Audit Preparation
DCAA-compliant accounting for government contractors
A cost-type federal contract requires books structured the government's way. It is not complicated, but it is checked before award.
Winning a first cost-type federal contract usually means changing how the books are kept. The government needs to see costs captured by contract, indirect costs pooled and allocated consistently, and unallowable costs kept out of what it is billed.
This is accounting system work, not an audit. We design, set up and run the system, and get you ready for the government's review of it. Many firms that advertise this work are national and remote. We are local to the South Bay.
What the government actually checks
SF 1408, Preaward Survey of Prospective Contractor. Accounting System · FAR 9.106-4
Before awarding a cost-reimbursable contract, a contracting officer needs assurance that your accounting system can properly account for costs. The instrument used is Standard Form 1408.
The core requirement is cost segregation: direct costs separated from indirect, government work separated from commercial, and costs accumulated by contract and by cost objective. Plus timekeeping that supports the allocation, and exclusion of unallowable costs under FAR Part 31.
A critical point of confusion: DCAA does not "approve" accounting software or accounting firms. It makes a determination about a specific contractor's system. Buying a particular product does not make you compliant: how you configure and operate it does.
What an adequate system needs to demonstrate
- Segregation of direct and indirect costs
- Identification and accumulation of direct costs by contract
- A logical and consistent method for allocating indirect costs to cost objectives
- Accumulation of costs under general ledger control
- A timekeeping system that identifies employee labour by cost objective
- A labour distribution system that charges direct and indirect labour appropriately
- Interim determination of costs: at least monthly
- Exclusion of costs that are unallowable under FAR Part 31
- Identification of costs by contract line item where required
- Segregation of preproduction costs from production costs
How we work with contractors
Assessment
Where your current system sits against the SF 1408 criteria, and what specifically would fail. Usually there are three or four real gaps, not thirty.
Design
Chart of accounts restructured for direct and indirect segregation, an indirect rate structure that suits your actual cost base, and a timekeeping process people will follow.
Implementation
Configuration, written policies and procedures, which the government will ask to see, and training for the people entering time and coding costs.
Preaward readiness
Walking through the SF 1408 checklist as a reviewer would, before a reviewer does.
Ongoing
Monthly close, rate monitoring against provisional billing rates, and preparation of the annual incurred cost submission.
Related
CFO services for government contractors
Indirect rate strategy, provisional billing rates, and the financial planning that sits above compliance.
Read moreWhat an SF 1408 preaward survey actually checks
The form itself, item by item, and where first-time contractors tend to fall short.
Read morePayroll & timekeeping
Timekeeping is one of the first things a reviewer examines. Getting it right is a payroll design question.
Read moreTake this with you
The SF 1408 readiness checklist
SF 1408 is the form a DCAA auditor fills in about your accounting system. The checklist is the same list, restated as things you can go and check in your own ledger this week.
- Segregating direct from indirect cost, and the account structure that proves it
- Timekeeping that survives a floor check
- Pooling and allocating indirect cost consistently
- Excluding unallowable cost under FAR Part 31 before it reaches a bill