Common Accounting Mistakes: Government Edition - Issue #4 Documentation to Prove It!
Receipts, emails, contracts, timecards… the list of items a small business must maintain as documentation goes on and on! When a small business enters the world of government contracting, the risk associated with maintaining supporting documentation increases significantly. Not only must you have supporting documentation, but you must have the correct information recorded to PROVE a transaction exists, is compliant with all laws and regulations, and was recorded properly. Plenty of small business executives have said to me “we have policies and procedures for that.” While this is true, proving that the business follows and abides by those policies and procedures by maintaining the proper documentation is what makes it true. One example that is present in almost all businesses is a dinner receipt. For sales tax purposes, the receipt that shows the itemized purchases with sales tax is required. This is typically NOT the receipt that includes the tip information. This means you must have both. In addition, government contracts will not reimburse alcohol, so the itemized receipt is needed to show what was bought and alcohol must be recorded separately.
How does a company prove their employees have worked the hours they say they have? Since many government contracts reimburse labor, timecards are the area where fraud can be most prevalent. Timecards, and the process for documenting labor hours, can be audited by DCAA at any time without notice. Timecards are supposed to be completely daily, to ensure employees don’t forget what they worked on and misallocate hours. Does your documentation prove that? If you have an electronic system, does it have an audit trail that shows when each employee logged in and out? If you have paper timecards and an auditor walked in today to check them, would they see yesterday’s completed as required? Are the hours written in ink that cannot be changed without an obvious mark showing the change? If all timecards are required to be approved prior to being paid, how can you prove that? Checklists, forms, initials, signatures, and automated systems can all help.
What documentation do you have that proves all purchases are approved by a supervisor or manager before they are made? Are they approved at all? Approved purchase orders provide great supporting documentation for approval of purchases, as well as help accounting manage cash flow and billing. For anything you do, you must have documentation to prove it!
Ease of finding documentation is also an important goal. If an auditor is standing in front of you asking for a document, do you have to go find the box in the storage area and leave them waiting for 15 minutes? The more concise your documents, and the easier they are to find, the smoother your audit will go. Most accounting software allows attachments to each transaction now. We highly recommend this, so that each accounting entry has the supporting documentation accessible with a couple clicks. However, be sure to save these scans or digital copies somewhere else. If you ever lose the accounting system, or switch to another, you don’t want to lose all your supporting documents.
