Is Your Accounting System Adequate - Two Simple Questions

How to know if your Accounting System is Adequate for Government Funding

There are numerous companies that are doing business with the federal government, some for decades, some for years, and some just started.  No matter the maturity of the company, each must comply with the Federal Acquisition Regulations as outlined in their grants and/or contracts. The question we often get is “How do I know if my team is doing the accounting properly for our government award(s)?” Well, there are many questions you could ask your financial team but, we’ve narrowed it down to just two:

• Can I see a copy of the Job Cost Report?
• How are the indirect rates actually running?

The Job Cost Report

You must have an accurate Job Cost Report. All of your expenses must be accumulated in your general ledger (with the assistance of a good chart of accounts) and must reconcile with your Job Cost Reports, a form of subsidiary (or additional) ledger. Job Cost Reports are critical for internal decision making as well as external reporting requirements and will:

• Act as support for billing the government for incremental monthly project costs accumulated;
• Be used to report cumulative spending by budget category to your customer which they use to monitor technical progress achieved on the goals of the project; and,
• Provide a signal to management when to wrap up a project to prevent overspending

Essentially you need to see how the money is being spent per project. If your financial team cannot show you the Job Cost Report at the time you ask, you have a problem.  The Job Cost Report should be something they can walk down to their office, print and hand to you.

Projected Indirect Rates vs. Actual Indirect Rates

We talk about indirect rates a lot – because they’re critical to your business and to your funding. Whether you’ve accepted the Safe Rate, or have a negotiated indirect rate, you should know how your rates are actually running.  Ask your financial person or team “How are the rates running right now?”  The answer should be a number that your accountant can provide to you immediately.

Why is knowing your actual indirect rates so important?  It’s critical to know your actual rates because you may be overrunning or under running your rates. You need to determine if you are going to be able to bill the overrun or need to absorb it, or if you will need to credit the underrun back to the government.

Whether you’re overrunning or under running your rate, either will have significant cash flow implications.  If you took the safe rate, you don’t need to know how your rates are running.  FALSE. Even if you took the safe rate with your grant, every quarter you will need to sign the Federal Financial Reporting Form. In order to do this properly, you will need to know how your rates are running and what you drew down. So, how much did you draw down in comparison to what you actually earned?  The FFR states, “By signing this report, I certify that it is true, complete, and accurate to the best of my knowledge. I am aware that any false, fictitious, or fraudulent information may subject me to criminal, civil, or administrative penalties.” 

Go ask your financial team those two questions and see if you’re getting safe government funding advice.  If not, we’re always here to help.

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