What Accounting Policies Should a GovCon Implement? (Part 1 of 4)

Key Details: Adequate and compliant accounting policies and procedures are essential in government contracting. Establishing, maintaining, and revising your policies and procedures from the start of your business will create good habits and allow you to quickly ramp up your system as larger and more complicated contracts are awarded. An adequate accounting system will help ensure compliance with general accepted accounting principles (GAAP), federal acquisition regulations (FAR) and Defense Contract Audit Agency (DCAA) Standard Form (SF) 1408, ensuring you can be awarded complex contracts such as const reimbursement type contracts.
From creation to implementation, Ryan & Wetmore is poised to take your business and accounting system to the next level. The article below will highlight the most common accounting policies and procedures you should have as a government contractor. Readers should note that there may be additional policies applicable to your business. As such, government contractors are encouraged to contact us today to begin their accounting system compliance journey.
Part 1 of this 4-part series discusses the importance of implementing policies and procedures and the key policies government contractors should aim to implement in their accounting system. For a discussion of each policy, keep an eye out for additional articles within this series.
Note that this article only discusses adequate accounting system policies. Contractors should also aim to have other compliant systems in place such as a purchasing and estimating system.
What Are Accounting Policies and Procedures, and Why Do You Need Them?
Accounting policies and procedures provide the framework for all accounting-related business matters. These policies provide businesses with clear guidelines and standardized processes to improve financial transparency, accuracy, consistency, and reporting. Government contractors should have policies and procedures in place to:
- Comply with federal regulations.
Government contractors must adhere to the Federal Acquisition Regulation (FAR) and other specific agency requirements. Comprehensive accounting policies and procedures help ensure that all financial practices fully comply with these stringent regulations, thus avoiding legal repercussions and financial penalties. For example, cost reimbursement type contracts require contractors to be compliant with FAR 16.301-3(a)(3) while certain contract awards are contingent upon the SF 1408.
- Promote consistency and accuracy.
Standardized procedures ensure that financial transactions are recorded consistently and accurately. This uniformity is crucial for reliable financial reporting and aids in the smooth operation of contract management and auditing processes.
- Ensure audit preparedness.
Government contracts are subject to regular audits by agencies such as the Defense Contract Audit Agency (DCAA). Well-documented accounting policies and procedures facilitate a smoother audit process, providing clear evidence of compliance and proper financial management practices.
- Enhance risk management.
Effective accounting policies and procedures help identify and mitigate financial risks. By having clear guidelines, contractors can prevent errors, fraud, and economic mismanagement, ensuring their operations' long-term stability and integrity.
- Create operational efficiency.
Streamlined accounting processes improve operational efficiency. Employees can execute tasks more effectively with defined procedures, reducing delays and enhancing overall productivity.
- Build trust and credibility.
Adhering to stringent accounting standards enhances the credibility of government contractors. This trust is essential for maintaining existing contracts and securing future opportunities.
Key Policies and Procedures to Implement
Below is a list of critical policies and procedures that all government contractors should aim to document and implement. Note that there may be additional policies applicable to your unique business. Reach out to an advisor today to learn more.
- Costs
- Direct cost policy
- Indirect cost policy
- Job cost policy
- Unallowable cost policy
- Accounting System
- Billing policy
- Close policy
- Capitalization and Fixed Assets
- Internal Controls and Flow Charts
- Compensation and HR
- Bonus policy
- Leave policy
- Timesheet preparation policy
- Travel policy
Conclusion and Action Plan
For government contractors, maintaining robust accounting policies and procedures is not merely best practice but a necessity. These guidelines ensure compliance, accuracy, efficiency, and credibility, supporting the successful fulfillment of government contracts. Contractors are encouraged to take the following steps to ensure compliance:
- Conduct a policy review and assess existing accounting policies and procedures to identify gaps and areas for improvement.
- Ensure all policies align with current federal regulations and applicable contract clauses.
- Assess accounting system compliance against DCAA standards.
- Create policies that are clear, concise, and easily applicable.
- Provide employees with training sessions to ensure they understand and can effectively follow the established policies and procedures.
- Set up regular internal audits to ensure compliance with policies and procedures.
- Discuss with an advisor any additional policies and procedures that your company should implement.
Government contractors should note there may be additional policies and procedures your Company must maintain. Our article series is not meant to be exhaustive. We highlight the most common policies and procedures.
For additional information, expertise, or to discuss accounting policies and procedures templates, contact Ryan & Wetmore today.
Today’s Thought Leaders
About Peter Ryan
Partner, Co-founder, & CPA
Peter T. Ryan co-founded Ryan & Wetmore in 1988 with business partner Michael J. Wetmore. Peter provides clients with the best strategies for success. His expertise extends across various industries. Peter obtained a Master of Business Administration in Finance from the University of Baltimore and a Bachelor of Arts in Accounting from the Catholic University of America.
About Rosie Cheng
Finance Consultant
Rosie Cheng is a Finance Consultant at Ryan & Wetmore. She focuses on government contracting services and produces many of the firm’s government contracting newsletters. Rosie graduated from Georgetown University with a Master of Science in Management and from William and Mary with a Bachelor of Business Administration.