Thursday, June 2, 2011

Basic Billing System Requirements

Prior to awarding contracts to new contractors (or new to the particular government agency awarding the contract), the Government will perform a "Preaward Survey of Prospective Contractor Accounting System". This survey covers many aspects of the accounting system including questions about the system's capability to produce data to support billings. In general, the accounting system must be capable of producing data to support payment requests when payments to contractors are to be based on progress payments (fixed price contracts) or public vouchers (cost-type contracts).

In assessing the adequacy of a billing system, the Government will perform tests and conduct analyses in order to answer the following three questions.

1. Does the contractor have controls or procedures that would provide that interim billings of direct cost are prepared directly from the books and records, excluding unallowable costs? It continues to surprise us the number of contractors that do not prepare their billing statements based on their accounting records. Often times its because they have no confidence in the accuracy of the accounting data, the data is not up to date and they need to get paid, or the accountants are too "secretive" with their information.

2. Does the contractor have procedures to ensure that subcontractor and vendor costs are only included in billings if payment to the subcontractor or vendor will be made in accordance with the terms and conditions of the subcontract or invoice and ordinarily within 30 days of the contractor's payment request to the Government? The Government is not in the business of advancing working capital.

3. Can billings be reconciled to the cost accounts for both current and cumulative amounts claimed? It is important to ensure that not only period costs are traceable to the accounting records but cumulative costs are as well. Sometimes adjustments are made to prior periods and these adjustments must be reflected in billings.

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