When contracting with the Federal Government on a cost reimbursement basis, the Government will need to ensure that your accounting system will support the complexity of this type of government contract. To achieve this, the U.S. Government has established various regulations and procedures to assess the accounting systems of prospective contractors. The main instrument is the SF1408: Pre-Award Survey of Prospective Contractor Accounting System. This article provides a comprehensive overview and explanation of the SF1408, its purpose, and its significance in the pre-award process.
Understanding the SF1408
The SF1408, Pre-Award Survey of Prospective Contractor Accounting System, is a form used by the U.S. Government to evaluate and assess the accounting systems of companies seeking to enter into government cost-reimbursement contracts. The purpose of this survey is to determine whether a contractor's accounting system is adequate for effectively managing and reporting financial information related to these government contracts.
Importance of the SF1408
The SF1408 plays a critical role in the pre-award process for government contracts. It allows government agencies to evaluate the adequacy of prospective contractor's accounting system, ensuring that taxpayer funds are used efficiently and responsibly. By assessing the adequacy of a contractor's accounting system, the SF1408 helps minimize the contractor's financial risks and enhances the actual cost by contract available to management.
Components of the SF1408
The SF1408 consists of several sections designed to gather detailed information about the prospective contractor's accounting system. These sections include:
Section I – Recommendation
- Accounting System Acceptability: This section allows the government auditor to say: Yes, No with explanations, or Yes with recommendations for follow-up audit after award.
- Narrative: This section allows the auditor to explain the deficiencies found.
Section II – Evaluation Checklist
- Basis of Accounting: Is the Accounting System in accordance with Generally Accepted Accounting Principles (US GAAP)?
- Accounting System Requirements: This section sets the Government's expectations of what an adequate system must include:
- The ability to segregate direct and indirect costs;
- Identification and accumulation of direct costs by contract;
- A logical and consistent method for the allocation of indirect costs to contracts;
- Accumulation of costs under general ledger control;
- A timekeeping system that identifies employee labor by contract and indirect effort;
- A process to distribute payroll costs (i.e., employee salaries/pay) to contracts and indirect cost pools;
- At least monthly, assignment of direct and indirect costs to contracts;
- Removal of all unallowable costs from billed, claimed, and proposed costs assigned to government contracts;
- Identification and accumulation of costs by contract line item or lower level required by the contract to support billing and funding requirements; and
- Segregation of non-recurring from recurring costs by contract.
- Contract Financing Limitations: This section addresses billing and payment limitations unique to government contracts:
- Limitation of cost and funds or limitation on payments; and
- Supporting request for progress payments on fixed price contracts.
- Future Pricing: This section requires the contractor to collect direct costs at a level that will support the pricing of potential follow-on contracts.
- Status of the System: Is the Accounting System in operation, set up, but not yet in operation, anticipated, or nonexistent?
SF1408 Evaluation Process
Once the contractor submits the completed DCAA Pre-award Accounting System Adequacy Checklist, the government auditor will arrange for a site visit and request additional information, if necessary. The evaluation process involves assessing the contractor's responses, conducting interviews, and reviewing relevant documentation to validate the adequacy of the accounting system.
If any deficiencies are identified during the evaluation, the contractor should have an opportunity to address and rectify them. The contractor may be required to provide corrective action plans or demonstrate improvements before being considered eligible for a government cost reimbursement contract.
Are You Adequately Prepared?
The SF1408 is a crucial tool in the pre-award process for government contracts, ensuring that prospective contractors have an adequate accounting system in place. By evaluating various aspects of the contractor's accounting practices, the SF1408 helps mitigate financial risks and promote accountability.
Redstone GCI team can help you at any stage of your Pre-Award Audit, whether it be in writing or reviewing policies and procedures, helping you to choose the best accounting software for your organization, or assisting your team in designing and setting up an accounting system effective in meeting all necessary requirements.
