We 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:
- Does the solicitation call for an adequate, acceptable or approved accounting system?
- 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:
- 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.
- 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).
- 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.