An SBIR/STTR agency review can feel urgent when the request arrives.

 

The agency may ask for ledger reports, payroll support, timesheets, labor distribution, invoices, consultant files, indirect rate support, budget-to-actual reports, drawdown records, or documentation showing how award funds were used.

 

For many funded companies, the hard part is not that the work was improper. The hard part is that the records are scattered.

 

Financial records may live in the accounting system, payroll platform, timekeeping software, spreadsheets, email threads, shared drives, consultant invoices, and founder notes.

 

That makes agency review preparation harder than it needs to be.

 

At Peter Witts CPA PC, we help SBIR/STTR companies prepare for financial review by organizing ledger reports, payroll, timekeeping, labor distribution, invoices, consultant files, indirect rates, budget-to-actuals, drawdowns, and support files before agency questions become urgent.

 

Why Agency Review Preparation Matters

 

An agency review may happen during award performance, before a payment request, after a drawdown, during closeout, before Phase II, or in connection with a broader financial capability review.

 

The goal is usually to confirm that award funds were used properly and that the company can support the costs charged to the award.

 

A review may focus on:

• Whether costs are tied to the approved award

• Whether spending matches the approved budget

• Whether payroll is supported

• Whether timekeeping supports labor charges

• Whether labor distribution ties to payroll

• Whether invoices and payment records are organized

• Whether consultants and subawards are documented

• Whether indirect rates are supported

• Whether drawdowns or invoices match actual costs

• Whether unallowable costs were excluded

• Whether budget variances are explained

• Whether support files are complete

A company should not wait until the agency asks to begin organizing these records.

 

Start With the Official Award File

 

Before preparing financial reports, start with the official award file.

 

The award file explains what the company was approved to do, what it was approved to spend, and what rules apply.

 

The file should include:

• Notice of Award or contract

• Award number

• Approved budget

• Budget justification

• Statement of work

• Period of performance

• Terms and conditions

• Payment instructions

• Reporting requirements

• Prior approval requirements

• Indirect rate terms

• Cost share terms, if applicable

• Consultant or subaward approvals

• Agency correspondence

• Closeout requirements

The award file gives context to every financial report.

 

If the ledger, payroll, invoices, or drawdowns do not match the award terms, the company may need to explain why.

 

Confirm the Review Period

 

Before pulling reports, confirm the review period.

 

The agency may be reviewing:

• A specific budget period

• A specific reporting period

• A specific drawdown

• A specific invoice

• The full award period

• A Phase II readiness period

• Closeout activity

• A selected sample of costs

The review period matters because costs should be supported within the correct date range.

 

Before submitting records, confirm:

• Award start date

• Award end date

• Extension dates, if applicable

• Payroll periods included

• Vendor service dates

• Consultant service dates

• Subaward dates

• Travel dates

• Equipment purchase dates

• Drawdown or invoice dates

Costs outside the period being reviewed should be identified and explained before records are shared.

 

Prepare General Ledger Reports

 

The general ledger is one of the first records to organize.

 

2 CFR 200.302 requires financial management systems to maintain records identifying the amount, source, and expenditure of federal funds and compare expenditures with budget amounts for each federal award.

 

Prepare ledger reports that show:

• Award revenue or federal funds received

• Direct labor

• Fringe benefits

• Materials and supplies

• Consultants

• Subawards or subcontractors

• Travel

• Equipment

• Other direct costs

• Indirect costs

• Unallowable costs

• Drawdowns or invoices

• Refunds, credits, or adjustments

• Cost transfers

The ledger should be filtered by award, project code, cost objective, and review period.

 

A company-wide profit and loss report is usually not enough.

 

Reconcile the Ledger to the Award Budget

 

The ledger should be reconciled to the approved budget.

 

This means comparing actual spending to the budget categories the agency approved.

 

Review:

• Approved budget by category

• Actual costs incurred

• Remaining budget

• Variances

• Costs moved between categories

• Prior approvals, if required

• Costs outside the approved budget

• Costs still outstanding

• Costs already drawn or invoiced

If the approved budget changed after proposal submission, the report should use the final approved budget.

 

Do not use an outdated proposal budget as the review baseline.

 

Prepare Budget-to-Actual Reports

 

Budget-to-actual reports help the agency understand financial status.

 

A useful report should show:

• Approved budget

• Actual costs to date

• Remaining budget

• Percent spent

• Labor burn rate

• Consultant and subaward spending

• Travel and equipment spending

• Indirect costs applied

• Drawdowns or invoices submitted

• Explanation of significant variances

Budget-to-actual reports should tie to the general ledger.

