Redstone_-_Yes_Small_Businesses_Do_Need_Written_Policies_and_ProceduresA 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
    • invoicing
    • 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.

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Written by Cheryl Anderson

Cheryl Anderson Cheryl Anderson is a Director with Redstone Government Consulting, Inc. She provides Government Contract Consulting services to our government contractors primarily related to equitable adjustment claims, terminations, and DCAA audit expectations. Prior to joining Redstone Government Consulting, Cheryl served in a number of capacities with DCAA for over thirty-five years. Upon her retirement, Cheryl was a regional audit manager with DCAA. Cheryl began her DCAA career in 1977 as an auditor-trainee with the Ingalls Resident Office in Pascagoula, Mississippi. After instructing at the Defense Contract Audit Institute for four years, she returned to the Eastern Region in 1990, holding various audit positions before ultimately becoming a Regional Audit Manager in August 2005. She had overall management responsibility for audits performed by approximately 200 employees. During Cheryl’s tenure with DCAA, she was involved in conducting or managing a variety of compliance audits, to include cost proposals incurred cost submissions, systems, Cost Accounting Standards, claims, defective pricing, financial capability and agreed-upon procedures. She directly supported the government litigation team on a contract dispute and has prepared and presented various lectures and seminars to DCAA staff. In addition, she has served as an instructor for the Government Audit Training Institute for over 20 years. She currently specializes in preparing clients for more complex DCAA audits, providing advice on FAR cost principles and contracts regulatory provisions, and assisting clients in anticipating and addressing audit. Education Cheryl has a BS Degree in Accounting from Auburn University at Montgomery and a Masters of Business Administration from Wichita State University. Cheryl also completed courses at OPM’s management and executive development centers and at the Federal Executive Institute and is a Georgia Certified Public Accountant.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Small Business Compliance, Government Compliance Training