Preaward Survey of the Accounting System
The Government Contracting Officer must determine that a prospective contractor is responsible before awarding a contract. To be responsible, a contractor must have the necessary accounting controls to perform the contract (FAR 9.104-1). A preaward survey is conducted to learn the adequacy and suitability of the Accounting System in administering the proposed type of contract (FAR 9.105-1). The Government completes applicable parts of the Standard Form (SF) 1408, Preaward Survey of Prospective Contractor Accounting System, and provides sufficient support to evaluate conclusions about the System (FAR 9.106-4).
The DCAA Checklist can be found on this webpage. The Checklist asks about the processes leading to recording transactions in the General Ledger.
Focus of Specific Questions
The first question asks about previous Accounting System Reviews. Because a potential contract would be awarded to a specific legal entity, this question asks about that specific legal entity. Do not answer for predecessor companies, sister companies, or organizations with a name different from the submitter of the subject proposal.
The second question asks about coverage by the Cost Accounting Standards (CAS). Small businesses are exempt from CAS, per FAR 30.000. If your company has not submitted a CAS Disclosure Statement, it might be exempt. Cost Accounting Standards are not the same as (more generic) Accounting Standards or Generally Acceptable Accounting Principles (GAAP).
Question 5 asks about the application of GAAP. GAAP requires accrual – not cash – basis accounting. If PTO/vacations are expensed when taken instead of accrued for each pay period when earned, the Accounting System is not in compliance with GAAP. GAAP also requires other practices.
Question 9 asks about Job Cost Accounting, as opposed to company-wide accounting. If the General Ledger uses:
- Fund Accounting (for governments and some non-profits)
- Process Accounting (for runs of like end-products, such as gun powder or homogenized milk)
- Standard Cost Accounting (for Bills of Material)
but does not accumulate costs for each customer-job – Job Cost Accounting is not practiced. Other accounting methods might be GAAP-compliant, even though they are not Job Cost Accounting.
Question 12 is especially important for service providers. Are labor costs supported by employee-initiated timecards, approved by an employee of the company (not of the Government), and traceable from reports of the General Ledger? Do source documents (usually timecards) show the Job to which labor is reported? An example of an “intermediate” Job is Bid and Proposal (B&P) effort, which (for small businesses, usually) is ultimately included in the G&A Pool. The timecard shows labor for B&P (when that is a separate General Ledger Job), not G&A.
Question 15 cannot be answered without knowledge of FAR 31.205. Some costs are recorded in the General Ledger as valid business costs but are not billable (directly or indirectly) on Government awards. Examples include advertising, entertainment, and federal income taxes.
Question 17 asks about Non-recurring Costs, which must be segregated when they form the basis of proposed costs for a follow-on contract.
Two major components of the Accounting System are evaluated during a Review. First, the General Ledger accurately accumulates allowable costs of the specific contract – or invoiceable portion. For example, if each Contract Line Item Number (CLIN) is invoiced separately, the General Ledger can capture CLINs in separate Jobs or Projects (or buckets). Costs directly attributable to Contract B are never comingled with costs of Contract A. Expenses for the company as a whole are consistently charged to the same indirect pool (such as G&A). Costs are accurately and completely recorded in four major categories:
- allowable direct to one Job
- allowable indirect for the company as a whole
- unallowable direct
- unallowable indirect
In addition to General Ledger compliance, the process implemented to get the data to the General Ledger is evaluated. Formal, signed, and dated (with documented internal review/update at least annually) policies and procedures state the intent of management. The Reviewer reads these to answer: If the contractor does everything the policies and procedures state it does, would these processes be compliant?
If yes, the Review evaluates source documents for approvals, dates, and other evidence. Documentation must answer: Is the contractor doing everything the policies and procedures state it does?
Read other articles on this website for more information about the preaward survey and the Accounting System Review. For information about an SBA Certificate of Responsibility, see FAR Part 19.6. To download and view the topics covered by SF 1408, Preaward Survey of Prospective Contractor Accounting System, visit the website.