BILLING SYSTEM Getting Paid on a Government Contract

BILLING SYSTEM: Getting Paid on a Government Contract 16 April 2014

ANNOUNCEMENTS

Trish Carlin, CPA Sr. Consultant, Carlin Consulting Group Joshua Harlor Supervisory Auditor, Defense Contract Audit Agency Linda Hildebrant Director of CAS Compliance, Morpho Detection Dale English Supervisory Contract Specialist, NAVFAC SW

Contract Invoicing Provisions Customer Acceptance & Approval BILLING CYCLE DCAA Oversight WAWF Adequate Billing System Gov’t Invoicing Forms

Adequate Billing System Contract Invoicing Provisions Contract Brief FAR 52. 216 -7 Allowable Cost & Payment Provisional Billing Rates Fee Withhold

Invoicing Forms Public Voucher Progress Payment Invoice & Receiving Report Wide Area Workflow (WAWF) DCAA Oversight/Monitoring Government Acceptance & Approval

Adequate Billing System

DFARS Business System Final Rule DFARS 252. 242 -7005 System DFARS Provision DFARS Clause 242. 75 252. 242 -7006 234. 2 252. 234 -7002 215. 407 -5 252. 215 -7002 242. 72 252. 242 -7004 Property Management 245. 1 252. 245 -7003 Purchasing 244. 3 252. 244 -7001 Accounting • • • Indirect / ODC Control Environment Billing Labor General IT Earned Value Management Estimating • Budget / Planning Material Management & Accounting

Elements of an Adequate Billing System DCAA Contract Audit Manual 5 -1100 Billing System should provide reasonable assurance that billings applicable to Government contracts are prepared in accordance with applicable laws and regulations, and contract terms; and that material misstatements are prevented, or detected and corrected in a timely manner.

Elements of an Adequate Billing System DCAA Contract Audit Manual 5 -1100 The Billing System should include processes for: • Segregating and excluding unallowable costs • Segregating incurred costs that are non-billable • Withholding costs that are appropriate adjustments • Adjusting submissions for final rates or indirect billing rates • Identifying costs that require specific approval • Identifying contract overpayments

Elements of an Adequate Billing System DCAA Contract Audit Manual 5 -1100 Key Processes Include: Billing system policies and procedures Billing reviews and approvals Training of employees Contract briefings

Elements of an Adequate Billing System DCAA Contract Audit Manual 5 -1100 Key Processes Include Reconciliation of recorded and billed cost Adjustment of cost and rates Exclusion of non-billable costs Subcontractor progress payments, performancebased and commercial financing payments

Elements of an Adequate Billing System DCAA Contract Audit Manual 5 -1100 Key Processes Include Estimate to complete, estimate of costs of delivered/invoiced items Loss contract procedures Contract overpayments, refunds and offsets Billing system – IT system internal controls

Contract Brief DCAA Contract brief guidance DCAA Contract brief templates

FAR 52. 216 -7 Allowable Cost & Payment (a) Invoicing (b) Reimbursing costs (c) Small business concerns (d) Final indirect rates (e) Billing rates (f) Quick closeout procedures (g) Audit (h) Final payment

Provisional Billing Rates Purpose of Provisional Billing Rates (PBRs) What are the procedures for establishing PBRs? When should we submit? What information should we provide? DCAA review Monitoring Common deficiencies Frequently asked questions

Purpose of PBRs One criterion for an adequate accounting system is that it provide for billings that can be reconciled to the cost accounts for both current and cumulative amounts claimed and comply with contract terms. Interim payments on cost-type contracts are allowed as specified in the contract provisions. Reimbursement of indirect costs in these interim payments is generally made through provisional billing rates. Provisional Billing Rates are established to approximate the contractor’s final year-end rates, as adjusted for any unallowable costs. Provisional Billing Rates are used for interim purposes until settlement is reached on the final indirect rates for the contractor’s fiscal year. FAR 42. 704 -Billing Rates-provides procedures and guidance for establishing PBRs. 17

Reasons for Contractor Submission Contractors are STRONGLY encouraged to submit a billing rate proposal to assist the responsible official in establishing rates Opportunity to present and explain expected changes Note: Vouchers and progress payments may be REJECTED if submitted without using properly established billing rates 18

