Basic Accounting

If you win any kind of Federal contracts, including government grants, you are subject to a number of audit requirements. Audit requirements for not-for-profit companies, including universities, are defined in OMB Circular A-133. For-profit companies are governed by the agency providing the award, meaning that each agency has its own audit rules.

All DoD agencies (Army, Navy, Airforce, etc.) follow the same accounting rules. The Defense Contract Audit Agency (DCAA) oversees auditing the DoD contracts. They evaluates contractors’ policies, processes, procedures, controls, and actual performance.

For SBIR grants, their specific tasks include the following:

• Accounting system compliance review - If you win a DoD SBIR (or any DoD contract) and you have not previously had an accounting system compliance review, the DCAA will come and review your accounting system.
• Financial capability review - The objective of a financial capability review is to determine if the contractor has the financial resources to perform the services detailed in the Government contract. (Not standard for SBIRs, but can happen)
• Audit of proposal costs - The contracting officer can request that the DCAA audit all or part of the proposal to assess the validity of cost — fair and reasonable price for the work proposed.
• Audit of indirect cost - You will submit an indirect cost rate with your proposal. Every year, you must submit a “Model Incurred Cost Proposal” backing up your indirect cost spending. The DCAA reviews the costs entered in the model to determine the acceptability of the indirect costs assigned to the contract. The model must be submitted every year of the contract and may be audited each year.
• General audit - This happens at the request of your Procuring or Administrative Contract Officer (PCO or ACO) and is likely if the PCO or ACO suspects that there may be contract issues. Drivers of this type of audit include multiple adjustments to your contract, irregular payment submissions, missed reports.

In general, the DCAA emphasizes internal control systems, management policies, accuracy and reasonableness of cost representations, adequacy and reliability of records and accounting systems, financial capability, and contractor compliance with contractual provisions.

Government accounting is often confusing and somewhat contradictory. The audit process can seem overwhelming. In general, if you ask for help from your local DCAA office, they will be happy to provide you with assistance in making sure your systems and contract comply with Federal law.

You can get more information at the website for the Defense Contract Audit Agency (DCAA).

Ms. Worrall is the President of Worrall Consulting, LLC. Worrall Consulting is a finance and business strategy consultancy providing professional services to high growth, early stage companies. The company provides capital formation assistance, market research and business intelligence, and business planning strategy. More information about the company can be found at http://www.worrallconsulting.com . Additional financial and strategy advice can be found at http://www.cfoyourself.com .

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