Congratulations!  You won!  Once you have received notification of an award, how do you proceed?  This is a critical question for most organizations.  It is especially important for first time award recipients.

Grant awards place very specific requirements on the business.  These requirements include specific accounting, human resource, recordkeeping, reporting, and management responsibilities.  There are some key points to understand.  The first level of requirements is dictated by government accounting practice for contractors and subcontractors.  The second level of requirements is specific to the government agency that is awarding the contract or grant.  Overlaying these two levels is a third more specific level that is written into the specific agreement between the specific agency and/or its direct award recipient (if you are a subcontractor).

The requirements placed on your organization through receipt of an award are in addition to the already existing compliance requirements of financial, tax, and other regulations for all businesses. In order to understand “full compliance” for your organization, you need to understand these areas as well:

  • Government Grant and Contract Requirements
    • The granting agency
    • The specific program
    • The specific agreement
    • Government accounting
  • Cost accounting
  • Financial accounting
  • Human resources
  • Project Management, Accounting and Controls
  • Other management and business process controls

One of the first things a business needs to do after receiving notice of an award (if not before applying for a grant or pursuing a contract) is to review existing business processes and operations versus the expected controls, processes, and structures required as government contractors.  This gap analysis should address, at a minimum, the most critical aspects of compliance – financial systems and controls (which impact how and if you get paid), recordkeeping, timekeeping, and management responsibilities.

For many early stage and technology organizations, the “normal” financial systems and management control systems have not been fully implemented due to a number of factors:

  • limited resources
  • lack of capability in the organization
  • lack of clear understanding as to what is required for any business
    • accounting
    • human resources
      • payroll
      • employment practices
    • other regulations

For those organizations that haven’t put into place the basics of business systems that comply with regulatory requirements, the gap lies between where the business is today and where it needs to be tomorrow to satisfy the government contract specifications.

Many businesses do operate without meeting even the minimum levels required by government contracts, tax regulations, or financial controls.  Those businesses may be able to skate by for awhile without putting the required systems in place.  Ultimately, when they are caught, they will be faced at a minimum with implementing the systems and retroactively applying the rules; more stringent conditions could require they repay all the grant funds and are barred from participating in grant or contract programs.

If you are currently a government contractor or grant recipient and are not sure if you are in compliance with all of the requirements, here are some areas to check:

  • Timesheets
    • Does your organization require all time sheets to be signed by the supervisor and the employee?
    • Does each timesheet include ALL the hours worked for both exempt and non-exempt employees?
    • Does every person in your organization (including the CEO) maintain timesheets?
  • Accounting System
    • Does your system include project reporting and controls?
    • Does your system track direct costs?
    • Can you allocate indirect costs across activities and projects?
    • Are there management and other controls?
    • Is the chart of accounts designed to facilitate the exclusion of costs that aren’t allowable?
  • Recordkeeping
    • Are records maintained on each project?
    • Are purchases of materials and equipment documented by project?
    • Is time by person and in total kept by project?
  • Equipment
    • Is ownership of equipment acquired for projects clearly defined
      • What is purchased directly for the project with project funds?
      • What is purchased for the project with other funds?

There are many additional requirements your organization needs to be aware of, both general and specific.  There is no one system for every business – what works for one won’t be complete for another.  The source, type, and number of grants, as well as the commercial activities that your organization undertakes impacts the scope, nature, and type of system that will satisfy your particular compliance needs.

There are many sources of information on compliance requirements including:

  • The grant agency
  • Websites
  • Government publications.

Copyright © 2004 Lea A. Strickland, F.O.C.U.S. Resource, Inc.

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