Procedures for Establishing Billing Rates FAR 42. 704(b) The contracting officer or auditor shall establish PBRs on the basis of information resulting from recent review, previous rate audits or experience, or similar reliable data or experience of other contracting activities. When the contracting officer or auditor determines that the contract value does not warrant submission of a billing rate proposal, PBRs may be established by making appropriate adjustments from the prior year’s indirect cost experience to eliminate unallowable and nonrecurring costs. Also, contractors may voluntarily submit a billing rate proposal to assist the responsible official in establishing rates (Preferred). It is important to discuss the requirements with the contracting officer or cognizant auditor. 19

Procedures for Submission Contractors submit provisional billing rates to its DCAA Office or Administrative Contracting Officer Electronic submissions are encouraged Provide in excel format on a CD or through e-mail 20

When Should We Submit? Prior to the beginning of the fiscal year (once budgets are complete) or when the established billing rates are no longer representative of final year end rates due to unforeseen events or circumstances. The PBRs should represent a 12 -month period (the contractor’s fiscal year). PBRs should be submitted at least annually Vouchers and progress payments can be returned if submitted without properly established billing rates. 21

What Should We Provide in a PBR Proposal? Proposed billing rate calculations (Pool and Base) with brief rationale Prior fiscal year (FY) pool and base Current FY to date pool and base Current FY budget pool and base, if available Comparative analysis with explanation of any significant differences 22

DCAA Review Some example procedures DCAA may perform include the following: Compare proposed pool and base to prior year and year-to-date pool and bases. Review trend of questioned costs in relevant incurred cost audits and consider an adjustment for unallowable expenses in calculating current year provisional billing rates. 23

Monitoring PBRs should be monitored: • Throughout the year • Immediately after year-end • Upon submission of the final indirect rate proposal PBRs may be adjusted by either party at any time to prevent substantial under or over payment – FAR 42. 704(c). If PBRs are adjusted, the contractor should submit adjustment vouchers accordingly. 24

Adjustment Submit a letter with new rates, an explanation as to what caused the change, and with supporting data If DCAA/DCMA has NOT issued a memo: Begin using the new rates immediately If DCAA/DCMA HAS issued a memo: Continue using the rates as listed on the memo unless you receive a new memo from DCAA/DCMA Please contact your cognizant office if you have concerns NOTE: If PBRs are adjusted, use the new rate on the current year cumulative expenses 25

Common Deficiencies Failure to remove unallowable costs from the billing rate projections. Failure to adjust provisional billing rates based on actual experience: Before year end, if there are known or reasonably anticipated significant variances. After year end once actual rates, net of unallowable expenses, are calculated. 26

Frequently Asked Questions Do I submit the Provisional Billing Rate Proposal to the ACO or DCAA Office? FAR 42. 704 indicates the office responsible for final indirect cost rates also establishes provisional billing rates. If final rates are ACO determined, submit to that office. If final rates are audit determined, submit to local DCAA Office. 27

Frequently Asked Questions Can I use just use the most recent FY ended rates for provisional billing purposes? No. However, the responsible official may establish the billing rates based on prior year history less unallowable costs. If budgetary data is available, your proposed billing rates may be based on the budget less the estimated unallowable costs. Once provisional billing rates are established with DCAA or the ACO, do I need to submit proposed changes based on new information? YES. The contractor should submit new proposed billing rates when known or reasonably anticipated significant variances have occurred. 28

Fee Withhold Three contract clauses (FAR 52. 216 -8, -9, and -10) regulate how the Government will pay fees under CPFF and CPIF contracts

Public Voucher Contractor Responsibilities Preparation of Vouchers Electronic Submission of Vouchers Common Deficiencies

Contractor Responsibilities Contractors should: Contact the cognizant DCAA office after contract award. Ensure DCAA has the necessary information to process contract billings, such as current provisional billing rates, copy of the contract, any special contract provisions, etc. Maintain adequate billing system internal controls. Ensure adequate support is maintained for amounts billed. Submit timely incurred cost proposals and final vouchers in accordance with FAR 52. 216 -7. 31

Preparation of Vouchers The contractor is responsible for preparing and submitting claims for reimbursement according to the terms of the contract. Vouchers should not be submitted more than once every two weeks. Public voucher claims for reimbursement must be prepared on the prescribed Government forms: First voucher on a contract is an interim voucher, as are all subsequent vouchers prior to the final voucher. Final voucher will not be submitted until all contract work is completed. The auditor may provide advice concerning the format for preparing public vouchers and financial representations. 32

