Accounting Policies and Procedures

Most policies and procedures for a compliant system, at a minimum, include the broad categories of internal controls, financial management, accounts receivable, accrued liabilities, revenue, cost accounting, compensation and cost estimating. You would not need every possible policy and procedure, but rather some basic ones.

You do not have to go to the trouble of preparing a Cost Accounting Standards (CAS) Disclosure Statement, although doing so would give you the framework for your policies. Actually your policies will be reflected in your CAS Disclosure Statement when you are required to complete one. Before you embark on composing a CAS Disclosure Statement, take on writing accounting policies and procedures.

Oftentimes, Government contractors think they have adequate policies and procedures. What they are typically referring to is their employee manual which has HR policies. Sometimes those HR policies can also be turned into some accounting policies but you must be diligent about approaching them from an accounting standpoint. DFARS 252.242-7006 (a) (2) defines a “Contractor’s system or systems for accounting methods, procedures, and controls established to gather, record, classify, analyze, summarize, interpret, and present accurate and timely financial data for reporting in compliance with applicable laws, regulations, and management decisions”.

As a Government contractor, one of the policies you must have is one that shows you how you distinguish and account for direct vs. indirect costs. You must establish your criteria for accumulating indirect costs into homogenous pools and also provide guidance on allocating indirect costs pools to cost objectives in reasonable relation to the beneficial or causal relationships of the pool costs to cost objectives.

Another example of required policies and procedures would be those that address how you account for compensated personal absences and also how you record them in your books of record. A potentially difficult policy, and often disregarded by contractors, is a written statement of what your plan is for bonuses or incentive compensation. A policy and procedure that often times is overlooked is related to accounting for unallowable costs.

Some Government contractors confuse policies with procedures. Policies are your company’s statement of their definite course of action regarding the subject matter to determine present and future decisions. Your policy statement should state the company’s wisdom in the management of the topic – the why, what, who and when. Procedures are the processes you go through to proceed from beginning to end regarding a subject – the how. They are your particular way of accomplishing something through a series of steps.

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