An SBIR/STTR financial review can feel stressful if the company waits until the request arrives to organize its records.

 

The agency, funder, auditor, or contracting office may ask for financial reports, ledger detail, payroll records, timesheets, invoices, indirect rate support, budget-to-actual reports, drawdown records, or cost documentation.

 

For many startups, the challenge is not that the costs were unusual. The challenge is that the records are scattered across accounting software, payroll systems, spreadsheets, email, shared drives, and founder notes.

 

A financial review is easier when the company can show a clear connection between the approved award, the accounting records, the costs incurred, the payment requests, and the supporting documents.

 

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

 

Why SBIR/STTR Financial Reviews Matter

 

A financial review may happen before award, during performance, after a payment request, during closeout, or as part of an agency or DCAA-related review.

 

The purpose is usually to understand whether award funds are being managed properly.

 

A review may look at:

• Whether costs are tied to the approved award
• Whether direct and indirect costs are separated
• Whether labor is supported by timekeeping
• Whether payroll ties to labor distribution
• Whether invoices and vendor costs are documented
• Whether indirect rates are supported
• Whether drawdowns or invoices match actual costs
• Whether unallowable costs are excluded
• Whether budget variances are explained
• Whether records are ready for reporting or closeout

The best preparation is not a last-minute folder cleanup. It is a consistent monthly process.

 

Start With the Award File

 

Before organizing accounting records, start with the award file.

 

The award file should help explain 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
• Approved budget
• Budget justification
• Statement of work
• Terms and conditions
• Payment instructions
• Reporting requirements
• Prior approval terms
• Indirect rate approval or treatment
• Cost share terms, if applicable
• Agency correspondence
• Closeout requirements

This file becomes the reviewer’s roadmap.

 

If the accounting records do not match the approved award structure, the company may need to explain why.

 

Organize General Ledger Reports

 

The general ledger is one of the first places to start.

 

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

 

For a financial review, prepare ledger reports that show:

• Award revenue or cash receipts
• Direct labor
• Fringe benefits
• Materials and supplies
• Consultants
• Subcontractors or subawards
• Travel
• Equipment
• Other direct costs
• Indirect costs
• Unallowable costs
• Drawdowns or invoices
• Refunds, credits, or adjustments

The ledger should be filtered by award or project code so the reviewer can see award activity clearly.

 

Confirm Project Coding

 

Project coding is what separates award costs from general business activity.

 

Before a financial review, confirm that transactions are coded correctly.

 

Review whether costs were separated from:

• General operations
• Internal R&D
• Commercialization activity
• Fundraising
• Investor relations
• Sales and marketing
• Other federal awards
• Customer-funded work
• Non-award costs
• Unallowable costs

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

If project coding is weak, the company may need to perform corrections before records are shared.

 

Prepare Budget-to-Actual Reports

 

A financial review will often involve comparing actual spending to the approved budget.

 

A budget-to-actual report should show:

• Approved budget by category
• Actual costs incurred
• Remaining budget
• Variances
• Percent spent
• Labor burn rate
• Consultant and subcontractor spending
• Travel and equipment costs
• Indirect costs
• Drawdowns or invoices submitted
• Notes explaining significant differences

The report should be based on the approved budget, not only the proposal budget.

 

If the agency reduced or changed budget categories before award, the budget-to-actual report should reflect the final approved version.

 

Review Payroll Records

 

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

 

Before a review, organize payroll support for all employees and founders charged to the award.

 

Payroll support may include:

• Payroll registers
• Pay period reports
• Employee compensation rates
• Gross wages
• Employer payroll taxes
• Fringe benefits
• Pay dates
• Payroll journal entries
• Payroll provider reports
• Labor distribution reports
• General ledger tie-outs

The company should be able to show that labor charged to the award was actually paid and recorded properly.

 

Prepare Timekeeping Records

 

Payroll alone is not enough.

 

The company also needs timekeeping support showing where employees spent their time.

 

SBIR.gov identifies timekeeping as an important accounting system requirement and notes 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
• Project or activity code
• Direct award labor
• Indirect labor
• Non-award labor
• Founder time
• Supervisor approval
• Corrections or adjustments

Timekeeping should tie to payroll and labor distribution.

