the base for Facilities rather than dollars. Note that if this is your selection, you will also need a Triggers Journal entry dated the first day of your accounting year, so the system knows how many units to use and how to allocate the office-related costs to Overhead and G&A. We have special accounts already established in the default Chart of Accounts to use for this purpose.

Rate Calculation Setup form – Tab 4: Determines what pool to put your Material Handling and Subcontract Administration costs in.

In PROCAS, you can track your Material Handling (MH) and Subcontract Administration (SA) costs in your general ledger separately by account while keeping the costs in either the Overhead Pool or G&A Pool for rate calculation purposes. Tracking the costs will provide management with valuable cost information and have you set up to easily transition to a Value-Added G&A rate.

The selections in the screenshot above are a great place to start. Keep the material handling and subcontract administration costs in your G&A pool for now. If you ever need it, you can easily change it.

Rate Calculation Setup form – Tab 5: Determines what makes up your Facilities base and what to include in your Overhead Pool and Base.

There’s a lot more to the options on this screen so let’s tackle them one at a time.

Facilities

Include Employee Labor in Facilities Base – if selected, productive employee company site labor is your base. If you selected a $ Base on Tab 3, the system will use the total employee labor dollars. If you selected Units/Hours Base, the system will use the total employee labor hours.

Include Contract Labor in Facilities Base – I don’t see this often, but if you have contractors that use your facilities, you can include those labor costs in the base to bear some of the facilities burden. Again, the $ or Units/Hours base selected on Tab 3 is a factor in the calculation.

Include Non Labor Facilities Base in Facilities Base – if selected, you must also have the Units/Hours base selected on Tab 3. This means you are using something like square footage, head count, or some other percentage to allocate the facilities costs to Overhead and G&A. You also must create a Triggers Journal transaction dated the first day of the year to record the unit allocations.

Overhead

Include Fringe Benefits on Direct Labor in Overhead Pool – if selected, you have a 2-tier rate structure—overhead and G&A. Fringe is an intermediate rate and is not stated separately on invoices to your clients.

Include Facilities Costs Related to Direct Costs in Overhead Pool – if selected, the facilities costs allocated to direct company site labor are allocated in the Overhead Pool. This is the most common selection.

Include Direct Labor in Overhead Base – this option should always be selected. Direct labor is the standard overhead base.

Include Contract Labor in Overhead Base – this option is rare, but if you have contractors that use your company’s contract support resources, you can include those labor costs in the base to bear some of the overhead burden.

Include Fringe Benefits on Direct Labor in Overhead Base – this option should be selected if you have a 3-tier rate as described in the beginning of this article. Fringe is stated separately on invoices to your clients and overhead is applied to direct labor plus the allocated fringe. If this option is not selected, you also have a 3-tier rate. Fringe is stated separately on invoices to your clients, but overhead is only applied to the direct labor costs.

Rate Calculation Setup form – Tab 6: G&A Base options

As you can see in the screenshot above, there are several selections to choose from for your G&A base.

Total Cost Input Base – this is the most common selection. Select this when all your costs (excluding G&A) are the G&A base. What you get with this option is all your direct costs plus the allocated facilities, fringe and overhead costs as your G&A base.

Value Added – No Materials – if your rate structure includes a separate Material Handling rate (Material Handling Pool option is selected on Tab 4), you must select this option. This will exclude the direct materials from the G&A base. Instead, the direct materials are the base for the MH rate.

Value Added – No Subcontracts – if your rate structure includes a separate Subcontract Administration rate (Subcontract Admin. Pool option is selected on Tab 4), you must select this option. This will exclude direct subcontract costs from the G&A base. Instead, the direct subcontract costs are the base for the SA rate.

Total Direct Cost – I can honestly say that I have never seen a client select this option. That doesn’t mean it’s not right. It’s there if you need it. Only direct costs will be your G&A base. This means that you don’t have a separately stated fringe or overhead rate. Basically, everything ends up in the G&A pool with this option.

Direct Labor Base – I have seen this option selected one time in my career. Again, it could make sense in certain circumstances.

The default chart of accounts is already set up with the appropriate Cost Pools for each expense account. This is how the system knows what type of cost each account contains (direct, fringe, facilities, overhead, G&A, material handling, subcontract administration, etc.). That, along with the selections on the Rate Calculation Setup form, informs the system of where each amount goes in the various pools and bases when the rates are calculated.

I cannot stress enough how important it is for DCAA compliance to be consistent with how you accumulate and allocate your costs. The way you bill the government for reimbursement of your direct and indirect costs must match how your rates are calculated. If you are ever unsure of what selections to make, please reach out to one of our PROCAS consultants for help.

How to Resolve Locked Journal Errors author avatar

If you work in the system with multiple users or tend to open several screens at a time you may run into a loop of error messages as you try to add, change, or edit something in a journal. Read on to find out what the messages mean and how to get them to go away so you can continue working (and prevent them from occurring in the future).

Do the following loop of error messages look familiar to you?

