Accounting for Joint Ventures

Laura Davis President – Strategic Consulting Solutions Executive Member – PDS Consulting Solutions

Populated vs Unpopulated JV

•Populated JV’s hold the employees directly.▫Requires benefits plans▫Require accounting staff to manage payroll and financials

•Unpopulated JV does not have employees▫Each member of the JV has the employees▫Members have subcontract with JV and bill the costs to

the JV▫Does not require full accounting to support

Accounting for JV’s•Populated JV

▫Full set of accounting records▫Payroll, Billing, Accounts Payable, etc.

•Unpopulated JV▫Minimal accountings records▫No Payroll▫Accounts Payable includes invoices from Members▫Billing

Indirect Rates•Populated JV

▫Full set of indirect rates (Fringe, Overhead, G&A, etc)▫Responsible for indirect rates and audit issues

•Unpopulated JV▫Minimal indirect rates▫No Fringe or Overhead Pool▫G&A for Accounting, Contracts, and Oversight

Management Oversight of Unpopulated JV

•Various Ways to handle▫Recover through G&A of Member company▫Bill Management Fee to JV▫Assign Third Party to Oversee as Consultant

Government Audits of JV’s• Populated

▫Fully audited▫Pricing, Accounting System, Incurred Cost Submission, Floorcheck,

etc.

• Unpopulated▫Minimal Audit▫Will perform same audits, but scope is less due to volume of

transactions No Floorcheck audit

▫Must verify that Members and all Subcontractors have compliant accounting system and submit ICS

Close-out of Contracts•Populated

▫Incurred Cost Submissions for JV and Major Subcontractors▫Adjustment for Indirect Rates on Cost Plus and T&M

contracts

•Unpopulated ▫Incurred Cost Submissions for Members and Major

Subcontractors▫Incurred Cost Submission for JV (minimal information)▫Adjustment for Indirect Rates (minimal impact)

Recommendation•Appoint Third Party to assist with close-out

▫Incurred Cost Submissions▫Audits▫Negotiations▫Maintenance of Records

•Establish a Reserve▫Indirect Rate Adjustment▫Close-out Costs

Conclusion•Populated JV operates as normal contractor with

same/similar activities•Unpopulated JV puts the primary accounting functions

and audit requirements on Members•Agree on close-out process on front-end to minimize

issues – close-out can be several years after operations cease.

Questions

Laura Davis 109A Jefferson Avenue Oak Ridge, TN 37830 (865) 220-0051www.SCSConsults.comwww.PDSConsults.com