 

If the report is prepared manually, the company should be able to show how the numbers were pulled from the accounting system.

 

Review Project Codes

 

Project codes help show that award costs were separated from other compa ny activity.

 

Before an agency review, confirm that award costs are not mixed with:

• Internal R&D

• Commercial product work

• Customer-funded pilots

• Fundraising

• Sales and marketing

• General business activity

• Other federal awards

• Other grants or contracts

• Unallowable activity

SBIR.gov explains that a strong accounting system should differentiate direct costs from indirect costs, isolate unallowable costs, and maintain costs under general ledger control.

If project coding errors exist, they should be reviewed and corrected with documentation.

 

Prepare Payroll Records

 

Payroll is often one of the largest cost categories in an SBIR/STTR award.

 

Prepare payroll support for employees and founders charged to the award.

 

Payroll records may include:

• Payroll registers

• Pay period reports

• Employee names

• Salary or wage rates

• Gross wages

• Employer payroll taxes

• Fringe benefits

• Pay dates

• Payroll provider reports

• Payroll journal entries

• Proof of payment

• General ledger tie-outs

The company should be able to show what was paid, when it was paid, and how the labor cost was assigned to the award.

 

Payroll records alone are not enough if the labor was charged to a specific project. They should tie to timekeeping and labor distribution.

 

Prepare Timekeeping Records

 

Timekeeping supports labor charges.

 

SBIR.gov identifies timekeeping as an important accounting system requirement and explains that timesheets help document time spent across business activities, proposal work, commercialization plans, and other activities.

 

Prepare timesheets showing:

• Employee name

• Date worked

• Hours worked

• Award or project code

• Direct award labor

• Indirect labor

• Non-award labor

• Founder time

• Internal R&D

• Commercialization activity

• Fundraising or investor activity

• Sales or customer activity

• Employee certification

• Supervisor approval

• Corrections or adjustments

Timesheets should support actual work performed.

 

If time was reconstructed after the fact, that may create review risk and should be discussed before records are submitted.

 

Prepare Labor Distribution Reports

 

Labor distribution connects timekeeping to payroll and the general ledger.

 

A labor distribution report should show:

• Employee name

• Pay period

• Hours by project

• Direct labor by award

• Indirect labor

• Non-award labor

• Salary or wage allocation

• Fringe allocation, if applicable

• Project code

• General ledger account

• Total labor cost charged to the award

DCAA’s pre-award checklist includes whether the accounting system provides for a timekeeping system that identifies employee labor by intermediate or final cost objectives.

The labor distribution report should reconcile to payroll and the ledger.

 

If those three records do not tie together, the company should identify and resolve the difference before the review.

 

Review Founder Compensation Support

 

Founder compensation can receive special attention during an agency review.

 

Founders often split time across technical work, project management, fundraising, customer development, commercialization, internal R&D, and general management.

 

Prepare support showing:

• Founder role in the approved award

• Approved level of effort

• Salary or wage support

• Payroll records

• Timesheets

• Labor distribution

• Direct award work

• Indirect management time

• Fundraising time separated

• Commercialization time separated

• Customer-funded work separated

• General ledger posting

Only founder time that supports the approved award should be charged directly to the award.

 

Prepare Vendor Invoices

 

Vendor costs should be supported by clear documentation.

 

For each vendor cost charged to the award, prepare:

• Vendor invoice

• Purchase approval

• Project purpose

• Budget category

• Receipt or proof of delivery

• Proof of payment

• General ledger entry

• Project code

• Prior approval, if required

The support file should explain what was purchased, why it was needed, and how it supported the award.

 

Avoid submitting only a credit card statement or bank transaction without the underlying invoice or receipt.

 

Prepare Consultant Files

 

Consultant costs often need more support than a simple invoice.

 

Prepare a consultant file that includes:

• Consultant agreement

• Scope of work

• Approved budget reference

• Rate support

• Deliverables

• Invoice detail

• Dates of service

• Payment records

• Project purpose documentation

• Travel receipts, if applicable

• Prior approvals, if required

A one-line invoice for “consulting services” may be weak support.

 

The agency should be able to see what the consultant did and how the work supported the approved award.

 

Prepare Subaward or Research Partner Files

 

If the award includes a university, lab, subcontractor, or research partner, organize partner records separately.

