One of the fundamental requirements of an accounting system is documented policies and procedures which are used in establishing and maintaining an organizations internal controls, accounting and reporting.  The policies and procedures should capture how things are done, serving as an important tool for clarifying roles, responsibilities and ensuring accurate financial data is used for decision making. This webinar will focus on the purpose of having written (well-documented) policies and processes that serve as a basic framework and the importance of these procedures being consistently executed by all users of the system to promote operational efficiency and governance.

1. GovCon Accounting
Policies & Procedures

2. We Know Government
Contract Accounting

3. Who we are
Left Brain Professionals is a boutique accounting firm that serves
government contractors. We specialize in accounting system design
& implementation, audit support, training, and cybersecurity
compliance.

4. Our Services

5. Our Team
Robert E. Jones
Government Contracts &
Accounting Expert
CPA, CPCM, NCMA Fellow
Melissa Metzger
Government Accounting &
Finance Advisor
MAFM, CPA Candidate
Steven Bressler
Government Contract
Associate
steve@LeftBrainPro.commelissa@LeftBrainPro.comrobert@LeftBrainPro.com

6. Learning
Objectives
• Describe the importance of policies
and procedures
• List common policies and procedures
reviewed by govcon auditors
• Compare formal and informal
documentation methodologies
• Specify ways to maintain adequate
policies and procedures

7. Room Poll
Which explains the current situation of your Policies and
Procedures?
A. We have none.
B. We have some in theory, but they aren’t documented.
C. We’ve started developing them but could use help.
D. We have sufficient policies and procedures implemented.

8. Describe the
Importance of Policies
and Procedures

9. Three Phases of Any Audit
1. Say what you do – written P&P.
2. Do what you say – actively use and follow P&P.
3. Have evidence to prove it – records, receipts, reports, etc.
Written P&P are the first step in any compliance program.
Written P&P are the foundation of any system as they guide users
of a system in what to do and how to do it.

10. Three Reasons Companies Often Fail Audits
1. Lack of written P&P.
2. Ineffective or poorly designed P&P.
3. Failure to follow their written P&P.
While you may have an audit finding for improper treatment of a
cost, you’re more likely to get in trouble for not having a written
P&P which you consistently follow.

11. Room Poll
The three phases of an audit include all the following except-
A. Say what you do – written P&P.
B. Do what you say - actively use and follow P&P.
C. Buy new software – write P&P after implemented.
D. Have evidence to prove it – records, receipts, reports, etc.

12. List Common Policies &
Procedures Reviewed
by GovCon Auditors
Minimum to comply with SF1408

13. Company Information
• Description of products & services
offered
• Legal entity
• Fiscal year
• Name of tax CPA or consultants who
assist and their roles

14. System Description
• Include list of software, apps, tools, worksheets, and payroll provider
• Diagrams and flowcharts are helpful

15. Chart of Accounts
Show structure
• 1xxx Assets
• 2xxx Liabilities
• 3xxx Capital/Equity
• 4xxx Revenue
• 5xxx Direct/COGS
• 6xxx Intermediate/Fringe/Facilities
• 7xxx Overhead
• 8xxx G&A
• 9xxx Unallowable & Other
Helpful to include a full chart of accounts.

16. Room Poll
The company description should include the following except-
A. Description of products & services offered.
B. Legal entity.
C. Fiscal year.
D. Diagrams and flowcharts.

17. GAAP (1.)
Acme Solutions maintains an accrual accounting system and follows
generally accepted accounting procedures in the U.S. and regularly
consults with our tax CPA and government contract accounting firm for
the proper treatment of all costs. Evidence of our compliance with GAAP
can be found in our monthly matching of revenue and expense, revenue
recognition policy, and expense treatment of paid absences.

18. Monthly Close (2.g.)
Acme Solutions closes the books on a monthly basis with reconciliation of
direct and indirect costs completed prior to the issuance of any client
invoices. We ensure that all direct costs have been assigned to the
appropriate job and that the job cost ledger ties to the general ledger.
The monthly close process includes posting of all revenue and invoices
and reconciliation of certain balance sheet accounts.

