Back to Basics: Good Accounting & Finance Practices

Back To The Basics – Good Accounting & Finance
Practices For Start-ups
Presented by: Jim Jenkins and Mike Lynch

22
Agenda
1. Sample dashboard: what solid accounting and clear metrics can
tell you about your business
2. Accounting for Emerging, Early-stage and Pre-revenue companies
3. Potential Solutions
4. War Stories
SC&H Group

44
Important Accounting for Early-Stage Companies
 Track research and development expenses
 DCAA- tracking costs and rates
 Federal grants
• Tracking costs and expenses to specific grants
• When do you need an audit?
 Accurate records for tax compliance
 Carry forward Net-Operating Losses
SC&H Group

55
 Maintain internal controls over all federal programs
 Monitor activities
 File all required reports (timely)
 Ensure all required audits are performed
 Follow up on any audit findings
With every GRANT award, there are 2 fundamental tasks:
 Tracking project activity
 Demonstrating compliance with grant conditions
As a Recipient of Federal Assistance, there are
BASIC compliance expectations:

66
Defense Contract Audit Agency
Mid-Atlantic Region, Fairfax Branch Office
December 11, 2015
Dear Contractor:
We received a request dated December 4, 2015 to perform a Pre-
Award Accounting System Examination. The scope of our services
will be based on auditor judgment, risk assessment and specific
needs of the requestor.
Our examination will include…
(next slide)
In order for our office to begin performing this audit, we are
requesting the information by provided by Wednesday, December
18, 2015.
Dear Mr./Ms. Contractor:

77
DCAA: “We’ll just need to see a few things…”
 Chart of accounts showing
which accounts comprise direct,
indirect, and unallowable costs
 Current organization chart
 Listing of current contracts
 Job cost summary ledger
 General ledger
 Labor distribution report
 Payroll timesheets
 FY 2014, 2015 and current year
to date trial balance and income
statement
 Accounting system policies and
procedures
 Billing policies and procedures
 Direct and indirect rates (pools
and bases) and Unallowable
costs policies and procedures
• Written description of the contents
of each indirect cost pool and
allocation base
• Most current detailed statement of
indirect rates (should also contain a
detail of the costs elements in each
indirect cost pool and allocation
base of that same period).

88
“And just a few clarifying questions…”
 Describe your accounting system software and provide user’s
manual.
 Is your accounting system in accordance with GAAP?
 Provide your current accounting policies and procedures.
 What controls are in place in your accounting system that limits
direct charging of indirect expenses?
 Provide a list showing costs normally charged as direct and costs
normally charged as indirect
 Do the subsidiary job costs ledger or account receivable ledger
accumulate costs by contract at a consistent level of detail?
 Is your accounting system capable of calculating indirect rates?
Can interim indirect expense rates be readily calculated from the
books of accounts?
 Is labor charged to intermediate and final cost objectives based on
a timekeeping document?
 Are timekeeping documents completed and certified by the
employees and employees’ supervisors?
 Is the labor cost distribution record reconcilable to payroll records?
 Is the labor distribution system capable of tracing to a from the cost
accumulation records in a labor subsidiary or general ledger
account?
 Explain and show policies on how costs are charged to books and
records.
 Provide policies and procedures for identification and exclusion of
unallowable cost.
 Please note that the trial balance and chart of accounts should
show accounts that are considered as unallowable in terms of FAR
Part 31.
 Can the system be expanded to the requisite level of detail to
show costs by contract line item number?
 What procedures are followed to show cost by contract line item
number?
 Provide policies and procedures disclosing preproduction costs
treatment.
 Explain and provide Policies and Procedures on how your
accounting system identifies contract limitation of costs.
 Who is responsible for monitoring total contract expenditure
against contract limitations on price or cost?
 Can interim indirect expense rates be readily calculated?
 Describe controls in place that would provide that interim bills of
direct cost are prepared directly from the books and records.
 Can billings be reconciled to the cost accounts for both current
and cumulative amounts?
 Provide policies and procedures on the payment of
subcontractors and vendors.
 Are there procedures to ensure that sub and vendor costs are
only included in billings?
 Is the contractor’s system capable of producing cost information
at a sufficient level of detail to use in pricing follow on contracts?
 Is your accounting system in full operation? If not, which
portions are in operation and what is the status of implementing
the full accounting system?
 Describe your accounting department in terms of number of
employees, qualifications of your staff, job titles and general
duties and management oversight.

99
 Excel
 QuickBooks/QuickBase
 Cloud Solutions provide a Control Structure
▫ QuickBooks
▫ Intacct
▫ NetSuite
 Great Plains, Deltek
 DIY, outsourcing or in-house hire?
Spectrum of Solutions

1010
Do it right early on
 It will save you money and sanity
 It will make you a more effective business person
 It will make you more appealing to potential funding sources
A few war stories:
 Notification of the DCAA pre-award audit
 The server crash
 Quality of Earnings - each adjustment has a multiplier effect
Key Takeaways and a Few “War Stories”

1212
Contact Information
Jim Jenkins
Director
jjenkins@scandh.com
Mike Lynch
Principal
mlynch@scandh.com
Angelo Poletis
Principal
apoletis@scandh.com
Visit: www.scandh.com
Phone: (800) 921-8490
Email: sch_group@scandh.com

Back to Basics: Good Accounting & Finance Practices

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