There are a lot of reasons why an accounting manual with documented policies and procedures is necessary, regardless of the size of the company.
First and foremost, if you have ever been subjected to a pre-award or post-award accounting system audit by DCAA (Defense Contract Audit Agency), DCMA (Defense Contract Management Agency) or other contract auditors and contracting officers/specialists, one of the first things they ask for is a copy of your accounting policies and procedures. Failure to have them, while not necessarily fatal as far as being awarded a Government contract, will result in system deficiencies that will need to be corrected, monitored, and reported upon.
There are other reasons as well. A written accounting policy and procedure manual
- provides a road map for new accounting personnel on what tasks need to be performed and when,
- helps to clarify for the existing accounting personnel what is required and when.
- helps to reduce the number of errors in reports produced.
- provides management with better reporting to assist in decision making.
- provides financial information more timely including data necessary to prepare billings for services
- helps detect and prevent fraud.
A policy manual, unlike the U.S. Constitution, is intended to be a living, breathing document. At a minimum, it should be reviewed annually and updated as appropriate. It should be designed and written by someone with the requisite skill, knowledge, and expertise to effectively document the processes, procedures, and related internal controls.
If you're unsure on where to begin, begin by documenting what you are currently doing in each of your accounting/budgeting/billing functions. If you need help, most CPA firms have the expertise to guide you through the process.