accounting systems and recordkeeping for a/e firms · * deltek vision * deltek ajera * clearview...

Accounting Systems and Recordkeeping for A/E Firms

ACEC/MD – Small Business Enterprise Committee

October 13, 2017

Rowles & Company, LLPCPAs for engineering firms for over 80 years

Rowles & Company, LLP and Ron Grodzinsky At a Glance

Rowles & Company, LLP works with engineering firms with fees ranging from $2 million to over $200 million.

Ron Grodzinsky has been with Rowles & Company, LLP for 28 years.

Ron works exclusively with consulting engineering firms providing:

Income tax return planning and preparation

Audits of and consulting for FAR overhead rates

Accounting systems planning and advice

Audits of retirement plans


Objectives

Description and importance of an accounting system

Critical parts of an accounting system for an A/E firm

Key Performance Indicators (KPI) for an A/E firm

Record retention requirements under IRS and FAR


A system used to process financial transactions of a business and provide reports to be used by executives of the company, creditors, and government officials.


What is a Financial and AccountingReporting System?

Financial Accounting System Diagram

Rowles & Company, LLP CPAs for engineering firms for over 80 years

Accounting and Project

Management Software

Internal Controls

Timesheet

Expense Report

Employee Data

Project Data

Subconsultant

Billing and Invoicing

Employee Labor Reports

Policies and Procedures

Project Detail Reports

Payroll Reports

INPUTS OUTPUTS

Financial Accounting System Diagram (Continued)

Rowles & Company, LLP CPAs for engineering firms for over 80 years

Accounting and Project

Management Software

Internal Controls

Payables Aging

Policies and Procedures

General Ledger

Financial Statements

Cash Recipts

Cash Disbursements

Vendor Bills

Receivables Aging

Fixed Asset Records

INPUTS OUTPUTS

Scorecard Metrics

Financial and Accounting System Accounting and Project Management Software

Requirements

Accounting for direct, indirect, and unallowable costs

Time and billing

Project management

Financial Statements

Integration between timesheet and expenses, job costing, and general ledger

DCAA compliant (if necessary)

Reasonable cost


Financial and Accounting System Accounting and Project Management Software

(Continued)

Some software available:

* Deltek Vision

* Deltek Ajera

* Clearview InFocus

* BQE Core

* Microsoft Dynamics SL (Formerly Solomon)

* QuickBooks Enterprise Construction and Contractor Version

* QuickBooks integrated with project management, time and billing software such as BillQuick, Praesto AE, Big Time, etc.


Importance of Effective Accounting/Recordkeeping System

§ Information for business decisions

§ Scorecard of business performance

§ Information for project managers

§ Compliance with FAR and related DOT requirements

§ Fewer adjustments by CPAs and amount of time CPA needs to analyze overhead accounts for direct expense and unallowable expenses

§ Reduce reportable conditions on Overhead Audit Report


Critical Parts of A/E Firm Accounting SystemEmployee and Owner Timesheets

Suggestions

~ Timesheets completed at time task performed (if practical)

~ Otherwise record the timesheet daily

~ Timesheets recorded accurately

~ Timesheets reviewed and approved by the supervisor

~ Owner held to same timesheet requirements as employees


Critical Parts of A/E Firm Accounting System Employee and Owner Timesheets Suggestions

(Continued)

Timesheet designed to record the following types of labor:

Project labor (Project number, phase, task, etc.)

Non-project labor broken into detail such as:

* Administrative

* Training

* Proposal

* Unallowable activities (entertainment, advertising, and lobbying)

* Vacation

* SickRowles & Company, LLP

CPAs for engineering firms for over 80 years

Completed by due date per company policy

Include the following information:

Date and amount of expense incurred

Activity related to the expense

Project number if related to a project

For meals, include date, related activity, and attendees

If alcohol, ask for a separate bill

Restaurant/hotel receipts (not only credit card slip)

Copy of Vendor bill

Critical Parts of A/E Firm Accounting System Employee Expense Reports Suggestions


Example of Chronological coding to help prepare Financial Statements and Overhead Statement

For example:

1000-1999- Assets

2000-2999- Liabilities

3000-3999- Stockholder's equity


Critical Parts of A/E Firm Accounting System Chart of Accounts/General Ledger History

Balance Sheet

Example of Chronological coding to help prepare Financial Statements and Overhead Statement (Continued)

For example:

4000-4999 - Fee income

5000-5999 - Direct costs – reimbursable

6000-6999 - Direct costs – non-reimbursable

7000-8999 - General and administrative expenses

9000- Unallowable expenses

Key is to have separate accounts for direct, indirect, and unallowable costs


Critical Parts of A/E Firm Accounting System Chart of Accounts/General Ledger History

(Continued)

Income Statement

Overhead Statement

Critical Parts of A/E Firm Accounting System Written Accounting Policies and Procedures

Benefits of written accounting policies and procedures:

Provides uniformity of processing transactions for consistency

Guides employees processing and recording transactions

Can be used as part of training employees

Reduces auditor's skepticism compliance with Federal Acquisition Regulation (FAR)


Keys to successful implementation of policies and procedures

Explaining policies to employees to understand and buy in

Actually following policies and procedures

Reviewing and updating policies and procedures as needed


(Continued)



(Continued)

Examples of written policies and procedures

Description of accounting system and software used

Basis of accounting used (e.g. accrual basis under GAAP)