 

The file should include:

• Subaward or subcontract agreement

• Approved partner budget

• Scope of work

• Period of performance

• Deliverables

• Invoice detail

• Payment records

• Monitoring notes

• Cost share documentation, if applicable

• Prior approval documentation

• Closeout records

Prime awardees should be able to show that partner costs were reviewed before payment and tied to the approved scope.

 

Prepare Travel Records

 

Travel costs can create questions if the purpose is not clear.

 

Prepare:

• Approved travel budget

• Traveler name

• Destination

• Dates

• Project purpose

• Receipts

• Expense report

• Conference agenda, if applicable

• Proof of payment

• Prior approval, if required

• General ledger entry

The file should show why the travel supported the award.

 

Travel tied mainly to sales, fundraising, investor meetings, or non-award commercialization should be reviewed carefully before being charged to the award.

 

Prepare Equipment and Property Records

 

If equipment was charged to the award, prepare support early.

 

Equipment records may include:

• Approved equipment budget

• Purchase request

• Project purpose

• Quote or pricing support

• Invoice

• Proof of payment

• Capitalization treatment

• Property record

• Serial number

• Location

• Use documentation

• Disposition notes, if applicable

Equipment purchased late in the award period or outside the approved budget may require extra review.

 

Prepare Indirect Rate Support

 

Indirect costs should be supported by calculations and accounting records.

 

SBIR.gov explains that indirect rates should be developed from the company’s own accounting system, annual budget, projected cost categories, or other company-specific cost information.

 

Prepare:

• Approved or proposed indirect rate

• Fringe, overhead, or G&A pools

• Allocation bases

• Direct labor base, if applicable

• Total direct cost base, if applicable

• General ledger support

• Payroll and labor distribution support

• Unallowable cost exclusions

• Rate calculation schedules

• Provisional versus actual rate notes

• Indirect costs included in drawdowns or invoices

The company should be able to explain how the indirect rate was calculated and applied.

 

Prepare Drawdown Records

 

For grant-funded SBIR/STTR awards, drawdown records should tie to actual award costs and cash needs.

 

Prepare:

• Drawdown dates

• Drawdown amounts

• PMS or agency payment system records

• Costs covered by each drawdown

• Payroll support

• Vendor support

• Consultant support

• Subaward support

• Indirect cost support

• Cash on hand review

• Refunds or credits

• General ledger reconciliation

• SF-425 support, if applicable

A drawdown should not look like a general cash transfer.

 

It should connect to supported award costs and timing.

 

Prepare Invoice or Voucher Records

 

For contract-based awards, organize invoice or voucher files.

 

Each file should include:

• Invoice or voucher submitted

• Submission confirmation

• Contract line item or milestone support

• General ledger detail

• Payroll support

• Timesheets

• Labor distribution

• Vendor invoices

• Consultant invoices

• Subcontractor invoices

• Indirect rate schedules

• Prior payment history

• Unallowable cost review

• Approval records

Each invoice should have enough support to explain the amount requested.

 

Review Unallowable Costs

 

Unallowable costs should be identified before an agency review.

 

Review whether any costs charged to the award relate to:

• Fundraising

• Investor activity

• Certain lobbying

• Entertainment

• General sales activity

• Non-award commercialization

• Unsupported expenses

• Personal or non-business costs

• Costs outside the period of performance

• Costs restricted by award terms

SBIR.gov explains that a good accounting system should isolate unallowable costs.

 

If unallowable costs are mixed into award activity, they should be identified and corrected before records are submitted.

 

Review Cost Transfers

 

Cost transfers may receive attention during agency review.

 

If costs were moved between projects, awards, accounts, or budget categories, prepare support showing:

• Original charge

• Corrected charge

• Reason for the correction

• Date error was discovered

• Date transfer was posted

• Approval

• Why the receiving award or category benefited

• Impact on drawdowns or invoices

• Impact on reports

• Prior approval, if required

Vague explanations such as “correction” are not enough.

 

The support should explain what happened and why the corrected charge is appropriate.

 

Reconcile Reports Before Submission

 

Before submitting records, reconcile the major reports.

 

Check whether the following tie together:

• General ledger

• Payroll records

• Timesheets

• Labor distribution

• Budget-to-actual reports

• Drawdowns

• Invoices

• SF-425 reports, if applicable

• Agency financial reports

• Bank activity

• Closeout reports, if applicable

NIH has reminded recipients that Federal Financial Reports should be accurate, complete, and consistent with the recipient’s accounting system.

 

If reports do not tie to the ledger, the company should identify the difference and document the explanation.

 

Build a Support File Index

 

A support file index helps the company respond clearly.