19. Cost Pools – Direct (2.a.)
Define each pool, base, and allocation method. Include specific
account numbers or ranges of accounts.
Those costs directly attributable to an end cost objective. Direct
costs include labor, materials, travel, ODC, and subcontractors.
For Acme Solutions, we assign direct costs to Jobs which have a
one-to-one relationship with a client contract, PO, or task/delivery
order. Direct costs are captured in the 5xxx series of accounts
from 5000 to 5999.
Cont…

20. Cost Pools – Fringe (2.c.)
Fringe is an intermediate pool for those costs to maintain W-2 employees.
Fringe costs include employer taxes, health and life insurance, retirement,
and paid absences.
For Acme Solutions, we allocate fringe costs over total W-2 labor which
includes direct, overhead, G&A, and unallowable labor. Fringe costs are
captured in the 6xxx series of accounts from 6000 to 6499.
Cont…

21. Cost Pools – Facilities (2.c.)
Facilities is an intermediate pool for those costs to acquire and maintain
occupancy space. Facilities costs include labor, rent, depreciation, utilities,
maintenance and repair, insurance, taxes, and telecommunications.
For Acme Solutions, we allocate facilities costs over square footage for
each department with all costs applied to Overhead and G&A as
appropriate. Facilities costs are captured in the 6xxxx series of
accounts from 6500 to 6999.
Cont…

22. Room Poll
Direct costs include the following:
A. Labor
B. Materials
C. Travel
D. All the above

23. Cost Pools – Overhead (2.c)
Overhead costs are those costs to support client work which cannot be
easily assigned to a single final cost objective or which support all clients
and projects as a whole. Overhead costs include labor, applied fringe,
applied facilities, equipment, depreciation, maintenance and repair,
supplies, training, and indirect travel.
For Acme Solutions, we allocate overhead costs over direct labor,
unallowable direct labor, B&P and IRAD labor, and applied fringe.
Overhead costs are captured in the 7xxx series of accounts from
7000 to 7999.
Cont…

24. Cost Pools - G&A (2.c)
G&A costs are those costs to operate the business as a whole. G&A costs
include labor, applied fringe, applied facilities, office equipment, office
supplies, professional fees, licenses, and certain taxes.
For Acme Solutions, we allocate G&A costs on the total cost input
(TCI) method which includes total direct costs, applied fringe,
overhead costs, and the unallowable portions of direct and
overhead costs. Overhead applied to B&P and IRAD costs are
excluded from the base of G&A. G&A costs are captured in the
8xxx series of accounts from 8000 to 8999.

25. Cost Pools - Unallowable (2.h.)
Unallowable costs are those costs defined in FAR 31 and in certain
contracts as being specifically excluded from contract billings (direct or
indirect).
Unallowable costs include alcohol, interest and finance charges, charitable
contributions, related party occupancy costs in excess of the effective
costs of ownership, certain labor transactions, and all directly associated
costs.
Cont…

26. Cost Pools - Unallowable (2.h.), Continued…
For Acme Solutions, we exclude unallowable costs from the cost pools,
and include them in the bases (as appropriate) for the proper
calculation of indirect rates. Unallowable costs are captured in the 9xxx
series of accounts from 9000 to 9499.

27. Job Costing (2.b. & j.)
Job costs are direct costs incurred for a specific contract, job, or project.
The acquisition or use of resources and supplies is clearly attributable to a
specific final cost objective.
Primary cost elements are labor, material, travel, ODCs, and
subcontractors.
Job costs need to be identified at the job and task/CLIN level as identified
in the contract.
Cont…

28. Job Costing (2.b. & j.), Continued…
For Acme Solutions, we create Customers, Sub-Customers, and Projects in
QBO. Customer matches our client identified in the contract; Sub-
Customers are created for each contract with a customer; and Projects are
created for each CLIN. QBO allows us to invoice at the appropriate Sub-
Customer level (equivalent to a contract) for all Projects (CLINs) associated
with that Sub-Customer.
Cont…

29. Room Poll
Overhead costs support client work which can be easily
assigned to a single final cost objective.
A. True
B. False

30. Timekeeping (2.e.)
Time (labor) is the number one expense of most organizations and
therefore is the number one of expense of most contracts, especially
those for services. The Government wants to ensure the accuracy of your
timekeeping system.
Cont…

31. Timekeeping (2.e.), Continued…
This will probably be your longest and most detailed P&P because of the
many items that must be addressed including-
• Supervise review & approval
• Completion of timesheet when
employee is unavailable
• Assignment of work and charge
codes
• Annual training
• Daily completion of timesheets
• Corrections with audit trail & notes
• Recording all time worked (“total time
accounting” or “uncompensated
overtime”)
• Employee certification
See DCAA’s Information for Contractors Enclosure 2, link will be provided
in our webinar follow-up email.
Cont…

32. Labor Distribution (2.f.)
In relation to collecting time by final and intermediate cost objectives,
dollars must be calculated and distributed across cost pools through the
general ledger, and among all jobs.
Total time accounting or "uncompensated overtime" is a concept unique
to the Government. Companies must calculate and apply an adjusted
hourly rate for salary employees who work more than 40 hours per week.
Cont…

