Sophisticated and seasoned accounting software users understand the need to verify key calculations generated by their automated accounting software. Those users who do not could eventually end up wishing that they had before a crisis arose.
Government contractors continuously encounter a difficult and ever changing federal market. Competitive pressure and the regulatory environment require upper management and executive staff to make decisions that are crucial to business continuation and survival. Decisions are made which may lead to changes that have an impact on your project accounting system. Changes include company re-organizations, changes to pricing models, acquisitions and spin-offs, and entrance into new business lines.
With these changes, you must institute policies and procedures to make sure your business systems are aligned with your new reporting requirements.
TIPS FOR MONITORING YOUR ACCOUNTING/ERP SYSTEMS OUTPUT
Your accounting software has specific functionality primarily based on invoicing and cost reporting required by your customers and clients. Your accounting software’s original implementation was most likely centered on the business model and client mix that was in place at that time. Beyond invoicing and costing, you may have implemented other business systems that increase verification requirements. Changes to meet invoicing and reporting requirements will ultimately have an impact on your accounting software’s original setup. So what key numbers should be verified and what business dynamics are the drivers?
INDIRECT EXPENSE RATE CALCULATION REPORTING
This key calculation generated from your accounting software should be checked and proofed by an experienced professional. Why? Changes in pricing, indirect expense rate structures and the impact of unallowable costs within those structures all impact this key calculation. Are the General Ledger Expense Accounts correctly defined in your Indirect Expense structure pools and bases? Are intermediate pools such as the Fringe Expense pool properly allocated to the final indirect expense rate structure?
INDIRECT COSTING TO PROJECTS
Application of indirect costs to your project’s direct cost bases to derive net fee by project is another key calculation that should be verified. Oftentimes, the business rules associated with calculation and application of the indirect expense rates to projects of costs is quite complex. For example, do you have a mechanism in place to verify your allocation of your fringe benefit indirect rate to both direct and indirect salaries and wages?
BILLINGS TO YOUR CLIENTS
Independent verification of billing rules implemented in your accounting software is crucial to good standing with your federal government client. Billing rate adjustments, retroactive indirect rate adjustments, and client period of performance periods that differ from yours are just some of the focal points.
Net fee on projects may drive bonuses to business unit managers. Do you verify the fee total generated by billable contract operations to the operating net income (loss) on your income statements?
You will want to avoid the need to re-submit your invoices because you did not brief your contract to make sure you weren't forgetting something, such as the application of fee or indirect burdens to eligible cost elements.
IN HOUSE PAYROLL
Independent checking of this key function should be done due to the dynamics of employee management. Often we find that the most recent State Unemployment insurance rates that are applicable to the company are not input in time to start the new calendar year. Also, changes in benefit plans that impact the tax calculations for each employee often times are not correctly implemented in payroll system.
Have you reconciled your payroll filings such as the Federalb 941 and 940 to the labor distribution totals in your accounting software?
BUDGETS/PROJECT REPORTING
The comparison of planned versus actual costing derived from the accounting system is a must. The plan was most likely derived during the proposal and capture process. Are the revenue and actual costs derived from the accounting system aligned with the budget and profit objectives with each project?
Project managers are interested in achieving their targets. Oftentimes, they represent an excellent independent verification of the accounting software reporting. If unexpected variances are detected, those variances may be related to the contract budget setup in your accounting software. This is particularly important when performing work on a cost reimbursable contract and your budget is the basis for your provisional billing rates which must be reconciled with your actual indirect rates when completing the DCAA ICE submission.
CONCLUSION
With today’s push button and deadline driven federal business environment, a solid set of procedures that verify key reporting in your accounting software on periodic basis is a must. If your customer catches an issue before you do, they will likely presume you have issues with proper controls and verification procedures within your accounting department, and you in turn may have to admit to the reliance on accounting software output that was not verified for accuracy.
To avoid potential embarrassment, you should trust your accounting/ERP software to automate certain tasks, but you should also take the time and have the procedures in place to verify its output.
