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SBIR 101-2: Minimum Accounting System Requirements

March 11, 2013 / Ed Jameson / Blog Posts
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Now that you´ve received an SBIR award, it´s time to address those accounting system requirements. The key to demonstrating an acceptable accounting system to a government auditor begins with the ability to segregate between direct, indirect and unallowable costs in your general ledger. Additionally, you will need to produce accurate job cost reports and demonstrate the ability to project and monitor your indirect rates, which will be used to apply your overhead or F&A rate to all of your projects.

Yes, you really need a timesheet!

Having entered into the world of government contracting, you and your employees will be required to maintain timesheets to document how the staff spends its workday. These timesheets should include all of the direct jobs that your company has as well as categories to account for indirect time, vacation, holidays, and sick time. These timesheets are to be gathered at the end of a payroll period, approved by a supervisor and spread among the various general ledger accounts.

Most Ph.D.s, engineers and scientists working in the SBIR or similar government funded research work are professionals who are paid an annual salary and often work more than a standard forty hour week. As this time is entered into the general ledger, you have probably noticed that there are more labor expenses than payroll that is actually paid, which is referred to as uncompensated overtime, which we´ve addressed in a separate article in the News & Resources section of our website.

Managing your expense documentation

Paying normal operating expenses is generally easier than accounting for payroll but still has some general requirements. All invoices that you receive are required to be marked on the face of the invoice to reflect the account number that the expense is to be charged to as well as the job number if it´s a direct cost. The invoices are also required to be approved by a supervisor before payment.

Credit card payments are also required to be split among the various accounts to ensure proper accounting. Please note that the credit card statement itself does not satisfy the documentation requirements. Receipts for each individual charge must be maintained for both government contract and tax purposes.

Do you need an expensive software package?

The simple answer is no. Off the shelf software packages such as QuickBooks Pro will help you satisfy the accounting requirements that your government grant or contract demands. The key to using this software is in the setup of the chart of accounts, which is not a standard option in QuickBooks Pro software.

Having a proper chart of accounts for government contractors is essential to being able to create the reports that will be needed for the preparation of your annual incurred cost submissions and during the government audit negotiations that will lead to a signed indirect cost rate agreement.

Our Phase 1 Survival Kit includes everything you´ll need to establish an acceptable accounting system that will withstand the rigors of a government audit.

Finally, as a way to introduce our firm´s unique services, we are happy to provide the following free of charge:

1. provide benchmarking feedback on your indirect rate projection,

2. assist in the preparation of the financial portion of your government proposal,

3. negotiate your initial provisional indirect rate agreement

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

Edward G. Jameson, CPA

The Minimum Accounting System to Negotiate an F&A Rate in the Initial Indirect Cost Rate Agreement
UBMI Publications
November 02, 2009

Ed Jameson, CPA, Managing Partner

I’ve been in practice for over 40 years helping our small business clients procure, manage, and survive audits on more than $6 billion in federal government contract and grant funding. We’ve been featured presenters and panel moderators at Tech Connect’s National SBIR/STTR conferences since 2010, and I’ve presented at the DOD’s Mentor Protégé Summit and present regularly for several state and local organizations.