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5 Accounting Mistakes to Avoid If You Need a FAR Overhead Audit [Video]

By: Marie Calabrese

There are several accounting mistakes that government contractors make that can cause major headaches when uncovered during their federal acquisition regulation overhead audit. Here are five of the most common.

1. They don’t properly allocate direct and indirect costs.

It’s important for companies to review expenses and determine if they are allocable to a specific job or allocable to overhead. For example, travel to a specific job site is a direct cost while travel to a conference is an indirect cost.

2. They don’t require employees to provide itemized receipts for meal reimbursements.

As you probably know, alcohol is an unallowable overhead expense. It’s important for companies to require itemized receipts so they can code alcohol, including tax and tip associated with alcohol to an unallowable expense account.

3. They don’t analyze executive compensation for unallowable costs.

Companies need to evaluate the reasonableness of executive compensation in accordance with FAR 31.205-6. We recommend companies either utilize the National Compensation Matrix or utilize survey data.

4. They don’t maintain adequate detail on advertising and public relations time to determine if time is allowable or unallowable.

Many companies don’t maintain specific details on time coded to advertising and public relations. We encourage companies to set up a time entry system that allows the maintenance of adequate detail to determine allowable and unallowable advertising and public relations time.

5. They include entertainment.

A good rule of thumb is always: if it sounds fun, it’s unallowable! That swamp tour at a conference in New Orleans, unallowable! That cost of a client meeting at the Cubs game, unallowable!

Need Help?

If your company is going through its first overhead audit, make sure to check out my article with frequently asked questions about FAR overhead rates and audits. If you need help at your business, contact us here or call 800.899.4623.

Published January 18, 2022

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