Today we're going to look at Accounting System Criteria No. 8, Management reviews of internal audits of the system to ensure compliance with the contractors established policies, procedures, and accounting practices. Some of you might already be thinking that you don't have an internal audit department so this standard must be "n/a" or not applicable. Not so fast. The presumption here is that in order for an accounting system to be adequate, contractors will have policies, procedures, and practices over their accounting systems and that someone in the organization - it does not have to be a formal internal audit department -is going to conduct reviews (or audits) to ensure employees are complying with those policies and procedures.
Inherent in this standard are seven distinct requirements:
- Contractors must have written policies and procedures
- The policies and procedures must be disseminated to affected employees
- Employees are expected to comply with those policies and procedures
- There must be some form of oversight to ensure that employees are complying with those policies and procedures.
- There must be some form of oversight to ensure that the policies are procedures are accomplishing what they were designed to do.
- Management must be informed of the results of these oversight reviews.
- Management must take action on any forthcoming recommendations.
An accounting system that misses the mark on any one of these items, is at risk for being labeled inadequate, or deficient, or needing improvement. Larger contractors are at risk for having some of their billings withheld until corrections are made.
Contractors that do not have internal reviews of internal control system adequacy and compliance should be thinking about ways to implement such a program.