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Process Flow: Acquisition of Business, Contracting, and Revenue Recognition

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Title: Process Flow: Acquisition of Business, Contracting, and Revenue Recognition


1
Process Flow -
Acquisition of Business, Contracting and Revenue
Recognition
2
Table of Contents
Content Page Overview 3
Organizational Chart 4 Process Maps
5 13
3
Process Overview Contracting Revenue
Recognition
Major Sub-Processes
Business Acquisition
Revenues
Pervasive Business Risk
Projects are not properly maintained in the
system resulting in revenues that are not
accurately presented in the financial statements
Process Risk
Business Acquisition
Revenues
  • Contracts or projects are accepted without
    management approval.
  • Projects are sold and not properly set up in the
    system.
  • Potential commitments and/or contingent
    liabilities are entered into and are not
    appropriately identified or disclosed.
  • Project revenue is not recognized/recorded in
    accordance with GAAP or agreed terms.
  • Revenue journals are not properly posted to the
    system.
  • Costs of time and materials are not properly
    billed to the customer.

4
Company X Organization Chart (Reporting Order
Only)
CEO
(insert name) Sr. Vice President/CFO
Sr. VP General Counsel/ Corp Secretary
Sr. VPs and VPs (XX)
(insert name) Senior Financial Systems Admin
(insert name) Financial/Actg. Coordinator
(insert name) Controller
VP of Business Operations
VP of Contracts
(insert name) Financial Systems Admin
Business Operations Managers
Project Managers
(insert name) Senior Contract Actg. Mgr
(insert name) General Actg. Manager
(insert name) Billing/AR Manager
(insert name) (insert name) Contract Actg.
Manager Senior Accountant (insert name) (insert
name) Accounting Manager Accounting
Manager (insert name) Contract Actg. Manager
(insert name) (insert name) Billing/AR
Specialist Billing/AR Specialist (insert
name) Billing/AR Specialist
(insert name) Staff Accountant
(insert name) Asst Actg. Manager
(insert name) Payroll Manager
(insert name) Accts Payable Manager
(insert name) Payroll Specialist (insert
name) Payroll Specialist (insert name) Payroll
Specialist
AP (insert name) AP Specialist (insert name) AP
Specialist
Actg. Services (insert name) Actg. Svcs.
Specialist (insert name) Actg. Svcs. Specialist
5
Acquisition of Business
Overall Acquisition of Business Processes
Proposal and Budget
Bid and Proposal (If applicable)
Contract Award and Acceptance Process
Includes entering the project into System X
Revenue Recognition
6
Proposal and Budget Process
Contact (name), Director of Business Operations
The decision whether or not to bid on a proposal
is made by the Officers Project Managers. In
making this decision, the officer looks at
factors such as the requirements of the RFP,
client relationships, competencies, resources,
and the reasonability of winning the contract.
Request for Proposal (RFP) received and
distributed to Contracts, Business Ops and
appropriate Officer-in-Charge
Bid?
No
RFP
End of Process
Yes
Operating Group meets with the Business Ops and
Contracts Department to review the RFP from a
contractual and business risk standpoint
Operating Group provides Labor and Other Direct
Costs (ODC) inputs to the Business Operations
Department for budgeting purposes
T
A formal meeting occurs only when necessary.
Also, weekly Marketing/Sales meetings are held.
Budgets are set up based on past history or
managements best estimate for new projects.
Operation's Group feedback assists in the
budget/bidding process Factors include Type of
contract (Cost-reimbursable, Firm-fixed, Time
Materials), Win probability, etc.
7
Proposal and Budget Process
Contact (name), Director of Business Operations
The information entered into the set-up is used
for calculating price.
There are various types of ODC calculation
categories The per unit information and the
appropriate quantity is entered.
All the hours entered are used for calculating
the cost or price in the budget.
T
Business Operations Department accesses the
Pricing Template (Excel Spreadsheet)
Business Ops enters general proposal information
(project name, officer name, etc), employee name
and hourly rates in the Set-up tab
A
Business Ops enters the hours each employee is
estimated to work in the Person Loading tab
Business Ops enters non-labor costs / expenses to
be charged directly to the project in the Other
Direct Costs tab
B
The Pricing Template contains multiple tabs. The
first three tabs are the input tabs, the
information loads into the remaining tabs.
Only Business Ops has access to the directory.
The file is read-only, all sheets are protected.
