Redstone - Unaudited Accounting Systems and Government Solicitations.jpgWe often hear the following statement and question: “My proposal (the government solicitation) calls for a compliant accounting system (SF 1408) and I’ve never been audited.  What do I do?”.

I would like to tell you that you just call your local DCAA office and invite them out for coffee, donuts and a quick review and your problem is resolved. However, nothing is further from the truth (and don’t offer coffee and donuts). DCAA works for the contracting officer, not for you. The first step is to read the solicitation carefully. You need to be able to answer two basic questions:

  1. Does the solicitation call for an adequate, acceptable or approved accounting system?
  2. Who is required to have made the determination on the compliance of the accounting system?

The implications of the first question is fully explored in Redstone’s March 8, 2017 blog, “Is My Accounting System Adequate, Acceptable or Approved...Does it Matter?”

The second question can be answered one of two ways. In the best-case scenario, the solicitation is silent as to what entity should perform the assessment. In this case, you can hire someone to perform the assessment. However, the solicitation will often specify DCAA must perform the assessment. At that point, your only real recourse is to contact the PCO to see if they will request the appropriate audit, keeping in mind that the one thing worse than an unaudited system is an inadequate system.

Before you invite DCAA (or anyone else) to determine if you have an adequate accounting system, ensure that you do. As a minimum, perform a self-assessment using the SF 1408, Preaward Survey of Prospective Contractor Accounting System; and be honest in your assessment. If you are unsure, hire someone who will be honest, but fair (Redstone, for instance) to perform an assessment. The most important thing you can do is to identify and fix any gaps before you actually invite someone (such as DCAA through the PCO) in for a look.

If your company has only non-government customers or if your only government contracts were awarded on a commercial basis under FAR Part 9, and you want to move to FAR Part 15 negotiated contracts (such as cost-type) that will require an adequate accounting system, your biggest challenges are going to be:

  1. Ensure you have a job cost accounting system. This includes segregating direct from indirect costs, accumulating direct costs by contract, and allocating indirect costs to the contracts on a logical, consistent method.
  2. Exclude costs that are unallowable under FAR 31.205, which is best performed by setting up separate unallowable accounts for easy identification. For example, separate accounts for allowable and unallowable travel costs (or any other unallowable cost based upon FAR 31.205-XX).
  3. Have documentation to support the costs in the job cost accounting system. This includes both a timekeeping system and a labor distribution system.

Most of the government-unique accounting requirements on the SF-1408 revolve around these three points. So, while you cannot get an assessment of your accounting system “on demand,” you can ensure that when there is an assessment, the result is an adequate system which opens the door to a broader array of potential contract and/or subcontract awards.  

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Written by Cheryl Anderson

Cheryl Anderson Cheryl Anderson is a Director with Redstone Government Consulting, Inc. She provides Government Contract Consulting services to our government contractors primarily related to equitable adjustment claims, terminations, and DCAA audit expectations. Prior to joining Redstone Government Consulting, Cheryl served in a number of capacities with DCAA for over thirty-five years. Upon her retirement, Cheryl was a regional audit manager with DCAA. Cheryl began her DCAA career in 1977 as an auditor-trainee with the Ingalls Resident Office in Pascagoula, Mississippi. After instructing at the Defense Contract Audit Institute for four years, she returned to the Eastern Region in 1990, holding various audit positions before ultimately becoming a Regional Audit Manager in August 2005. She had overall management responsibility for audits performed by approximately 200 employees. During Cheryl’s tenure with DCAA, she was involved in conducting or managing a variety of compliance audits, to include cost proposals incurred cost submissions, systems, Cost Accounting Standards, claims, defective pricing, financial capability and agreed-upon procedures. She directly supported the government litigation team on a contract dispute and has prepared and presented various lectures and seminars to DCAA staff. In addition, she has served as an instructor for the Government Audit Training Institute for over 20 years. She currently specializes in preparing clients for more complex DCAA audits, providing advice on FAR cost principles and contracts regulatory provisions, and assisting clients in anticipating and addressing audit. Education Cheryl has a BS Degree in Accounting from Auburn University at Montgomery and a Masters of Business Administration from Wichita State University. Cheryl also completed courses at OPM’s management and executive development centers and at the Federal Executive Institute and is a Georgia Certified Public Accountant.

About Redstone GCI

Redstone Government Consultants are a team of the most senior industry veterans and the brightest new talent in the industry. Many have held senior government positions including leadership roles in the DCAA. Our new talents bring significant accounting and software experience along with fresh perspectives, inspiration and energy to our team. Through our leadership and combined experience, we provide a unique perspective, bringing both government and contractor proficiencies to bear and ensuring rock-solid government compliance for our clients.

Topics: Compliant Accounting Infrastructure, Small Business Compliance, Contracts Administration