Redstone_-_Yes_Small_Businesses_Do_Need_Written_Policies_and_Procedures

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
    • 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.

Written by Redstone Team

About Redstone GCI

Redstone GCI is a consulting firm focused on fulfilling the needs of government contractors in all areas of compliance. With a singular mission to help contractors through the multiple layers of “red tape,” we allow contractors to focus on what they do best – support their mission with the U.S. Government. We are home to a group of consultants made up of GovCon industry professionals, CPAs, attorneys, and retired government audit and acquisition professionals.

Our focus and knowledge of audit and compliance functions administered by DCAA and DCMA will always be at the heart of what we do. However, for the past decade, we’ve strategically grown to support other areas of the government contractor back-office with that same level of focus and expertise. We’ve added expertise in contracts management, subcontract administration, proposal pricing, various software systems, HR and employment law, property administration, manufacturing, data analytics/reporting, Grant specialists, M&A, and many other areas. When we see a trend in the needs of contractors, we act to ensure we can provide the best expertise in the market to fulfill those needs.

One thing our clients can be certain of is that with the Redstone GCI Team in your corner, there is no problem too big and no issue too technical for our team to tackle.

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