 

If timesheets were reconstructed after the fact, that may create review risk.

 

Prepare Labor Distribution Reports

 

Labor distribution connects timekeeping to payroll and accounting.

 

A financial review may ask how payroll costs were assigned to the award.

 

Labor distribution reports should show:

• Employee name
• Pay period
• Hours by project
• Direct labor
• Indirect labor
• Non-award labor
• Salary or wage allocation
• Fringe allocation, if applicable
• General ledger account
• Project code
• Total labor cost charged to the award

SBIR.gov identifies labor distribution as part of an approved accounting system, and DCAA-related materials frequently focus on whether labor is charged to appropriate cost objectives.

 

The report should reconcile to payroll and the general ledger.

 

Review Founder Time Carefully

 

Founder time can create questions during financial review.

 

A founder may work on award-funded R&D, company management, fundraising, commercialization, investor relations, customer conversations, and internal product work.

 

Before the review, separate founder time into appropriate categories:

• Direct award labor
• Award-specific project management
• Indirect management
• Fundraising
• Sales or customer activity
• Commercialization activity
• Internal R&D outside the award
• General operations

Only founder time that supports the approved award should be charged as direct award labor.

 

Founder compensation should be supported by payroll, timekeeping, labor distribution, and the approved budget.

 

Organize Vendor Invoices

 

Vendor costs should be supported by invoices and payment records.

 

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
• Any required prior approval

A reviewer should be able to see what was purchased, why it was needed, when it was incurred, and how it supported the award.

 

Organize Consultant Support

 

Consultant costs need more than invoices.

 

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
• Budget-to-actual tracking

A one-line invoice for “consulting services” may not be enough to support the cost.

 

The file should show what the consultant did and how the work benefited the award.

 

Organize Subaward or Partner Records

 

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

 

The support file should include:

• Subaward agreement
• Scope of work
• Approved partner budget
• Invoice detail
• Deliverables
• Payment records
• Budget tracking
• Cost share documentation, if applicable
• Prior approvals, if required
• Monitoring notes
• Closeout records

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

 

Review Travel and Equipment Documentation

 

Travel and equipment costs often create review questions because they require purpose and timing support.

 

For travel, organize:

• Approved travel budget
• Business or project purpose
• Traveler name
• Destination
• Dates
• Receipts
• Expense report
• Conference agenda, if applicable
• Prior approval, if required
• General ledger entry

For equipment, organize:

• Approved equipment budget
• Purchase request
• Project purpose
• Quote or pricing support
• Invoice
• Proof of payment
• Capitalization treatment
• Property record
• Location and use documentation
• Disposition notes, if applicable

The company should be able to explain why the cost was necessary for the award.

 

Prepare Indirect Rate Support

 

Indirect rates are often a major review area.

 

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

 

Prepare support for:

• 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 tie-out
• Unallowable cost exclusions
• Rate calculations
• Rate changes
• Provisional versus actual rates
• Indirect costs included in drawdowns or invoices

The company should be able to explain how indirect costs were calculated and applied.

 

Review Drawdown Records

 

For grant-funded SBIR/STTR awards, drawdown records should be organized before review.

 

NIH cash request guidance explains that advance payment requests may be based on expected disbursements during the succeeding month and federal funds already on hand.

 

Prepare:

• Drawdown dates
• Drawdown amounts
• PMS or payment system records
• Costs covered by each draw
• Payroll support
• Vendor and consultant support
• Subaward support
• Indirect cost support
• Cash on hand review
• Refunds or credits
• Reconciliation to the general ledger

Drawdowns should not look like random cash transfers. They should tie to supported award costs and cash needs.

 

Review Invoices or Vouchers

 

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

 

Prepare:

• Invoice or voucher submitted
• 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
• Submission confirmation

Each invoice or voucher should have a support file.

 

Review Unallowable Costs

 

Unallowable costs should be visible and excluded from award charges when required.

 

Before a financial review, look for costs related to:

• Fundraising
• Investor activity
• Certain lobbying
• Entertainment
• General sales activity
• Non-award commercialization
• Costs outside the period of performance
• Unsupported expenses
• Personal or non-business costs

The accounting system should show that these costs were identified and not charged improperly to the award.

 

Review Cost Transfers

 

Cost transfers may receive attention during review.