Name of software used to process transactions (FAR compliant)

How often system is backed up and where stored



(Continued)


Description of how expenses are recorded in the general ledger

Direct costs (related to a project)

Indirect costs (overhead)

Unallowable costs under FAR

Record unallowable costs at point of entry or at year-end via account analysis



(Continued)


Employee and owner travel

Air travel – Commercial air using lowest available rate at reasonable time that is not circuitous

Meals and lodging using GSA per diem rates

Lodging rates using actual cost up to 300% of GSA if hotel at location of convention

Company vehicles – mileage logs (direct, indirect, personal)


Critical Parts of A/E Firm Accounting System Written Bonus Plan

FAR does not require bonus plan to be written

However, it makes it easier to get bonus accepted by DOTs if written

MDOT has asked for copies of written bonus plans


Critical Parts of A/E Firm Accounting System Written Bonus Plan (Continued)

Suggested documentation

Document what part of plan is performance based

Document what part of plan is profit distributions

Does not need to be overly elaborate with many formulas

Key: document the process and show consistency from year to year

Some items to include in the bonus plan

Eligibility

Performance criteria measurement

When is bonus awarded and paid

Owner/executive approval of plan (s) documented


Critical Parts of A/E Firm Accounting System Internal Controls

Policies, procedures, and practices of a business implemented to reduce risks of errors, irregularities, and fraud and provide owners reasonable assurance that business objectives will be met

Why are internal controls important

Protect company assets from theft

Reduces the risk of fraud

Reduces frequency of errors

Prevent and detect errors and irregularities


Critical Parts of A/E Firm Accounting System Internal Controls (Continued)

Key components

Tone at the top – owners and executives

Segregation of duties of employees


Critical Parts of A/E Firm Accounting System Internal Controls (Continued)

Tone at the top

Ownership review of financial reports

Oversight of employees

Written ethics policy for integrity and ethics

Occasional spot checking accounting employees' work


Critical Parts of A/E Firm Accounting System Internal Controls – Other Ideas

Some suggestions

Owner involvement

Cross-training of employees

Job rotation

Required vacations

Background checks

Get to know if employee having financial difficulties

Bonding if necessary


Critical Parts of A/E Firm Accounting System Internal Controls – Segregation of Duties

Policies and procedures to improve internal controls at a company by separating:

Authorization and approval of a transaction

Recordkeeping

Custody of assets

Reconciliations



(Continued)

Over cash receipts from clients - some examples

Electronic Funds Transfers from client

Lockbox accounts with bank for deposits



(Continued)

Over cash receipts from clients - some examples (Continued)

For Payments from clients received via mail Receptionist opens mail and prepares summary of

receipts and stamps checks for “deposit only” Receipts given to other employee to post to books Other employee or owner makes deposit Owner or other employee compares summary of

deposits to bank statement

Receipts should be deposited daily and intact


Critical Parts of A/E Firm Accounting System Internal Controls - Bank Accounts

Bank reconciliations and bank statements

Owner reviews monthly bank statement online for any unusual transactions

Owner reviews bank reconciliation for unusual or very old reconciling items


Critical Parts of A/E Firm Accounting System Internal Controls –Accounts Receivable

Analyze accounts receivable aging each month

Approval by owner for any write offs

Review of ratios such as average collection period


Critical Parts of A/E Firm Accounting System Internal Controls – Payroll and Labor Costing

Reconcile payroll in general ledger to job costing reports and payroll reports monthly

Owner/manager review employee utilization rates and other metrics each month

Review and approval of employee pay rate increases annually


Critical Parts of A/E Firm Accounting System Metrics and Key Performance Indicators

Review dashboard of Key Performance Indicators monthly (examples below)

Payrolls in the bank (cash balance/total wages per pay period)

Staff utilization rate (direct labor/total labor)

Multipliers of direct labor (net fee income/direct labor)

Write offs of accounts receivable


Critical Parts of A/E Firm Accounting System Metrics and Key Performance Indicators

(Continued)

Review dashboard of Key Performance Indicators monthly (examples below)

Overhead rate ((indirect payroll + benefits + G&A exp)/direct labor)

Operating profit/net revenue

Net fees/employee

Backlog volume (unearned fees on open contracts)


Critical Parts of A/E Firm Accounting System Records Retention

Federal Acquisition Regulation (FAR Subpart 4.7)

Generally – 3 years after final payment

Unless contract clause specifies longer period

Financial and cost accounting records Accounts receivable invoices and related records – 4 years after final payment

Expense reports for employees – 4 years after final payment

Paid, cancelled, and voided checks – 4 years after final payment


Critical Parts of A/E Firm Accounting System Records Retention (Continued)

Federal Acquisition Regulation (FAR Subpart 4.7)

Financial and cost accounting records (Continued) Labor distribution reports – 2 years after final payment

Timesheets and payroll reports – 4 years after final payment

Payments for services of employees – 2 years after final payment

Property records – 4 years after final payment


Critical Parts of A/E Firm Accounting System Records Retention (Continued)

IRS Requirements – See IRS Publication 552

Income tax returns and related records – 3 years from date of filing

Employment tax records – 4 years from date tax paid or due whichever is later

Property and equipment – 3 years after the end of year when disposed

Corporate records - permanent


accounting systems and recordkeeping for a/e firms · * deltek vision * deltek ajera * clearview...

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