Kristine Vazquez CPA LLC

https://farfocused.com/dcaa-timekeeping-requirements/

DCAA Timekeeping Requirements It takes more than a subscription to QuickBooks for an acceptable accounting system. You also have to meet these 16 DCAA timekeeping requirements.

Writing policies and procedures is no easy task. It's one of those things that takes a lot of time and resources... but is totally worth it in the end.

In fact, written policies and procedures are probably one of the best investments you can make in your business. They may not be a traditional "asset," but what other "asset" can:

Establish a standard for how to do things in your business. Communicate the same message to all your stakeholders. Ensure important information on how to do things is not lost when an employee leaves your company. Help you delegate authority without fear. Improve the quality of the work you do. Tell auditors you know what you're doing and show them that you've complied with all applicable regulations (especially the FAR). Help reduce conflict. Provide stability. Eliminate having to consider the same questions time after time. Help your company mitigate risk... The list goes on and on.

Really? What other asset can deliver ALL of these great benefits? Not many.

So, once you've got them, maintain them.

Don't flush all your hard work down the toilet by banishing your written policies and procedures to a folder on your company's intranet, never to be seen again.

Treat them as a living document. Use them regularly. Encourage employees to submit changes based on their observations. Review and update them regularly.

They'll only get better with continual use and improvement (not depreciate over time like most assets).

"Keep it simple, stupid." It’s not the nicest thing to say to someone, but it sends a clear message.

Luckily there are many more acceptable ways to say the same thing. BTW, who knew there were so many variations of the KISS principle?

Plain and simple…
Keep it simple.
Avoid unnecessary complexity.
Drop the legalese.
Don’t assume the reader (i.e., a new employee or an auditor) will understand your jargon.
…when you’re writing your policies and procedures, that is.

If people don’t understand your policies and procedures, they’re definitely not following them. And then you’re going to find yourself in hot water when an auditor makes a visit.

So, be sure your policies and procedures reflect your favorite version of the KISS principle.

Mine happens to be, “Keep it short and sweet.” Brief, relevant, and pleasant to read.

What’s yours? Let me know in the comments.

Fun Fact: Did you know the KISS principle was coined by a government contractor during World War II? Check out the story here: https://gobraithwaite.com/thinking/the-business-story-behind-the-kiss-principle/

Do you know the difference between a policy, a procedure, and a work instruction?

Don’t worry. If you answered “No,” you’re not alone.

Many people don’t understand the difference between the three, and they often use the terms interchangeably.

As a result, far too many companies end up with a mess of documents that no one uses or understands, which wastes hundreds of hours and dollars (and causes them to fail audits).

With these simple definitions (and examples ⬇), you won’t be confused anymore.

A policy is a guideline or statement of position for a given topic.

A procedure is a series of actions or tasks conducted in a specific order or manner to achieve a particular outcome. It answers the questions: what happens, in what order, who does what, and how.

A work instruction is a step-by-step explanation of how to do a specific task. Work instructions change more frequently than policies and procedures, so they should be separate but are linked to the other elements.

When done right, employees (and auditors) can get the big picture and drill down to the details.

It’s not enough to say, “Actions speak louder than words.”

In government contracting, your actions AND your words both have to be loud.

You have to say what you do AND do what you say.

That’s right…

You can’t just HAVE written accounting policies and procedures.

You have to actually FOLLOW them too.

Otherwise... what’s the point of having them?

YEAAHHHH. It’s true.

Companies most often fail an audit for one of three reasons.
1️⃣ They don’t have written policies and procedures.
2️⃣ The policies and procedures they have are ineffective or poorly designed.
3️⃣ They don’t follow their policies and procedures.

I saw it time and time again during my 13 years as a DCAA auditor.

Companies mistakenly think they have adequate policies and procedures because they have an employee handbook. But an employee handbook covers HR policies, not accounting policies.

To have a FAR-compliant accounting system, you have to maintain written accounting policies and procedures for things like:
👍 classifying direct and indirect costs
👍 allocating indirect costs to contracts
👍 timekeeping
👍 monitoring contract costs
👍 treating unallowable costs

Auditors want to see your written accounting policies and procedures because they reflect how you plan to comply with GAAP, applicable federal regulations, and contract terms and conditions. Without them, your accounting system won't get a thumbs up.

So, how do your policies and procedures measure up?

Start now.

Setting up your FAR-compliant accounting system this is.

Don’t wait until you’re in the running for a cost-reimbursable contract.

Don’t wait until the clock starts on your 8(a) certification. (Nine years will fly by before you know it.)

Be strategic. Be proactive.

Invest time now building your infrastructure so you can spend more time later…
⏰ delivering high-quality products and services,
⏰ nurturing relationships with your target government agencies, and
⏰ finding new work.

If you’re ready to start now, let’s chat!

The accounting software you use is only one of many parts of your accounting system. Just like the roof is only one part of your house, and the engine is only one part of your car.

Without the rest of the parts, they wouldn’t be what they are.

An accounting system, especially one that the government considers adequate, also includes:
➕ The written policies, procedures, and work instructions that say what you do
➕ The timekeeping application you use to track time and calculate your labor costs
➕ The other applications you use to perform specific tasks (e.g., payroll processing, expense reporting, document management)
➕ All the workbooks, forms, and tools you use to document and organize your expenses

In a nutshell, your accounting system includes anything and everything that affects the data the government relies on to reimburse you for the costs you’ve incurred and to price follow-on contracts.

So next time someone asks about your accounting system, don’t make the mistake of telling them just about your accounting software. Think broader!

Your chart of accounts is the foundation for your FAR-compliant accounting system.

Surprisingly, it can give insight into whether your system:
✔ follows generally accepted accounting principles (GAAP)
✔ properly segregates direct and indirect costs
✔ can readily allocate indirect costs to contracts
✔ identifies unallowable costs that you need to exclude
✔ and more.

That’s why it’s also one of the first things a government contract auditor will look at to determine whether your accounting system is adequate.

Make a good first impression by having a well-organized chart of accounts.

Use this industry-accepted best practice for numbering your accounts:
1 # # # Assets
2 # # # Liabilities
3 # # # Equity
4 # # # Revenue
5 # # # Direct Costs/Costs of Goods Sold (COGS)
6 # # # Fringe Expenses
7 # # # Overhead Expenses
8 # # # General & Administrative (G&A) Expenses
9 # # # Unallowable Costs and Other Expenses

Want help filling in the rest? Contact me today. I’d love to help you get started off right with your government contract accounting.

A FAR-compliant accounting system doesn’t come in a box (or as a quick download).

It requires some work and a lot of commitment to:

🔧 Set it up properly to segregate direct and indirect costs and to track direct costs by contract.
🔧 Use it correctly by categorizing costs to the appropriate accounts, reconciling bank and credit card accounts monthly, and applying deposits to the right invoices and payments to the right bills.
🔧 Post transactions to it at least monthly, but preferably more often if you have a lot of transactions.
🔧 Monitor it periodically by running reports and looking for unusual or unexpected balances and miscategorized transactions.

Putting in the work is the only way to guarantee you pass an audit and keep getting government contracts.

We did it! We made it to the end of 2021!!⁣⁠

Another LONG pandemic year.

I can’t wait to see what 2022 holds for us.

Happy New Year!!