Santa’s not the only one in a list-checking state of mind. GovCons competing for contracts included in FAR 16.301(3) (a cost-reimbursement contract) may receive what’s formally known as the “Pre-Award Survey of Prospective Contractor Accounting System Checklist”. This is a checklist to help the auditors begin to address the criteria contained in Standard Form (SF)1408.
There are two things to understand upfront about the SF1408. First, although it is completed by the Defense Contract Audit Agency (DCAA), the survey is not an audit. DCAA will find your system to be acceptable for the award of a prospective contract based on stated criteria. Second, adjusting your accounting system to meet survey criteria can lead to a more robust reporting system that enables you to be awarded certain future contracts, and improves your business operations.
The Focus is on Tracking Costs
The purpose of a pre-award survey is to ensure that your firm’s policies, procedures, and accounting system are collectively adequate to administer cost-reimbursable contracts (e.g., cost-plus-fixed-fee, cost-plus-award-fee, Time & Materials (T&M) with cost reimbursable line items). The SF1408 addresses your accounting system’s capabilities to handle fundamental practices, such as cost segregation, allocations and allowability, timekeeping, and others. The survey does not sanction or rank a particular brand of accounting software over another, focusing instead on the information your system needs to be tracking and in how much detail. Remember, the accounting system review is much more than what system you use. It is the combination of your policies and procedures + your accounting system and how you use it + what people do.
Sweat the Details Now, Reap the Revenue Later
Survey sections explore the following areas to determine whether your business’s accounting system is up to the demands of a contract. These areas include:
- Segregation of direct and indirect costs.
- Identification and accumulation of direct costs by contract.
- Logical and consistent allocation of indirect costs to intermediate and final cost objectives.
- Accumulation of cost under general ledger control.
- A timekeeping system that easily tracks and links employees’ hours and labor dollars to their respective projects, including those such as research and development and indirect charges.
- Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account.
- Exclusion of costs that are not allowable.
- Identification of costs by contract line item and units if required by the proposed contract.
- Segregation of pre-production costs from production costs.
The survey also collects information on audit results from DCAA, other government bodies, and certified public accountants, along with any subsequent changes to your accounting system. The form asks about adherence to cost accounting standards (CAS), generally accepted accounting principles (GAAP), and the Federal Acquisition Regulation (FAR).
When you complete your DCAA requested pre-award checklist, provide information that will help DCAA complete their narrative and address notes for each item on the SF1408. This will prepare you for your review and also provide the DCAA with a helpful compliance mapping. The SF1408 directly maps to questions 4, 5, and 8 through 20 of the pre-award checklist. Provide references to the specific sections of your accounting policies along with your answer. Below is a sample Q&A:
Does the Accounting System provide for the proper segregation of Direct Costs from Indirect Costs?
[Company name’s] system segregates costs between direct costs, indirect costs by specific rate pools, and segregates expressly unallowable expenses. The chart of accounts is configured to segregate costs in this way by the chart of account numbering sequence, as well as financial parent/child structures and cost pool structures. Supporting policies are included in Section xxx, xxx and xxx of the Accounting Manual, and as confirmed within the provided Chart of Accounts.
Note all of your specific policy reference sections. This will help DCAA go directly to these areas as they review your system and complete their narrative.
What do you get for all your hard work on surveying the nitty-gritty of your accounting practices? A system better set up for future success with federal customers:
- A robust reporting system will improve your ability to keep up to date on your operations and make better business decisions.
- Your accounting system is better organized to present to federal clients the information they want to see in proposals and contracts.
- You’re already synchronizing with DCAA requirements, which can make future surveys and/or audits less time-consuming and stressful.
CAVU has broad and deep experience in helping clients not only adhere to federal contracting requirements but navigate the process for maximum operational and competitive advantage. If you need help with your pre-award survey, want to undergo a mock audit to make sure you are ready or need a third-party system review, contact us to talk about your options.
Happy Holidays and here’s to a solid checklist that rivals St. Nick’s.