A question we are frequently asked is “Do small contractors really need written policies and procedures in place to pass....” This is finished with many types of audit - pre-award accounting system, post award accounting system, or even purchasing system?
This question has as many answers as there are businesses, but, in general, the answer is “Yes”. The size of the business is supposed to determine the extent of written documentation that is needed. Let’s look first at the pre-award accounting system audit. At the low end is the sole proprietorship with only a handful of employees, or maybe even no other employees, bidding on its first contract under FAR Part 15. At that level, the company must have at least designed a system. If it is not yet implemented, DCAA’s pre-award audit program advises the auditor to evaluate the effectiveness of the design as follows, “This may include discussions with responsible personnel, review of written policies and procedures, charts of account, etc.” There are no other references to written policies and procedures in the audit program, although it does ask if the cost accounting system is documented, with a written description of the contents of bases and pools. The level of written policies and procedures at this size of company is expected to be very low – perhaps signature authority, exclusion of unallowable costs and timekeeping. These can be quite brief. As a company grows, the written policies and procedures are expected to be more detailed and more numerous.
A post-award accounting system audit is going to focus more on written policies and procedures. DCAA’s audit program for this audit requires there be procedures for billing costs as follows:
- briefing contracts for cost/funding limitations on its billings
- billing costs in compliance with FAR 52.216-7 in the areas of
- determining reimbursable costs and
- submitting final indirect cost rates
Once a company reaches $25 million in FAR Part 15 Government sales, many more written policies and procedures are expected as evidenced by the advent of the requirement for the contracting officer to evaluate the need for a purchasing system audit. The expectation at this point is that the purchasing system be well documented, with written policies and procedures on an extensive list of topics.
Although most small businesses are more focused on growing the business than on writing
policies and procedures, this is not an area that can be neglected if you have the government for a customer.