One of the biggest challenges government contractors face is putting together a compliant system that passes DCAA requirements. As most know, developing a DCAA compliant accounting system is a little more complicated than just purchasing accounting software. It is the total incorporation of a company’s best practices, policies, and procedures into a system that allows contractors to be consistent and appropriate in their tracking of costs.
This can be very daunting for the new contractor, who not only is worried about landing their first government contract, but also has to establish those company policies and procedures. The below post will identify the preaward audit process and how PROCAS meets the requirements of the SF1408 form.
Preaward Audit Process
Before being awarded a cost type contract, the DCAA is going to want to verify that the appropriate measures were taken in order to prove the contractor’s ability to adequately track the costs for that proposed contract. This process is known as the preaward audit or preaward survey.
Typically, an auditor will meet with the contractor first to review the established system and procedures, and then again in the future to make sure that system is being followed consistently (post award audit). However, before that takes place, the contracting officer on the proposed contract will require that Standard Form 1408 be completed. This form will be submitted to the DCAA when they request the initial audit of your system. This piece is very important because it gets the entire process started.
Standard Form 1408 is the Preaward Survey of Prospector Accounting System used by the DCAA as an evaluation checklist to determine if your system is sufficient in supporting the proposed contract(s). According to the DCAA, the audit scope will consist of understanding the design of the contractor’s prospective accounting system as well as the procedures essential to reach an informed opinion if that system is acceptable in accumulating and generating required cost information. Having an accurately completed SF1408 is the first step in conquering this audit scope.
For DCAA’s official explanation of the preaward process, please click here.
PROCAS Addresses Standard Form 1408
Below are our answers for how PROCAS addresses the standards that the auditor will be concerned about when evaluating your prospective accounting system. All SF1408 requirements are broken down in detail.
A downloadable version of the below sample SF1408 can be found here.
1. Except as stated in Section I Narrative, is the accounting system in accord with Generally Accepted Accounting Principles applicable in the circumstances?
The PROCAS project accounting software (PROCAS Accounting) is designed to be operated in accordance with Generally Accepted Accounting Principles (GAAP), including maintaining the books of record on the accrual basis of accounting.
2. Accounting system provides for:
a. Proper segregation of direct costs from indirect costs.
In PROCAS Accounting, expense accounts in the chart of accounts are identified as either direct or indirect, which provides for the proper segregation of direct costs from indirect costs. Additionally, PROCAS assigns specific account types to further segregate these costs.
b. Identification and accumulation of direct costs by contract.
In PROCAS Accounting, the identification and accumulation of direct costs requires the assignment of direct costs to a corresponding project code. The project code corresponds to a contract.
c. A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives. (A contract is a final cost objective.)
PROCAS Accounting provides logical and consistent methods for the allocation of indirect costs to intermediate and final cost objectives. Indirect rates can be calculated automatically for Fringe Benefits, Facilities, Material Handling, Subcontract Administration, Overhead and G&A. Bid and proposal and internal research and development costs are also treated appropriately. The indirect rates can be further segregated by division, location and work-site. Indirect rates are automatically applied to contracts in direct correlation/proportion to the respective allocation base.
d. Accumulation of costs under general ledger control.
PROCAS Accounting accumulates costs directly to the general ledger, which is the basis for financial and job cost reports.
e. A timekeeping system that identifies employees’ labor by intermediate or final cost objectives.
PROCAS provides online timesheet software (PROCAS Time) in which employees record their time to intermediate or final cost objectives. Employees are assigned appropriate intermediate and/or final cost objectives for recording their time and can only record their time to their authorized work assignments.
f. A labor distribution system that charges direct and indirect labor to the appropriate cost objectives.
In PROCAS Accounting, the distribution of direct and indirect labor costs are recorded automatically from the employee timesheets created in PROCAS Time to the appropriate cost objectives. PROCAS Accounting supports the calculation of effective hourly rates associated with total time accounting.
g. Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account.
In PROCAS Accounting, direct costs are posted in the general ledger and job cost ledger in real time and do not require the use of batch processing or summary entries. Indirect rates can be automatically calculated and applied at any time.
h. Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principles and Procedures, or other contract provisions.
In PROCAS Accounting, expense accounts are identified as being either allowable or unallowable. Unallowable expenses are excluded from indirect cost pools when automatically calculating and applying indirect rates.
i. Identification of costs by contract line item and by units (as if each unit or line item were a separate contract) if required by the proposed contract.
PROCAS Accounting has the capability to incorporate logical project assignments that will track costs by unit and/or line item.
j. Segregation of preproduction costs from production costs.
In PROCAS Accounting, pre-production costs are segregated from production costs through the use of project assignments and/or separate expense accounts.
3.Accounting system provides financial information:
a. Required by contract clauses concerning limitation of cost (FAR 52.232-20 and 21) or limitation on payments (FAR 52.216-16).
In PROCAS Accounting, reports are available to assist with managing the limitation of costs and/or limitation of payments.
b. Required to support requests for progress payments.
PROCAS Accounting supports cost type, time and materials and fixed price invoices which are generated automatically from the accounting records. Requests for progress payments can be generated for interim time periods, by percentage of completion or by deliverables as specified by the contract.
4. Is the accounting system designed, and are the records maintained in such a manner that adequate, reliable data are developed for use in pricing follow-on acquisitions?
Yes. In PROCAS Accounting, records are designed to be maintained so that adequate, reliable data can be developed for use in pricing follow-on acquisitions.