33. Labor Distribution (2.f.), Continued…
Since the cost to the employer does not change for a salaried employee
who works overtime, the Government does not want to pay more for that
employee.
This adjusted hourly rate is applied to all hours worked or claimed
including direct and indirect.
Cont…

34. Labor Distribution (2.f.), Continued…
Companies need G/L accounts for:
• Direct labor
• Overhead labor
• G&A labor
We recommend the use of jobs for both direct and indirect costs for
simplicity of capturing and reporting costs in the same manner. You
should be able to run a job cost/status report and see all labor
charged to that job.
• Unallowable labor
• Paid absences (fringe)

35. Room Poll
What is the number one expense of most organizations?
A. Time (labor)
B. Technology
C. Facilities
D. Benefits

36. Preproduction Costs (2.j.)
The term "preproduction" sounds like manufacturing, but can apply to
services as well. These are costs incurred outside the period of
performance to prepare for the actual contract work. In a manufacturing
environment, these may be setup or configuration costs or long-lead
items. In a services environment, these may be planning costs.
Cont…

37. Preproduction Costs (2.j.), Continued…
In a similar manner, any direct costs incurred outside the period of
performance (before or after) are not billable and cannot be lumped into
overhead. Companies need a method to identify and prevent the charging
of time or costs outside the period of performance.
For Acme Solutions, our job costing software allows us to enter a
period of performance on all jobs and tasks to prevent the charging of
costs outside the period of performance.
Cont…

38. Monitoring Costs (3.a. & b.)
FAR 52.232-20
“(b) The contractor shall notify the Contracting Officer in writing whenever
it has reason to believe that-
(1) The costs the Contractor expects to incur under this contract in
the next 60 days, when added to all costs previously incurred,
will exceed 75 percent of the estimated cost specified in the
Schedule”
This says when you will exceed 75% in the next 60 days, not when you
exceed 75%.
Cont…

39. Monitoring Costs (3.a. & b.), Continued…
FAR 52.232-20
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
October 15
Period Cumulative Target
Notify
August
15

40. FAR 52.232-20
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
September 25
Period Cumulative Target
Notify
July
25
Monitoring Costs (3.a. & b.), Continued…

41. FAR 52.232-20
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
October 5
Period Cumulative Target
Notify
August
5
Monitoring Costs (3.a. & b.), Continued…

42. FAR 52.232-20
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
August 5
Period Cumulative Target
Notify
June
5
Monitoring Costs (3.a. & b.), Continued…

43. Compare Formal and
Informal Documentation
Methodologies

44. Formal
• Structured format
• Numbered & indexed
• Individual documents
• Formal language or “legalese”
• Users often caught up in form over
substance
Formal methods often required in larger businesses, especially those with
ISO or CMMI certifications and those that are publicly traded or owned by
a holding company or venture capital firm.

45. Informal
• Single document
• Separated by section headings
• Common language/layman’s terms
• Relaxed, easier to write & maintain
• Easier to focus on substance over form

46. Room Poll
Formal documentation methodologies are -
A. A single document
B. In common language, laymen’s terms
C. Easier to focus on substance over form
D. In a structured format

47. Specify Ways to
Maintain Adequate
Policies & Procedures

48. Ways to Maintain Adequate P&P’s
Cont…
• Schedule a formal annual review
• Schedule a formal review after change in key personnel (CFO, controller,
accounting manager, etc.)
• Update with any changes in software or apps including use of new
features and functionality
• Provide and document annual training with all accounting personnel

49. Ways to Maintain Adequate P&P’s, Continued…
Cont…
P&P vs Work or Desktop Instruction
• Policy – company’s treatment of a cost
• Procedure – method to implement the
treatment
• Work or Desktop Instruction – detailed
instructions for entry into software or
tool

50. Room Poll
When maintaining adequate P&P’s, how often should they be
reviewed?
A. Weekly
B. Monthly
C. Quarterly
D. Annually

51. One of the fundamental requirements of
an accounting system is documented
policies and procedures which are used
in establishing and maintaining an
organizations internal controls,
accounting and reporting. They should
capture how things are done, serving as
an important tool for clarifying roles,
responsibilities and ensuring accurate
financial data is used for decision
making.
GovCon Accounting Policies & Procedures

52. Connect
with us
Download the presentation
Left Brain
Professionals Inc.
@LeftBrainPro
Email us
Support@LeftBrainPro.com
@LeftBrainPro
Left Brain Pro
LeftBrainPro
www.LeftBrainPro.com/presentations

53. For information on our upcoming webinars, visit us at
LeftBrainPro.com/events for more details.