 

Create sections for:

• Award documents

• Approved budget

• General ledger

• Budget-to-actual reports

• Payroll

• Timekeeping

• Labor distribution

• Vendor invoices

• Consultant files

• Subaward files

• Travel

• Equipment

• Indirect rates

• Drawdowns

• Invoices or vouchers

• Prior approvals

• Cost transfers

• Agency correspondence

• Reports submitted

• Closeout records

This makes it easier for reviewers to follow the records and easier for the company to stay consistent.

 

Assign One Review Lead

 

Agency reviews can become confusing if multiple people respond separately.

 

Assign one internal review lead to coordinate:

• Document collection

• Accounting team responses

• Founder input

• Technical team input

• Consultant or partner records

• Agency communication

• Follow-up questions

• Final submission

This helps avoid inconsistent answers and duplicate document versions.

 

Do a Pre-Submission Review

 

Before sending records to the agency, complete an internal review.

 

Ask:

• Are the correct award documents included?

• Does the ledger match the review period?

• Do costs match approved budget categories?

• Do payroll records tie to timekeeping?

• Does labor distribution reconcile to payroll and the ledger?

• Are invoices and receipts complete?

• Are consultant files organized?

• Are indirect rates supported?

• Are drawdowns or invoices reconciled?

• Are unallowable costs excluded?

• Are cost transfers explained?

• Are budget variances documented?

• Are reports consistent with the accounting system?

This pre-submission review can catch gaps before the agency does.

 

Common Agency Review Problems

 

SBIR/STTR companies often struggle with agency reviews because records were not organized monthly.

 

Common problems include:

• Ledger reports not filtered by award

• Costs missing project codes

• Payroll not tied to timesheets

• Timesheets missing approvals

• Labor distribution reports missing

• Founder time not separated

• Consultant invoices lacking detail

• Subaward files incomplete

• Vendor receipts missing

• Indirect rates unsupported

• Drawdowns not tied to actual costs

• Invoices lacking support

• Unallowable costs mixed into award activity

• Cost transfers lacking explanations

• Budget-to-actual reports prepared manually

• Reports not matching the ledger

• Documentation scattered across systems

These issues are easier to fix before the review request arrives.

 

Agency Review Preparation Checklist

 

Before an SBIR/STTR agency review, organize:

• Award documents

• Approved budget

• Review period

• General ledger reports

• Project code detail

• Budget-to-actual reports

• Payroll records

• Timekeeping records

• Labor distribution reports

• Founder compensation support

• Vendor invoices

• Consultant files

• Subaward files

• Travel records

• Equipment records

• Indirect rate schedules

• Drawdown records

• Invoice or voucher files

• Unallowable cost review

• Cost transfer support

• Prior approvals

• Agency correspondence

• Support file index

This checklist helps the company prepare financial records in a way that is easier to review and explain.

 

Questions to Ask Before Submitting Records

 

Before submitting financial records to an agency, ask:

• What period is being reviewed?

• What specific records were requested?

• Does the ledger match the award and period?

• Do reports use the approved budget?

• Are payroll records complete?

• Do timesheets support labor charges?

• Does labor distribution tie to payroll?

• Are invoices and receipts organized?

• Are consultant and subaward files complete?

• Are indirect rates supported?

• Do drawdowns or invoices reconcile to costs?

• Are unallowable costs excluded?

• Are cost transfers explained?

• Are reports consistent with the accounting system?

• Is there one organized support file?

If several answers are unclear, the company should review the records before submission.

 

Final Thoughts: Agency Review Readiness Is Built Before the Request

 

Preparing for an SBIR/STTR agency review is not just about pulling reports quickly.

 

It is about maintaining financial records that connect the award terms, approved budget, ledger, payroll, timekeeping, labor distribution, invoices, consultant files, indirect rates, drawdowns, and support documentation.

 

At Peter Witts CPA PC, we help SBIR/STTR companies prepare for financial review by organizing records, reconciling reports, identifying documentation gaps, and strengthening the accounting support behind award costs.

 

Need Help Preparing for Financial Review?

 

If your SBIR/STTR company is preparing for an agency financial review, Peter Witts CPA PC can help organize and review your ledger reports, payroll records, timekeeping, labor distribution, invoices, consultant files, indirect rates, budget-to-actual reports, drawdowns, cost transfers, and support files.

 

Backed by 35+ years of government contract accounting experience and first-hand DCAA knowledge, our team helps innovators prepare financial records that support federal award performance and review.

 

Schedule a strategic consultation with Peter Witts CPA PC to prepare for financial review.