Just in case you are completely new to Government Contracting let’s quickly level set on the mission of the Defense Contract Audit Agency (DCAA). Their primary function is to perform contract and financial audits for agencies that are responsible for acquisition and contract administration for the US Government. DCAA audits ONLY government contractors like you. They conduct these audits in accordance with the Generally Accepted Government Auditing Standards (GAGAS). The principles that GAGAS embodies are unbiased audit conclusions based on facts. If you are interested there is a ton of information on the DCAA website dcaa.mil to help you more thoroughly prep for impending audits.
With all that said, let’s focus in on the topic of this blog, which is the Pre-Award Accounting System Survey (SF1408) The Accounting System Survey is considered “pre-award audit” and it is necessary for the award of any Cost Type contract. Below is an excerpt from the DCAA Letters to Congress about Pre-Award Audits:
Pre-Award Audits. Pre-award audits determine whether the design of a contractor's accounting system is acceptable, which is a necessary condition for awarding cost type contracts. To better meet the needs of buying commands, DCAA prioritized these audits and developed tools to assist both contractors and auditors. As a result, DCAA has reduced the number of days to complete pre-award audits going from approximately 120 days in FY 2012 to about 60 days in FY 2016. Those measures, combined with effective communication between audit staff, contracting officers, and contractors, has allowed us to more quickly identify system deficiencies, provide workable solutions, and reduce the time between solicitation to award. Additionally, a part of our outreach to small businesses focuses on the necessary components of an acceptable accounting system, which we feel also contributed to this success.
The “Pre-Award Survey (SF1408)” is conducted prior to award and is contract specific. It results in an opinion that the system is “acceptable” for use on the contemplated contract. It should be noted that this is NOT a true audit because it does not look at any actual costs – only the system capabilities. It is referred to as a “Survey” in the document and it is considered a “review” in auditor terminology. It can, and often is, done on a system that is not yet implemented based on the software capabilities and pro forma company policies and procedures.
The Survey is a Pre-Award Survey known as Standard Form (SF) 1408 which is asking questions about your accounting system. Below are some of the inquiries of the form:
1) Is the accounting system in accordance the GAAP?
2) Accounting System provides for
a. Proper segregation of direct and indirect costs
b. Identification and accumulation of direct costs by contract
c. Method for allocation of indirect costs
d. Timekeeping System
e. Labor distribution
f. Segregation of unallowable costs
g. Accumulation of costs under General Ledger Control
3) Accounting System provides financial information
- Required by contract clauses concerning limitation of cost (FAR 52.232-20 and 21) or limitation of payments (FAR 52.216-16)
- Required to support requests for progress payments
4) Is the accounting designed to have reliable and accurate data?
5) Is the accounting system fully operable?
This overall process can be tricky for new government contractors and it is highly suggested that you have the right processes and tools in place to assure success. If you are not comfortable with taking this on yourself please do call Unanet, as we have a partner network that can assist you every step of the way. This is a great example of investing upfront to ensure the success of your project. It will be worth every penny you spend.
For more information, download the SF1408 Overview.