Base hourly rates are obtained from the Salary
Listing and are used to build fully loaded rates.
Base hourly rates equal the salary divided by the
number of working hours in a year (XXXX). Fully
loaded rates are inclusive of IDC (fringe,
overhead, GA, and plus fee). Fully loaded rate
is in the bid rate in the proposal (bid rate
may or may not be included, it is often
associated with Time Materials contracts).
Salary Listing is generated the XXh of each month
via System X Access to the Salary Listing is
limited to Business Ops.
Overhead, Fringe, and GA rates are established
yearly by Contract Accounting, reviewed by
(company) for approval and entered into System X
by Contract Accounting. The Indirect Costs (IDC)
rates are built into the Pricing Template Bus Ops
enters fee percentage, in conjunction with the
Officer.
Note Salary info is provided by HR, and entered
into System X by Contract Accounting Generated
the XXth (no significance in the date) to be
aware of new employee or rate changes.
8
Proposal and Budget Process
Contact (name), Director of Business Operations
Note Formal thresholds do not exist to determine
level of approval needed.
Save Budget in the Directory under the name of
the appropriate Officer-in-charge
Bus Ops Submits Budget to the Officer-in-Charge /
Project Manager for review
Approved?
No
A
B
Yes
All proposals include standard terms and
conditions, technical specifications, payment
terms, type of contract, budget with the detail
tasks (if required), billing rates for time and
material contracts, delivery date, and a
signature page (which may serve as the contract).
D
Does the Officer want a Bid and Proposal account?
The Contracts Department reviews all final
business management proposals prior to submittal
to the client to ensure all required information
is included
Bus Ops submits Budget to Contracts Department
Contracts Department submits proposal to the
Client
G
Yes
No
F
9
Bid and Proposal Process
Contact (name), Director of Business Operations
Note Bid and Proposal accounts in System X are
used at the discretion of the Officer to track
hours incurred to develop a proposal. They are
typically used for larger projects.
Contracts sets-up a record indicating the BP in
(non-accounting related system).
A Bid and Proposal (BP) authorization form is
initiated to track proposals by the Officer
BP sent to the Contracts Department to request a
BP number
Contracts Department reviews the BP
BP
G
BP form forwarded to Contract Accounting to set
up a new BP number in System X
BP is a separate code within the overall GA
pool. If BP job is not established, labor is
still charged to GA. The B P is used for
operational analysis and does not create a
financial impact.
F
10
Contract Award and Acceptance Process
Contact (name), Director of Business
Operations, and (name), Vice President of
Contracts
Yes With Changes
F
Clients indicates revisions / changes
Officer decides to modify and resubmit
Client reviews proposal
Contract Awarded?
Submit?
Yes
D
No
No
Yes As Submitted
End of Process
From Project Mgmt
VP of Contracts or Officer approval signature
obtained on the Contract
Business Ops or Contracts completes a Booking
Request form (BRF)
Business Ops or Contracts Department obtains the
approval signature of the Officer in charge of
the project on the BRF
Business Ops sends the BRF to the Contracts
Department for review and sign-off
BRF
Contract Accounting Department receives and
reviews the BRF, approved Contract, copy of the
proposal, budget, PO (if applicable), invoicing
schedule including deliverables, and estimated
bill dates a list of the owning and performing
operating groups and other relevant information
Contract Accounting inputs project number,
project name, customer name and prime contact
into System X
The form contains project name, customer name,
contract description, contract type, customer
type (ie Cost Plus Fixed Fee, Firm Fixed Price,
or Time and Material), contract value and level
of funding, period of performance, any specific
billing instructions, fee accrual percentage,
names of points of contact within Company X,
technical and procurement official information
and a checklist of required documentation.
E
System X
Project s are typically setup in four levels.
1st level is the contract level, 2nd level is the
task level, 3rd level is the reporting level, 4th
level is for additional requirements.
Note The Contracts Department maintains all
contract files.
Note Only Contract Accounting has access to
enter the BRF information onto System X. Required
fields must be completed before moving to the
next screen.
11
Contract Award and Acceptance Process
Contact (name), Director of Business
Operations, and (name), Vice President of
Contracts
The fee is entered in accordance with Business
Ops instructions as indicated on the BRF.