 

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

• Original charge
• Corrected charge
• Reason for the transfer
• Date error was discovered
• Date transfer was posted
• Supporting documents
• Approval
• Impact on drawdowns or invoices
• Impact on budget-to-actual reports
• Prior approval, if required

Vague explanations like “to correct error” are weak.

 

Each transfer should explain what happened and why the corrected charge is appropriate.

 

Reconcile the Ledger to Reports

 

Before a financial review, reconcile the accounting records to reports already submitted.

 

This may include:

• PMS drawdowns
• SF-425 reports
• Financial status reports
• Agency reports
• Contract invoices
• Reimbursement requests
• Budget-to-actual reports
• Closeout reports
• Internal management reports

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, document and resolve the difference before the review.

 

Prepare a Support File Index

 

A support file index helps the review go more smoothly.

 

Create a simple index with sections such as:

• 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
• Closeout records

This helps the company respond quickly and consistently.

 

Assign One Review Lead

 

A financial review can become confusing if several people respond separately.

 

Assign one internal review lead to coordinate:

• Document collection
• Finance team responses
• Founder input
• Technical team input
• Partner documentation
• Agency communication
• Follow-up questions
• Final submissions

This helps ensure responses are complete and consistent.

 

Do a Pre-Review Internal Check

 

Before submitting records, perform an internal review.

 

Ask:

• Do ledger reports match the award period?
• Do costs match the approved budget categories?
• Are payroll records complete?
• Do timesheets tie to labor distribution?
• Do invoices have support?
• Are indirect rates documented?
• Are drawdowns reconciled?
• Are cost transfers explained?
• Are unallowable costs excluded?
• Are reports consistent with the ledger?
• Are support files easy to follow?

This internal check can identify gaps before they become review questions.

 

Common Financial Review Problems

 

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

 

Common problems include:

• Ledger reports not separated by award
• Missing project codes
• Payroll not tied to timekeeping
• Timesheets missing approvals
• Labor distribution not reconciled
• Consultant invoices lacking detail
• Subaward invoices paid without review
• Indirect rates unsupported
• Drawdowns not tied to actual cash needs
• Cost transfers lacking explanations
• Unallowable costs mixed with award costs
• Budget-to-actual reports not updated
• Reports not matching the ledger
• Support files scattered across email and spreadsheets

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

 

Monthly Financial Review Readiness Checklist

 

Each month, SBIR/STTR awardees should review:

• General ledger activity
• Project coding
• Payroll records
• Timesheets
• Labor distribution
• Vendor invoices
• Consultant invoices
• Subaward invoices
• Travel and equipment costs
• Indirect rate schedules
• Drawdowns or invoices
• Budget-to-actual reports
• Cost transfers
• Unallowable costs
• Prior approvals
• Documentation gaps

Monthly readiness is the best way to prepare for an agency or funder review.

 

Questions to Ask Before a Financial Review

 

Before responding to a financial review request, ask:

• What period is being reviewed?
• What award or project is included?
• What specific records were requested?
• Do the ledger reports match the requested period?
• Are payroll and timekeeping complete?
• Are invoices and payment records available?
• Are indirect rates supported?
• Are budget variances explained?
• Are drawdowns reconciled?
• Are cost transfers documented?
• Are reports consistent with the ledger?
• Are support files organized?
• Who will coordinate the response?

These questions help the company respond with control instead of urgency.

 

Final Thoughts: Financial Review Readiness Is Built Monthly

 

Preparing for an SBIR/STTR financial review is not about creating a perfect binder at the last minute.

 

It is about maintaining records that already connect the award terms, approved budget, ledger, payroll, timekeeping, invoices, indirect rates, drawdowns, budget-to-actual reports, and support files.

 

At Peter Witts CPA PC, we help SBIR/STTR companies prepare for financial review by strengthening accounting records, documentation, reconciliations, and reporting support before questions arrive.

 

Need Help Preparing for Financial Review?

 

If your company is preparing for an agency, funder, or DCAA-related financial review, Peter Witts CPA PC can help organize and review your ledger reports, payroll records, timekeeping, labor distribution, invoices, indirect rates, budget-to-actual reports, drawdowns, cost transfers, and award 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.