How a UGA Auditor Tests Your Company’s Internal Controls.

In our previous blog, “What Happens During a Uniform Guidance Audit,” we discussed what happens during the UGA from hiring an auditor to the audit testing with a focus on direct costs. In this blog, the third in our UGA series, we’ll talk about internal controls and FAR Part 31 compliance.

HOW A UGA AUDITOR TESTS YOUR COMPANY’S INTERNAL CONTROLS

Solid business record-keeping and financial management

In this part of the UGA, your auditor will test to see if your business is operating properly, in accordance with FAR Part 31.

This is the time to demonstrate that you employ good, consistent record-keeping and financial oversight. The auditor will expect to see:

• Invoices that support costs
• Evidence of approval to purchase items
  • purchase orders with signatures
  • digital systems that record who requested item and who approved purchase
• Evidence of approval to pay for items
  • who reviews and approves vendor invoices before they are paid
  • manual payment: signed checks
  • digital payment: recorded approval for payment

Is your internal record-keeping FAR Part 31 compliant?

Because you have a cost-reimbursable government award, you must comply with FAR Part 31. During the UGA, your auditor will ensure that you are doing just that.

To make sure that your internal record keeping is FAR compliant, your auditor will test the following:

• Are transactions properly recorded in the correct time period, against the correct grant, and properly recorded in the correct general ledger account? For example, if the grant runs from August 1, 2021 thru July 31, 2022, then your expense and invoice must agree with that time frame. A September 2022 direct material purchase won’t pass the “period of performance” test.
• Are your purchases in compliance with the laws, regulations and provisions of the award?
• Do your invoices support the cost posted? If you have an expense report for direct travel that shows $2,010, but your general ledger shows $2,100, you will not pass this test.

Pay Attention to Timesheets

Timesheets are a critical part of your internal controls. They’re also one of the areas where issues frequently occur.  In a Unified Guidance Audit, you must demonstrate to your auditor that, when it comes to timesheets, you have systemic rules and controls in place and are abiding by the following rules:

• Each timesheet has to be filled out in ink on a daily basis
• All time has to be recorded and has to be signed by the employee
• All hours must be recorded
  • If you’re working a 12-hour day, you can’t just record the first eight hours; you must record all 12 hours. The government doesn’t want you picking favorites.  They want to see everyone pay their fair share.
• The supervisor (if you have one) must sign off on the timesheet in a timely manner. Any changes must be crossed out, initialed, and not erased.

This doesn’t have to be done on a piece of paper.  Electronic timekeeping systems that create a forensic audit trail and have these built-in controls are fine.  However, an Excel spreadsheet populated online is not, as the auditor can’t be certain if the time was entered by the employee or someone in the accounting department.

Are you managing your government grant properly?

To require a Uniform Guidance Audit, you have to expend a minimum of $750,000 in government funding in one year and the funding agency wants to make sure you are spending it appropriately. There are two ways that your auditor can make sure you’re handling your award correctly.

1. The auditor will test your compliance with your award’s cash management.
   • How do the costs you have reported for the award compare with the funds the government advanced to you?
     • In a cost-reimbursable grant, you spend the money first and then the government reimburses you. Did you draw down the funds too early or within an appropriate time frame?
     • How does the timing and amount of the costs you incurred on the project compared with the funds you have drawn?

2. The auditor will test your indirect cost rates.
   • Has your company kept track and monitored its indirect cost rates throughout the year?
   • How do your provisional rates and your actual rates compare?
   • If your actual rate is lower than your provisional rate, have you adjusted your reimbursement or are you overcharging the government?

THE UNIFORM GUIDANCE AUDIT – WHAT’S NEXT?

Clearly, the UGA is an in-depth audit that covers a wide range of areas.  In our next two blogs in this series, we’ll discuss common UGA findings and what they can mean.

In the meantime, if there’s one thing you could walk away with from this blog, it should be this:

A FAR-compliant accounting system, good record keeping, and well-planned and maintained internal controls will go a long way to help you stay out of trouble during a UGA audit.

If you need help maintaining a FAR-compliant accounting system, Contact Us to schedule a time to speak to one of our government funding experts!

NEXT STEPS

If you want to learn more about our proprietary FAR-compliant account system, read up on JamesonWorx.

Read through the rest of our series about the Uniform Guidance Audit.

This is the third of our seven-part series about the Uniform Guidance Audit: 

1.  Is Your Grant Subject To a Uniform Guidance Audit?
2. What Happens During a Uniform Guidance Audit?
3. How a UGA Auditor Tests Your Company’s Internal Controls
4. How To Avoid Uniform Guidance Audit Findings on SF-425 Reporting
5. How To Avoid UGA Findings: Direct Subcontractors
6. How To Avoid UGA Findings: Direct Consultants
7. What Happens To NIH and DOE Grant Audit Findings?

Ready to Learn More? Speak With A Government Funding Award Expert!
Call Now: 781-862-5170 – or – Schedule A Call