Risk Assessment, Audit Processes and Sample Sizes. It’s Really Just Auditing…..But. Agenda. What is Really Necessary? Risk Assessment Audit Processes and Sample Size Labor Indirect Costs Guidelines Conclusion. What is Really Necessary?. It’s Not Just About Auditing.
It’s Really Just Auditing…..But
It’s Not Just About Auditing
Generally Accepted Government Auditing Standards –GAGAS (Yellowbook)
Generally Accepted Auditing Standards (GAAS)
UNDERSTAND terms of engagement
Establish quality control standards unique to overhead audits
Profit = Revenue – Direct Costs – Overhead
Cash Flow = Cash In – Cash Out
Cash in the Bank
Overtime premium on a project
Time spent preparing a proposal
Use of equipment on a project
Time spent by accounting to prepare an invoice
Company vehicle used on project
Personal vehicle used on project
Use of CAD equipment on a project
Use of a pencil to write the final reportWhat is “Overhead”?
Which of these cost elements should legitimately be charged directly to jobs and which to overhead?
Standard cost (preferred) – Standard hourly rate based on hours employee is expected to work during year (usually 2,080). Any differences (uncompensated overtime, premium overtime) allocated to overhead. (Labor rate stays fixed)
Average cost – Divide paycheck by actual hours worked during pay period. (Labor rate can change each pay period)
Bill according to contract
Accumulate costs according to policy
The First Step
Where it all Comes Together
Largest Cost and Least Documented
They are very important!
Must have a timekeeping system that identifies employees’ labor by intermediate and final cost objective
System must charge direct and indirect labor to the appropriate cost objectives
At least monthly posting to financial management system
FAR Knowledge is Critical
Quality is not in Quantity
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