Note Due to the nature of government
contracting, it is common that work will begin on
a job before the formal contract is signed and
received. When this occurs, some form of written
approval (i.e. an email) is typically requested
of those purchasing Company X's services, as
proof of contract acceptance. These contracts are
entered into the system as "award pending" and
can accrue revenue on costs, but not on fees. A
project will not remain award pending for more
than 30 days without a reassessment by the
Officer in Charge to indicate a willingness to
accept continued risks.
Contract Accounting inputs Contract Type and fee
accrual percentage into System X (i.e. Cost Plus
Fixed Fee, Firm Fixed Price, or Time and
Material), which drives revenue recognition
Contract Accounting inputs project description
Contract Accounting inputs customer type and
funding source
Contract Accounting enters the projects period
of performance (start date and end date)
Contract Accounting enters labor categories,
billing rates, and workforce from BRF
A
E
Billing Rates are calculated as part of bid.
These inputs not needed for FFP contracts.
System X
Contracts Dept enters wins and changes in
contract funding during the month and also year
to date wins by operating group into the Monthly
Booking Report
X
Monthly Booking Report
Contract Accounting enters Contract Information
(contract , subcontractor , PO , owning org ,
performing org and BP )
Contract Accounting links performing orgs to the
project so that Company X employees in those orgs
can charge time to the project in ET, the payroll
system, and System X
Contract Accounting enters the Ceiling rates and
Booking Credit
Monthly Booking Report distributed to Management
for comparison with CP Report from System X
To Payroll
A
Ceilings If there are any contractual ceilings
on labor hours, labor rates, indirect rates or
fees, they must be noted and any attachments
included in the booking package Booking Credit
1) Funded Amount- enter amount funded by
contractual document 2) Unfunded Award enter
portion of contract value that has not yet been
funded 3) Unfunded options- enter total amount of
options that may be exercised by the client in
the future 4) Contract Value- this is the sum of
123 5) Management Adjustment this is used
when an Officer feels the real value may be more
or less than the value stated in the contract It
is used to adjust backlog s to a more realistic
amount (must be approved by the VP of Contracts
and CEO) 6) Total this is the sum of 45
12
Revenue Recognition
Contact (name), Director of Business
Operations, and (name), CFO
Note Revenue is recognized based upon contract
type and fee accrual information contained in the
BRF. The BRF is entered into System X once the
contract has been awarded.
Reviewing Period of Performance (POP) in relation
to contract value to ensure each project is in
line with the budget.
B
Monthly, Contract Accounting updates and creates
the Project Status Report (PSR) tables in System X
Contract Accounting reviews PSRs for all active
contracts / projects to ensure revenue is
calculated according to budget and or BRF
Revenue is automatically calculated in System X
Print PSR
From Payroll
Timesheets completed and exported into System X
If necessary contact CFO or Controller
BRF information entered incorrectly into System
X, update information
System X
B
Discrepancy?
Other Direct Costs (ODC) are entered into System X
Yes
Yes
Contact Bus Ops to discuss and determine action
required
B
Note Contract Accounting Business Ops meet
monthly to review the CP Revenue Summary Report
and the System X Revenue Summary Report . Also,
mid-month reviews are performed for any issues
previously identified as outstanding.
No
S
Contact Contract Accounting to research and
resolve
Contract Accounting generates CP Revenue Summary
Report
The BRF may need to be updated, the BRF may be in
progress (Award Pending), or if the Contract is
completed, Contract Accounting will update fee in
System X.
BRF completed and entered into System X
No
Controller CFO review the CP Revenue Summary
Report
Approve?
Yes
R
X
Note Labor Revenue cannot be recognized on a
project beyond the Period of Performance input
into System X. Typically, revenue can be
recognized for an additional month. If the lag
is to be longer than a month, additional doc is
required from Business Ops.
Note Only Contract Accounting has access to make
project revenue adjustments in System X.
13
Revenue Recognition
Contact (name), Director of Business
Operations, and (name), CFO
Contract Accounting re-runs Revenue Summary
Report in System X and CP Revenue Summary in
Impromptu
Revenue is posted to the General Ledger, PSR and
unbilled Sub-Report by Contract Accounting
Contract Accounting runs Revenue Journal in
System X
R
Reconcile Reports to Journal
Yes
Reconcile?
S
No
Update Project Master screen in System X
Controller / General Acct Manager generate
Financial Statements in System X
No
Errors generally due to manual entry error (i.e.
contract made inactive).
Sr. Contract Accountant Reconcile Reports to
Financial Statements (tie in YTD revenue)
Reconcile?
Yes
End of Process
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