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BP Business Economic Loss Claim Appeal 2017-773:Progran Accountant Properly Reallocated Construction Claimant’s Direct Job Costs and Owner/Officer/Employee Expenses

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The following is an Appeal Panel Decision issued pursuant to Section 6 of the BP Deepwater Horizon Economic & Property Damages Settlement Agreement and the Rules Governing the BP Appeals Process. Links may have been added to assist the reader. The original decision may be found here, as well as a glossary of BP Settlement terms


BP appeals an award of $1,214,743.00, pre-RTP to this commercial construction company in Flowood, Mississippi (Zone D). Policy 495 criteria were triggered and the claim proceeded under the Construction methodology. BP appeals, raising two assignments of error. Essentially, BP complains about the manner in which the program accountant reallocated Claimant’s direct job costs and its owner/officer and employee expenses. BP seeks remand or alternatively submits a Final Proposal of $0.
Claimant uses the accrual basis of accounting and utilizes the percentage of completion approach to revenue recognition. Claimant adjusts revenue for its incomplete projects on December 31 of each year. The program accountant reallocated these direct job costs over the entire year on a monthly basis. BP argues that this approach was erroneous because the reallocation was based on an unsubstantiated schedule from the P&Ls. “There is no additional support in the record to confirm that the monthly allocation was correct,” according to BP. As BP sees it, the vendor accountant should have requested additional documentation. In response, Claimant points out that its contemporaneous trial balances reconcile with the direct job costs. Claimant therefore argues that the reallocation was an appropriate exercise of the accountant’s professional judgment.
BP also challenges the method in which the program accountant reallocated Claimant’s owner/officer and employee payroll expenses. The accountant allocated these costs in proportion to the owner/officer and employee salaries. BP argues that this methodology was flawed because payroll taxes are disproportional when owner/officer compensation is substantial. Further, BP points out that payroll expenses contain workers’ compensation and health insurance premiums that do not
vary in a proportional fashion. Again, BP suggests that the accountant should have engaged in further inquiry regarding the actual allocation of these expenses.
BP’s asserted errors, reduced to their essence, are that the vendor accountant should have obtained additional information so as to engage in a different method of reallocating the direct job costs and owner/officer payroll expenses. The Contact Notes reflect that the accountant engaged in a detailed analysis of these issues:
DWH Accountant noted significant amounts recorded in the ‘Direct Costs of Jobs’ COGS account in December from 2007 to 2011. As these expenses relate to the entire year and not just at year end, an adjustment was performed to remove these expenses (Adjustments 1 & 2), and restate the monthly expenses based on payroll vs non-payroll accounts (Adjustments 3 & 4) according to the schedule found within the Claimant’s P&L’s.
DWH Accountant noted that the Payroll Tax and Fringe Benefit accounts were recorded sporadically in 2007-2011, including multiple months of no or negative expense. Additionally, it is assumed a portion of these expenses relates to owner/officer salaries. As these expenses relate to the entire year and owner/officer payroll
is considered fixed, an adjustment was performed to remove these expenses (Adjustment 5), restate the owner/officer portion to December of each year based on annual owner/officer salaries as a percentage of total annual salaries (Adjustment 6), and restate the remaining employee portion based on monthly employee salaries
expense as a percentage of the annual expense (Adjustment 7).
Policy 495 affords the Claims Administrator’s professional accounting staff with the discretion to exercise professional judgment in order to achieve sufficient matching of revenue and variable expenses. We find no abuse of that judgment by the accountant here, especially since the Construction methodology was also applied to the restated P&Ls. In many appeals, BP has argued that reallocations similar to those employed here were a necessary and appropriate exercise of accounting discretion. We find no basis in this record for disturbing the accountant’s approach.
For the foregoing reasons, this three member panel unanimously adopts the Claimant’s Final Proposal which represents the amount of the award.

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