 

 

If so, then what’s important is identifying which type of error (out of the two possibilities) you are receiving. To troubleshoot the cause of the error, you should click "OK" on image 1, which then brings you to image 2. From here press the highlighted arrow that is shown on image 2, which will take you to one of the following two screens that provides the reason for your session being locked.

 

Option 1: Record already locked by this session

 

When it reads “Record already locked by this session,” it tells us that you (the user) are trying to edit the same transaction twice. You essentially have locked yourself out. When you are attempting to edit a transaction that is already open, the system doesn’t know where to look.

To resolve:

To get yourself unlocked, you must log out completely by using the start menu at the bottom left hand corner. This is the only way to log off of the server completely (see our previous blog post “How to Properly Log Off the PROCAS Server, and the Benefits of Doing it Properly”). Hitting either of the “X’s” at the top of the screen will not work, as it just disconnects you for the time being. Once you get logged back in, the transaction you were editing may or may not have saved your changes. We have found in most cases that the journal is left how it was, and it may be sitting out of balance.  

 

Option 2: Record already locked by user

 

If it reads “File is locked” then this tells us that a different user has the same transaction open. Line two of the message on image 4 will let you know which user is attempting to edit the same entry.

To resolve:

In this case, logging out wont fix the issue. To get unlocked you will need to have the user listed on the screen close down the window you are trying to access. So in this instance,  I would ask “smartin,” the user listed on image 4, to close the window that is locking me up, as we both shouldn’t be editing the same entry at the same time. Once they have finished what they are doing and have closed their window, you shouldn’t have a problem accessing the journal.

Year-End Tips author avatar

Want to avoid feeling overwhelmed during the year-end? Get ahead now by taking care of the following tasks, so you can cuddle up with hot cocoa by the fire this year.

Your main focus should be to have new charge codes and timesheet periods set up so employees can charge their time as soon as they are back to work in January. Before you can do this, you must first establish new task numbers to increment the option year on cost type contracts that continue beyond the end of the current fiscal year. (Indirect rates are specific to your fiscal year.) This allows you to maintain the billing rates by year, so you can use PROCAS to calculate rate adjustment invoices. 

Following this step, you should complete the billing setup for the new task numbers so employees are able to charge to these new-year tasks.

Next, you should add timesheet periods for the new year, prior to the start of that year to avoid disruption of time recording. To do so, you would go to the “System” menu, then “Time and Expense,” and then “Timesheet Periods.” From here you can click “Insert,” and then would type the timesheet period beginning and end date for all the periods in the up-coming year.

Another important task to get done is entering the new accounting year, along with the accounting periods for the new year. This can be done by going to the “System” menu, then “Accounting,” then “Accounting Years” and for periods, “Accounting Periods.” From here you will hit “Insert” and type in the new accounting year/accounting period code, along with the beginning and ending dates.

The two remaining tasks to complete are just as important as the ones listed above. The first is updating mileage reimbursement rates per your company’s policy. IRS and Federal Travel Regulations (FTR) mileage rates typically change effective the first day of the calendar year.

Lastly, you will want to order 1099-MISC forms (the official red scannable forms), so you are able to print these forms out of PROCAS.

If you would like more detailed information on the Year-End Processes, check out Chapter 16 of our User’s Manual, which explains every step for each task listed. The User’s Manual can be found in the Timekeeping System under the “Help” menu (top right-hand corner). In addition, we offer a webinar on Year-End best practices, and if you don’t already have access to these webinars, you can send an email to webinars@procas.com to request access.

Alert! ICE Submissions Due Next Week! author avatar

I’d like to imagine that this blog would fall on deaf ears. I’d like to think that in a perfect world, everyone is already in the process of reviewing their completed incurred cost submissions with the thought of freedom in the back of their minds. I’d like to visualize everyone packing away those spreadsheets for the summer, kicking back on a nice hammock somewhere overlooking the ocean.

However, as much as it pains me, this is not a perfect world. Not everyone has had the chance of getting a jump start on their ICE submissions. Not everyone has had the opportunity to compile all their costs to complete that monster of a spreadsheet. If you’re like me, then the thought may not have even crossed your mind! If you fall into one of these 3 categories, or you would like to double check your work, then I have the post for you!

For those that aren’t aware, incurred cost submissions are required if you have cost reimbursable contracts and some time and materials contracts if included in solicitation. They are essentially a compilation of various schedules of your costs, presented in a specific way, and submitted to the DCAA for their review and audit, which allows the government to verify that they are paying a fair price for the services that they receive. Most contractors are required to complete these submissions by June 30th of each year, hence my alert.

The above stated schedules can be found here:

http://www.dcaa.mil/ice_model.html

 

If you select the above link and download the ICE model as per the DCAA’s instructions, you will notice that completing the model is no easy feat. (You know you’re in for a long day when an Excel file comes with its own User’s Manual!) The ICE_Model spreadsheet contains a little more than 25 tabs, all of which require major brain power. To help with this, we’ve built some reports for specific schedules that are separated on each tab (although a couple cups of coffee wouldn’t hurt).

