What is the DCAA, and What Audits Do They Perform?
What is a DCAA Audit? Get a better sense of what types of audits the DCAA runs and how to prepare for them.
Learn what SF1408 is, what information you need to fill it out, and how it's used in regard to DCAA compliance for government contractors.
5 minute read
If you are new to the Government Contracting (GovCon) market, one acronym you must know is DCAA, which stands for the Defense Contract Audit Agency.
Before we dive into explaining SF1408, it’s important to explain what the DCAA is and the role it plays in government contracting.
What is the DCAA?
DCAA’s function is to provide audit and financial advisory services to the Department of Defense (DoD) and other federal entities responsible for acquisition and contract administration. DCAA audits GovCons in an independent and professional manner to help determine if contract costs are allowable, allocable, and reasonable.
The DCAA is the largest auditor of federal government contracts, and “DCAA compliance” has become a commonly used shorthand to refer to overall cost accounting compliance.
How does the DCAA help GovCons prepare for audits?
DCAA doesn’t just do audits, they also provide helpful resources for contractors to understand the various audits they may undergo and how to prepare for them!
DCAA Manual No. 7641.90 provides an introduction to DCAA and explains several audits, including price proposals, incurred cost proposals, Pre-Award Surveys, and more. This document is a must-read for anyone new to government contracting. Enclosure 2 of the document focuses on the Pre-Award Survey.
With all that said, let’s focus on the topic of this blog — the Pre-Award Accounting System Survey known as Standard Form 1408 (SF1408).
What is Standard Form 1408 (SF1408)?
SF1408 is not an audit. It’s an evaluation — typically made by your contract administration office — of your ability to perform a proposed contract.
The survey, as the name suggests, is considered “pre-award,” and it’s necessary for the award of any Cost-Type contract.
How is SF1408 used?
DCAA may be requested to provide information regarding the adequacy of your accounting system to accumulate the type of cost information required by the contract. Before the contracting officer (CO) requests a DCAA audit of your accounting system, the CO will ask you to complete the “Pre-Award Survey of Prospective Accounting System Checklist.”
The checklist provides documentation to the auditor on how your accounting system meets the criteria in the SF 1408. The CO will give the checklist to DCAA when they request an audit of your accounting system.
SF1408 is an examination before contract award that determines the acceptability of your accounting system for accumulating costs for your prospective government contract. The audit scope is limited to obtaining an understanding of the design of the prospective accounting system.
This is to appropriately complete the SF1408 “Pre-Award Survey of Prospective Contractor Accounting System” and procedures essential to reach an informed opinion on the following:
- If the design of the prospective accounting system is acceptable for accumulating costs
- The accounting system can generate the specific cost information required to execute a government contract
Organizations looking to get their first government contract may not want or need to install a new, more detailed accounting system, and they don’t necessarily have to. However, if the potential contractor anticipates a contract award, it must have developed and designed an operable system, though not necessarily in use.
In this case, you need to be ready to demonstrate the new system to the auditor and implement the system prior to incurring any costs on the government contract.
What happens if the SF1408 reveals your accounting system may not meet requirements?
Sometimes the auditor may not think the system is acceptable.
If this happens, you and your CO will receive a notification that will typically give suggestions on needed corrections. Once you have incorporated the corrective actions, a follow-up audit will be completed and, hopefully, the CO and DCAA will be satisfied.
However, once you’ve won the contract, you may be subject to an accounting system audit. The basic objective of this audit is to ensure your accounting system is adequate for accumulating costs and passing those costs on through invoices presented to the government.
The CO requests this audit when there is a follow-up recommended from the Pre-Award Survey or if no such survey was done.
What questions are on the SF1408?
SF1408 asks questions about your accounting system. Below are some of the inquiries of the form:
- Segregation of direct* and indirect** costs
- Identification and accumulation of direct costs by contract
- Consistent allocation method for indirect costs to intermediate and final cost objectives
- Accumulation of cost under general ledger control
- A time keeping system that identifies employees’ labor by intermediate or final cost objectives
- A labor distribution system that charges direct and indirect labor to the final cost objectives
- Interim determination of costs charged to a contract through routine posting of books of account
- Exclusion from costs charged to the government contracts of amounts that are not allowable
- Identification of costs by contract line item and units
- Segregation of preproduction costs from production costs
*FAR 31.202 defines Direct Cost
**FAR 31.203 defines Indirect Cost
For an acceptable system, all items above must be checked as “Yes” or “Not Applicable”.
Ensure you’re prepared for DCAA compliance
Software such as Unanet’s ERP for GovCons makes it much simpler to ensure you meet FAR 53.209-I(f) standards.
This overall process can be tricky for new government contractors, and having the right processes and tools in place can help you avoid compliance issues and major headaches.
If you need additional help understanding DCAA Compliance and how to prepare for a DCAA Audit, download our DCAA Compliance Guide below.
