It
is very natural to struggle while trying to understand the different
segregations in the expense section under the DCAA audit system. You will find
it quite challenging to differentiate the “non-allowable” and “allowable” costs
concerning the government contracts. Don’t worry, for you are not the only one
feeling frustrated with the jargon. Every single contractor of the Government
faces the same issues when it comes to the identification of the direct or
indirect cost. You must go through the examples of the allowable as well as the
non-allowable costs for gaining a better insight into the matter.
Checking
the allowability
When
a particular cost comes under the scrutiny of the auditors, the DCAA accounting standards provide some guidelines to check the
nature of the expense. The first thing to check is whether the expense was
reasonable enough. Then the auditor will check whether the fund is allocable.
The Cost Accounting Standards Board comes up with a set of standards very much
like the United States Generally Accepted Accounting Principles. Compliance
with the rules, along with the circumstances of the expense, needs scrutiny.
Also, it must abide by the terms that are there on the contract paper.
Defining
reasonable cost
A
cost is not under the heading of the unallowable cost accounting only
when the value is not exceeding the standard expense decision. There will be
compared with other competitive business organizations to see whether you have
stuck to the standard expense schedule or have overspent the money. Also, the
cost should be an essential requirement for the business at that point in
time.
