The pitfalls of bad accounting practices for government contractors
A lack of segregation of duties leaves you vulnerable to fraud. This also leads to missed information or duplication of effort because the left hand doesn’t know what the right hand is doing.
Risks can be mitigated by making sure you have the right setup within your accounting systems, and by ensuring you have the right checks and balances within your policies and procedures. Access rights within your accounting system should be given to those needed to perform daily duties, while posting rights should be limited to those with suitable knowledge. Limiting check signing privileges based on amount, and requiring a second signature for other pre-determined amounts is a great example of segregation of duties and control for cash. Procurement is a third area to ensure you have pre-set amounts to prevent the company from being obligated beyond its capability.
By having the controls and segregations of duties you will create efficiencies.
When bringing on new personnel, you should make sure they get the proper training on the accounting system, and your company’s specific policies and procedures. Refresher training should be considered annually or when significant changes are made to current operations. This ensures consistency.
Policies and procedures are the backbone of the accounting department. It’s the first review request when going through any kind of audit or examination. Undocumented policies and procedures leads to inconsistencies. When you’re a government contractor consistency is key. As a government contractor, it’s important to ensure your policies and procedures clearly document how you handle direct, indirect, and unallowable costs.
Growth, acquisitions, new business lines, or new contract types can be another prompt that you need to review your current accounting system to determine if it’s meeting your current needs.
The biggest pitfall of all is not asking for help. The first step in planning for a DCAA audit includes a walk though of internal control, an understanding of segregation of duties, and a review of policies and procedures. These items set the tone for the rest of the audit. By addressing segregation of duties, having documented policies and procedures, and making sure you’re using the right accounting system, you can place increased reliance on the data within your financial statements and ensure a smooth DCAA audit.
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