If a Government contractor has multiple accounting segments (each with its own Disclosure Statement) and they do business with each other, it is my understanding that the performing segment should include its G&A in its billing to other segments. No fee may be charged, but full cost through G&A is allowable. The "purchasing" segment (a Total Cost Input entity) would then add it's G&A to the cost when billing the customer.

It has been many years since I worked for an entity with multiple accounting segments and I looking for any information that my understanding is not correct.

Thanks in advance for your thoughts and any suggestions you may have.

If a Government contractor has multiple accounting segments (each with its own Disclosure Statement) and they do business with each other, it is my understanding that the performing segment should include its G&A in its billing to other segments. No fee may be charged, but full cost through G&A is allowable. The "purchasing" segment (a Total Cost Input entity) would then add it's G&A to the cost when billing the customer.

It has been many years since I worked for an entity with multiple accounting segments and I looking for any information that my understanding is not correct.

Thanks in advance for your thoughts and any suggestions you may have.

Hi Sysyphus,

The cost principle at 31.205-26(e) generally requires that inter-organizational transfers be at actual cost (not price), unless certain exceptions apply. So, generally, yes, your understanding is correct that the performing segment transfers its cost fully burdened through G&A, exclusive of fee.

The responsible or requesting segment may or may not add G&A to the incoming transfer ... and this may be a point of contention, depending on whether the contractor is subject to full CAS coverage and what its Disclosure Statement says.

DCAA's point of view is that the intent of CAS 410 "is that all actions which represent the total productive activity of the segment should be included in the total cost input" used to allocate G&A expenses to contracts. (Ref. DCAA Contract Audit Manual at 8-410.2 (a).) Thus, DCAA would assert that a failure to add the second G&A burden would be a violation of CAS 410.

I'm not so sure and I think DCAA's interpretation ignores the Board's decision in Ford Aeronutronic (ASBCA No. 238833, 1983). In that decision, the Board "rejected the argument that in order for an alloation base to represent total activity, it must include the costs of all the activities of the business unit." (Quoting Karen Manos, emphasis in original.) Basically (and now in my own words) the Board found that determining what costs must be included in the G&A allocation base is reached by analyzing the beneficial or causal relationship between the G&A expenses incurred and those costs. Plainly, that analysis will vary business by business and is wholly circumstance-based.

Presumably a mature contractor has performed that analysis and concluded that incoming transfers either (a) receive a benefit from the requesting segment's G&A functions/activities, or ( do not receive a benefit. That conclusion should drive the accounting treatment and be disclosed in policy or in the Disclosure Statement.

Sorry to pontificate ... this is a pet issue of mine.

Hope this helps.

Hi Sysyphus,

The cost principle at 31.205-26(e) generally requires that inter-organizational transfers be at actual cost (not price), unless certain exceptions apply. So, generally, yes, your understanding is correct that the performing segment transfers its cost fully burdened through G&A, exclusive of fee.

The responsible or requesting segment may or may not add G&A to the incoming transfer ... and this may be a point of contention, depending on whether the contractor is subject to full CAS coverage and what its Disclosure Statement says.

DCAA's point of view is that the intent of CAS 410 "is that all actions which represent the total productive activity of the segment should be included in the total cost input" used to allocate G&A expenses to contracts. (Ref. DCAA Contract Audit Manual at 8-410.2 (a).) Thus, DCAA would assert that a failure to add the second G&A burden would be a violation of CAS 410.

I'm not so sure and I think DCAA's interpretation ignores the Board's decision in Ford Aeronutronic (ASBCA No. 238833, 1983). In that decision, the Board "rejected the argument that in order for an alloation base to represent total activity, it must include the costs of all the activities of the business unit." (Quoting Karen Manos, emphasis in original.) Basically (and now in my own words) the Board found that determining what costs must be included in the G&A allocation base is reached by analyzing the beneficial or causal relationship between the G&A expenses incurred and those costs. Plainly, that analysis will vary business by business and is wholly circumstance-based.

Presumably a mature contractor has performed that analysis and concluded that incoming transfers either (a) receive a benefit from the requesting segment's G&A functions/activities, or ( do not receive a benefit. That conclusion should drive the accounting treatment and be disclosed in policy or in the Disclosure Statement.

Sorry to pontificate ... this is a pet issue of mine.

Hope this helps.

Thanks H2H--that was basically my understanding as well. Performing G&A will be very small (a little accounting and HR support) so it isn't material.