As we speak around the country about the nuances of Government Grant and Contract accounting, we are constantly asked “is QuickBooks an acceptable accounting system?”
The short answer is – no, not out of the box. However, this blog will discuss how we, at Jameson & Company, make QuickBooks Online become Federal Acquisition Regulation (FAR) compliant.
In our last blog, we mentioned what your accounting system must do to be FAR-Compliant:
By itself, QuickBooks does some of these things very well. However, three of the most important items can’t be done by QuickBooks without a little help. The picture below is a fairly typical looking QuickBooks Job Cost Report. An accurate Job Cost Report (a.k.a. a backlog report) is one of the two critical reports you must maintain to have an SBIR-compliant accounting system.
The following chart details where QuickBooks is OK and where it falls short.
To make QuickBooks SBIR-Compliant we need to fix the 2 “No’s” and the “Probably Not”. Let’s deal with the “probably not” first.
One of the most important aspects of maintaining an accurate job cost report is the distribution of labor costs. As an example, an employee making $80,000 would distribute $40/hour to a project/job as a direct labor charge assuming 2,000 hours in a year.
The most common reconciling item surfaces when someone (hopefully not a government auditor) realizes that most employees are recording more than 2,000 hours/year on their timesheets, so they are making less than $40/hour, but you are charging the government $40/hour.
We’ve written a blog series on how to handle the technical issue known as “uncompensated overtime” so we won’t beat a dead horse here, but you may want to check out our uncompensated overtime blog series.
One of the largest cost elements of a typical project is direct labor. And the government has noticed. The FAR requires you to create a written timesheet and labor distribution policy and follow it! Most of the PhD’s, scientists and engineers that we work with didn’t go to college to study accounting but find this concept pretty easy to understand and pretty easy to mess up unless there are checks and balances in place to make sure that it’s being done accurately every month.
In fact, more than 80% of our clients have us distribute the labor costs into their general and subsidiary ledgers for them. Why? Because the government requires that you maintain an accounting system with labor costs distributed into the books on an accrual basis of accounting and create a report reconciling those costs to your cash-basis payroll tax returns. Someone with an accounting degree and less than 5 years of experience can easily write checks and reconcile cash. However, distributing labor costs and reconciling them to the payroll reports using different account methodologies is tricky and probably out of their pay grade.
So let’s discuss how to fix the first QuickBooks “no” – Allocating indirect cost rates based on a logical and consistent method.
The second critical report that you need to be able to produce on an ongoing basis to demonstrate a FAR-compliant accounting system is an Indirect Cost Rate Calculation. It’s standard operating procedure for a government auditor to know the indirect rate you bid in your funding proposal to ask you how your ACTUAL indirect rates are running so they can confirm that you aren’t overbilling the government.
We take a 50 minute deep dive into the topic of indirect cost rates during webinars, so we won’t get into it here. However, you can register for a live webinar (where you can ask questions) or watch a recorded webinar, or watch our 5 video series to better understand indirect rates by clicking here.
The bottom line is that the QuickBooks Chart of Accounts can be set up to capture the information needed to produce an indirect rate calculation report. However, the accuracy of this report (and the job cost report) will never be OK, if we don’t address the real issue…
The 2018 NIH Salary Cap
We’ve alluded to it a bit above, but if you don’t know the NIH Salary Cap without looking it up, you’re probably using Google as your go-to source for information. What could go wrong?? Seriously?? Follow us on Twitter and LinkedIn where we share articles on indictments, arrests, fines and the occasional fraud and jail sentence about once a month.
Grants are subject to Uniform Guidance Audits
You need a subject matter expert to oversee your team (or be your team) to make sure you’re coding activity correctly, key numbers reconcile, checks and balances are in place, and most important, you have someone to rely on to represent you and your accounting system and records when the government auditors or Uniform Guidance Auditor (UGA) appear.
In our last blog we discussed why we developed JamesonWorx. There are three critical aspects to JamesonWorx that work in concert to allow you to have the most cost-effective SBIR Compliant accounting solution for awardees with an annual revenue of less than $10 million per year:
JamesonWorx is a complete solution with four distinct service levels. Most importantly, it’s a game-changer for our small business clients. This is how our process works:
To help you see why these matter, here are some reports to study. In this first report, JamesonWorx automatically creates an indirect cost rate calculation for a fictitious company called Dalma BioTech:
Next, here is a simple job cost report for an NIH Phase I. Our clients refer to is as a “backlog report” rather than a job cost report (it does both) because now that they know that their accounting system is running properly, they stop focusing on accounting and focus on how much work there is to do and how much funding is left.
In this next multi-year Phase II example, we allocate the F&A rate overrun (in yellow) to each project proportionally, as required by the FAR:
We’ve even created executive dashboards, in case you’re only interested in key indicators.
Of course, if you have questions or need more help, Jameson CPAs are a phone call, email, GoToMeeting, car ride or flight away. It’s critical to understand that FAR compliance isn’t just a software solution. You need to align yourself with a CPA with deep industry expertise.
We’ve been in business since 1978, have clients from coast-to-coast, and over $4 billion in awards managed. We know the agencies and regulations—and how to help our clients avoid audit findings. And now, we have a complete solution, JamesonWorx, that will help you stay FAR-compliant and avoid trouble.
Not all government contracts and grants are the same. Your funding agency, type of award, and funding stage require unique accounting requirements. Provide your information below to schedule a time to speak with one of our government funding experts!
Writing A Government Funding Proposal
Received A Pre-Award Notification
Received A Funding Award
National Institute of Health / HHS
Department of Defense (DOD)
National Science Foundation
Department of Energy (DoE)
SBIR/STTR Phase I
SBIR/STTR Phase II
R01, U01, Carb-X, HEAL or Pioneer Grant
EERE or ARPA-E Award
One of our government funding experts will contact you within 48 hours to schedule a phone call.