Prepare Written Policies and Procedures

Government auditors increasingly focus on adequacy of contractors’ written policies and procedures.  They consider the existence of adequate written policies and procedures to be the primary equivalent of having adequate internal controls.  Though there is often overlap, written policies and procedures for government contractors are unique compared to those written policies companies may prepare for adequate financial controls.

For small to mid-sized contractors, 4-5 written policies and procedures used to be considered acceptable (e.g. indirect cost rates, timekeeping, expense reporting, screening unallowable costs).  Now, to demonstrate adequate controls are in place the number of required written policies and procedures has expanded.  For example, written policies and procedures addressing bonus and consulting costs need to be in place if contractors incur these costs and increasingly written policies are needed for selected fringe benefit costs such as 401(k) and severance expenses.  In addition, expanded written policies and procedures covering contract accounting practices are required such as pricing practices, distinguishing direct and indirect costs and contract costing.  Also, DCAA occassionally adds areas of priority audit scrutiny (e.g. demonstration that contractors and subcontractors monitor their indirect cost rates during the year, they submit timely invoices for indirect cost rate adjustments) where they actually require contractors to demonstrate they have written policies addressing these areas.

For mid-sized to larger contractors additional written policies and procedures are now asked for such as written policies addressing estimating, pricing and purchasing.  Also, certain large contractors must now show they have detailed written policies and procedures in place to pass contractor purchasing system reviews (CPSR), earned value management system (EVMS) and materials management accounting system (MMAS)  audits.

Since we have been helping contracts establish adequate written policies and procedures for 25 years so we have a large library of written policies that have been proven to be acceptable to auditors that we can use.  Though each company needs unique written policies and procedures, there are often sufficient similarities to allow us to modify existing written policies and procedures we have prepared for clients over the years and tweak them to meet our clients’ needs at significantly lower cost than preparing them from scratch.

Our written policies and procedures consulting practice includes:

• Determination of required policies needed based on characteristics of our client
• Evaluation of current written policies
• Recommendation for new policies needed with an estimate of cost
• Preparation of written policies agreed to using modified versions of existing policies whenever possible