Ensuring the Project Subledger reconciles to the General Ledger (GL) is an important step in the monthly close process because it helps to prove that GL account balances (i.e., revenue, direct costs accounts) are in agreement with the Project Accounting report balances for all direct projects. This reconciliation will also assist in verifying an organization's actual indirect rates are calculating correctly and that all indirect costs in the GL are being allocated across all direct projects in the project accounting reports.
For government contractors who need to comply with additional accounting practices under the Federal Acquisition Regulations (FAR), this reconciliation is a requirement of DCAA's Pre-Award System Adequacy Checklist. This checklist mandates that "every contractor needs to verify, at a minimum on a monthly basis, that all accounts, including the job order accounting system, must roll-up to and reconcile with a contractor's general ledger system."
In a Unanet Financials system, the Project Subledger should be reconciled to the Income Statement on a monthly basis. The Project Subledger is accessed using Project Accounting reports, such as the ones below.
Performing the Reconciliation
Run the Project Cost Summary (JSR) for all direct projects and compare to Income Statement for the year-to-date period.
Setting the reporting criteria for the JSR:
- The report should capture ONLY DIRECT projects. (Depending on your system configuration, this may be done by filtering on the billable (FP, TM, and CP) billing types or by selecting the appropriate owning orgs or project types.)
- Ensure the cost report name used is built using total cost elements, not just billable elements.
- Use actual rates.
- The reconciliation should be done each month on a year-to-date basis.
- Select Roll up all selected projects into a single block.
- Select Include posted data only.
A comparison should then be made to ensure Revenue, Direct Costs, Direct Margin, and Total Indirect Cost within the JSR tie to the Income Statement.
An example of the reporting criteria selections for the JSR is below:
If variances are found, then a more detailed reconciliation should be performed by project.
Run the Project Summary by Cost Element report which will show the data by project. Use the same criteria described above for running this report.
Compare this report to the GL Summary (Trial Balance) report by Project, by selecting this option:
Revenue represents the amount of income a Company has earned from its normal business activities. Revenue can be sourced from billable timesheet transactions, reimbursable expense items (via expense reports or accounts payable vouchers), and fixed price billing items. In rare instances, journal entries to revenue may be made. As a best practice, revenue GL accounts should be marked to require projects. If there are any Journal Entries made to revenue, this is a potential opportunity for a reconciliation issue.
Direct costs represent costs identified specifically with a contract and are charged directly to the contract and/or a particular final cost objective. These costs are mapped via Expense Types and Project Types into the GL.
Any journal entries or AP vouchers posted with no project associated will lead to a reconciling item between the Project Ledger and the Income Statement. As a best practice, all Direct GL accounts should be marked to require projects. Further, ensuring that projects are set up using the proper Project Type will ensure proper mapping to the GL. For example, a B&P project is an indirect cost and should not have a Direct Project Type associated with it.
Other Possible Causes of Variances
An INDIRECT GL account is mapped on a DIRECT Project Type (or vice versa).
- There are unmapped Expense Types to Cost Elements.
- Projects are missing a Cost Structure.
Unallowable Direct Costs
For government contractors, Unallowable Direct Costs, while often legitimate business costs, are costs related to doing business that the government won't reimburse as part of a federal contract. They should be excluded from billings, claims or proposal applications. These costs are identified in the FAR Cost Principles Guide. Examples of Direct Unallowable costs are travel expenses over per diems and direct contract salaries over a cap. These costs should receive the same treatment as other direct, non-billable costs.
Therefore these unallowable direct costs are included in the base of G&A vs indirect unallowable costs which are not included in the pool or base of indirect rate calculations.
To accommodate this, the best practice is to create a Direct Unallowable Cost Element to map these expense types into. This Cost Element should be presented separately on the JSR for ease of reconciliation.
Ideally, within the income statement, these costs would be presented in an "Unallowable Direct Cost" heading above gross margin as well.
Indirect costs, such as Fringe, Overhead and G&A are reconciled generally in total and on a year-to-date basis each month.
Make sure to run the JSR on actual rates.
Possible Causes of Variances
- The Cost Pool Calculation does not match Cost Structure indirect rate formula/application.
- The calculated actual rates are not current/correct.