Structure your Federal Government Accounting System Wisely
I was talking with a prospect the other day and he mentioned something that I think we all tend to overlook from time to time. He mentioned a problem that he had encountered with the DCAA relative to naming of some of his accounts on the Chart of Accounts (COA) in his General Ledger (GL). It seems his particular problem revolved around the naming of an account. For commercial business, that may not be an issue, you can call an account whatever name that you like. For a Federal Government Accounting system, you should be careful that an account name does not raise suspicion, especially in the mind of an auditor. For instance, by just labeling an account something like "Entertainment" would certainly get an auditor's attention. The auditor will certainly dig into this to find out if this account contained a mixture of allowable and unallowable expenses. If the account only contains unallowable expenses, the auditor will next be very interested to follow that account to make sure it does not end up in any billing to the government. By labeling the account something like Administration, Travel, Meals it becomes more clear as to what is in the account. Another example might be the use of the term "Bonuses". I know a business that puts owner distributions under an account labeled "Bonuses" but in reality this is "Owner Distributions". These types of subtle differences can be the source of problems, especially during a government audit.
Another issue with the COA and government accounting is the use of account numbers. The government likes to see unique account numbers on all accounts in the COA. This prevents confusion on items that might be classified in two different areas, depending on the nature of the expense. For instance, travel. Travel could be a direct expense in some instances for a specific contract. In other instances, the travel might benefit the company and be an indirect expense. So there may be more than one travel account to make sure to keep the expenses segregated. With unique account numbers, it is very clear which is which and the expense can be easily keep segregated (and demonstrated as segregated to an auditor).
Finally, the concept of pooling like expenses on your COA is something that makes Federal Government Accounting easier. This way like expenses can be collected together and easily tallied to facilitate calculation of indirect billing rates. These and other items related to your General Ledger system are often overlooked and can cause more than a minor problem in an audit of the system.