Jameson & Company specializes in accounting for government grants and contracts. Ed Jameson recently presented three webinars on understanding indirect cost rates, how to set up your books for government awards, and how to survive the audits embedded in your federal funding award. Here are a few takeaways and some additional sources of information you can use as you prepare to manage your SBIR/STTR award.

Indirect Cost Rates
The number one mistake that SBIR/STTR candidates make is proposing indirect cost rates that are too low. The thought is that by paying themselves less, more money “goes to science.” However, the government expects your high-end science to be worth something and a larger indirect cost rate actually appears more stable. Jameson urges proposal recipients to think about the point in the project where you’ll go from paying workers by the hour to paying salaries with benefits. Underestimating indirect costs, in the beginning, makes it impossible to increase later.You can learn more about calculating indirect rates and government cost proposals here, here, and here.

Accounting Systems for Government Awards
The federal government requires your accounting system to include three schedules – a payroll reconciliation schedule, an indirect rate calculation schedule, and a schedule of indirect rates applied to all jobs. Understanding what the government will ask of you later, and using an accounting system that aligns with this saves time, money and confusion. Learn more about the requirements of a government-approved accounting system here.

Government Audits
Almost all agencies are likely to audit your financials. The Defense Contract Audit Administration (DCAA) oversees audits for DoD contracts as well as some of the other SBIR Agencies. You can learn more about DCAA audits here as well as through the SBIR.gov tutorials mentioned above. The National Institutes of Health (NIH) and National Science Foundation (NSF) also provide tutorials about their post-award monitoring and reporting requirements. Learn more about their requirements here and here.

It is always recommended that as soon as your small business can, you engage with a CPA with government contracting experience. Their experience will help you stay on top of government contract/grant reporting requirements.