These reports can be found by going to Projects à Incurred Cost Submission Support within the accounting system. Once each report is printed, they can be exported to Excel using the white envelope at the top of the report, so that the data can be easily transferred to the ICE model.

Note: These reports will only give accurate numbers if…

  • Invoices are being billed out of the system
  • Costs are recorded correctly
  • Indirect rates have been calculated and applied for your fiscal year

For those interested, below is a description of each report as found in the PROCAS Users Manual. The screenshots taken are from a sample company as an example of what the reports look like.

 

 

Indirect Rate Support

Perhaps the most important, the indirect rate support reports contain the details of costs within each pool and base for the rate calculation most recently performed, regardless of the date range used when printing the reports. The reports should be used in the ICE Model Schedules A, B, C, D, and E and in PDF format as supporting documentation.

The indirect rate support reports are used to support the rate calculations performed for the year. The period date range used to run the reports are for information in the report header only and should coincide with the date range used for the most recent indirect rate calculation performed.

You should begin your ICE Model by inserting a new tab in the workbook, which will be used to copy your trial balance information. You should link information within the various schedules in the ICE Model to the trial balance tab where appropriate. This will leave less room for discrepancies between information in the ICE Model compared to information in your general ledger. If general ledger adjustments are needed after you have begun the ICE Model, you will only need to update the trial balance information on the trial balance tab.

  • Indirect rates must be calculated and applied before printing
  • There are 6 Reports – 1 for each of the following indirect rate types
    • Fringe – ICE_SUPPORT_6_FRINGE.RPT
    • Facilities – ICE_SUPPORT_7_FACILITIES.RPT
    • Overhead – ICE_SUPPORT_8_OH.RPT
    • General & Administrative (G&A) – ICE_SUPPORT_9_G&A.RPT
    • Material Handling – ICE_SUPPORT_M_MAT_HANDLING.RPT
    • Subcontract Admin. – ICE_SUPPORT_S_SUB_ADMIN.RPT

 

 

Schedule H

The ICE Model Schedule H is the “Schedule of Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates.” The standard Schedule H reports accommodate a consolidated overhead rate structure (SCHED_H_ONE_SITE) and a two worksite overhead rate structure (SCHED_H_TWO_SITE).

  • Indirect rates must be calculated and applied before printing
  • For the report to group the contracts by cost class, an Incurred Cost Class code must be established on the project records, receivable task records, and/or the revenue task records.
  • The report is available in four roll up levels: Project, Task, Subtask, and Cost Center
  • The report can be filtered by Department, Division, Location, Site

 

 

Schedule I

The ICE Model Schedule I is a “Schedule of Cumulative Direct and Indirect Costs Claimed and Billed by Contract and Subcontract.” The automated billing process records billed detail information in Invoice History which maintains the inception-to-date billed hours and amounts on contracts. By default, this report will display prior years settled total costs, prior year costs, and cumulative billed amounts, by contract, grouped by incurred cost class for the date range selected. The report displays the contract billed information in cost class order.

  • The Schedule I support report requires that the automated billing process is used to create invoices within the accounting system.
  • The Schedule I support report in the system requires invoice history.
  • The report is available in four roll up levels: Project, Task, Subtask, and Cost Center

 

 

Schedule K

The ICE Model Schedule K is a “Summary of Hours and Amounts on Time and Material/Labor Hour Contracts.” The automated billing process records billed detail information in Invoice History which maintains the inception-to-date billed hours and amounts on contracts. By default, this report will display the cumulative hours and amounts billed for the date range selected, regardless of the cost class. The report displays the contract billed information in cost class order. You can filter on a cost class code or a range of cost class codes to isolate the information needed.

  • The Schedule K support report requires that the automated billing process is used to create invoices within the accounting system.
  • The Schedule K support report in the system requires invoice history.
  • The report is available in four roll up levels: Project, Task, Subtask, and Cost Center

 

 

Schedule L

The ICE Model Schedule L is a “Reconciliation of Total Payroll per IRS form 941 to Total Labor Costs Distributions.” It is a reconciliation of the accrual basis labor cost per your general ledger to a cash basis labor cost per the IRS Form 941s. The Schedule L report will display the labor costs recorded in the general ledger, grouped by cost pool.

  • Performing a labor reconciliation separately before beginning the ICE Model will help to ensure the information in your general ledger is accurate.
  • The account field in the report parameters will automatically default to one greater than the account code for salaries payable box of the Default Accounts form.
  • The report does not include subtotals by pool. Those must be done in Excel.

 

If you’ve made it this far, I applaud your stamina! These reports can seem intense, however they lend a helping hand in completing the associated tabs of the ICE model. For additional help completing ICE submissions, please check out our Webinar on the subject by emailing webinars@procas.com. As mentioned above, additional explanations on the reports can also be found in the PROCAS Users Manual or by emailing consulting@procas.com.