Electronic Submission of Interim Vouchers All vouchers should be submitted through WAWF unless contract terms require hard copy vouchers to be submitted. In WAWF, the “Cost Voucher” is the equivalent of the SF 1034. Data equivalent to the SF 1035 must be included in a separate electronic file and attached to the cost voucher in WAWF. Vouchers must be prepared and submitted in accordance with the terms of the contract, including any special billing or payment instructions. Guidance and training for completing a cost voucher invoice can be obtained from the WAWF website at https: //wawf. eb. mil. 33

Electronic Submission of Interim Vouchers Electronic Submission of Interim V ouchers examples from DCAA Manual 7641. 90, Information for Contractors, located at: http: //www. dcaa. mil/DCAAM_7641. 90. pdf 34

Electronic Submission of Interim Vouchers Final voucher: Last voucher to be submitted on a contract. A separate completion voucher will be submitted for each individual project or task order for which a separate series of public vouchers has been submitted. In accordance with FAR 52. 216 -7(d)(5). 35

Common Deficiencies Common deficiencies found during voucher reviews: Math errors. Billed costs not allowed per the contract terms (e. g. , overtime). Incorrect provisional billing rates (indirect costs). Billing over contract ceiling amounts. 36

Progress Payment FAR 32. 5 – Progress Payments Based on Costs SF 1443 – Contractor’s Request Invoice & Receiving Report WAWF's Receiving Report takes the place of the DD 250 and MIRR

Wide Area Workflow (WAWF)

Wide Area Workflow (WAWF) o Contractors input invoices via Internet o Government performs inspection/acceptance via Internet o Sends inspection/acceptance information to Payment System via Electronic Data Interchange o Provides visibility to all – Industry, DCMA, DCAA, DFAS, Buying Commands o Maintains electronic records o Standard DOD application with Single Face to Industry o Provides secure and auditable transactions

Wide Area Workflow (WAWF) o Benefits for Contractors • Electronic submission of invoices • Faster payments • Total visibility of document status • Eliminates lost or misplaced documents • Secure transactions with audit capability

Wide Area Workflow (WAWF) Document types used to create, submit, inspect, accept, certify, or process payment on the following document types: Invoice Document Types (Seven) Receiving Report Document Types (Six) Receiving Report and Invoice Document Types (Four) Financing Document Types (Three) Voucher Document Types (Five) Property Document Type (One)

Wide Area Workflow ***Billing to the correct Contract Line Item Number (CLIN) on the Contract is critical*** DFARS Clause 252. 232 -7006 Wide Area Workflow Payment Instructions Attached to the invoice/voucher, must be supporting documentation, if required by the contract

DCAA Oversight/Monitoring Periodic Audits by DCAA. When contract financing is cost-based, such as interim cost reimbursement (interim vouchers) or cost based progress payments, the billing system and the contract costs are subject to periodic audits by DCAA will, at a minimum, verify that the costs billed have been incurred in performance of the contract, that they are in agreement with the accounting records, and that they are in accordance with the contract terms.

Wide Area Workflow (WAWF) Includes a voucher sampling approach that replaces the direct bill program DFARS 242. 803 gives DCAA authority to: Approve interim vouchers selected using sampling methodology for provisional payment and forward to the disbursing office ALL provisionally approved interim vouchers are subject to a later audit of actual costs incurred Review final vouchers and send to the Administrative Contracting Officer (ACO) 44

Government Acceptance & Approval

Vendor Bank WAWF Application Submits Shipping Reports & Invoices WAWF transmits payment actions EDI 810 C, 856, & 861 via GEX to Do. D pay system EDI FTP Data Upload Web Input using Web Forms EFT Do. D Pay Systems Internet Authorize transfer of funds Via EFT to Vendor’s bank Inspecting Activity • Receives email notification of awaiting actions • Inspects / rejects using Web Forms online in WAWF Accepting / Receiving Activity Local Processing Office • Receives email notification of awaiting actions • Accepts / rejects using Web • Certifies invoices ready for Forms online in WAWF payment in WAWF Payment Office • Receives email notification of awaiting actions • Pays or rejects invoices using Web Forms online in WAWF

Invoice requirements are listed in The Federal Acquisition Regulations (FAR) (FAR Part 32. 905). Company must be registered in System for Award Management to receive electronic payments (EFT) (https: //sam. gov) Federal Agencies use different electronic payment systems such as: - Wide Area Work Flow (WAWF) - Do. D - Pay. Web - ONR -Payment Management System (PMS) – DHHS

Be proactive before submitting invoice: - Read your contract - Understand your contract - Ask questions of your Contract Specialist - Follow the invoicing instructions - Know who is responsible for actions needed - Monitor your invoices progress

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