Accounting for Unallowable Costs-Statistical Sampling

Allowable or Unallowable: Unallowable

Source:

Costs that are expressly unallowable or mutually agreed to be unallowable, including unallowable directly associated costs, shall be identified and excluded from any billing, claim, or proposal applicable to a Government contract. A directly associated cost is any cost that is generated solely as a result of incurring another cost, and that would not have been incurred had the other cost not been incurred. When an unallowable cost is incurred, its directly associated costs are also unallowable.

Costs that specifically become designated as unallowable or as unallowable directly associated costs of unallowable costs as a result of a written decision furnished by a contracting officer shall be identified if included in or used in computing any billing, claim, or proposal applicable to a Government contract. This identification requirement applies also to any costs incurred for the same purpose under like circumstances as the costs specifically identified as unallowable under either this paragraph or paragraph (a) of this subsection.

Cost Accounting Standard 405 - Accounting for Unallowable Cost

The practices for accounting for and presentation of unallowable costs must be those described in 48 CFR 9904.405, Accounting for Unallowable Costs - See http://govcag.com/wiki/index.php?title=CAS_405_-_Accounting_for_Unallowable_Costs

Statistical Sampling

Statistical sampling is an acceptable practice for contractors to follow in accounting for and presenting unallowable costs provided:

• The statistical sampling results in an unbiased sample that is a reasonable representation of the sampling universe.
• Any large dollar value or high risk transaction is separately reviewed for unallowable costs and excluded from the sampling process.
• The statistical sampling permits audit verification.

Penalty provisions under Statistical Sampling

For any indirect cost in the selected sample that is subject to the penalty provisions at 42.709, the amount projected to the sampling universe from that sampled cost is also subject to the same penalty provisions.

Advance Agreement for Statistical Sampling

Use of statistical sampling methods for identifying and segregating unallowable costs should be the subject of an advance agreement under the provisions of 31.109 between the contractor and the cognizant administrative contracting officer or Federal official. The advance agreement should specify the basic characteristics of the sampling process. The cognizant administrative contracting officer or Federal official shall request input from the cognizant auditor before entering into any such agreements.

In the absence of an advance agreement, if an initial review of the facts results in a challenge of the statistical sampling methods by the contracting officer or the contracting officer’s representative, the burden of proof shall be on the contractor to establish that such a method meets the criteria in paragraph (c)(2) of this subsection.

Related Topics

CAS 405 - Accounting for Unallowable Costs