SF 1408 – Adequacy Checklist

The back page of the Standard Form 1408 features the evaluation checklist that DCAA auditors use to determine the “adequacy” of a contractor’s accounting system.  This form is used primarily when a flexibly priced contract (Cost Plus, Time and Materials) is in a preaward stage, and therefore a survey of your accounting system and its internal controls is in order.  There are five main questions on the form, with a couple of questions broken into detailed subcategories. The question that is possibly most pertinent is the fifth and final question, to wit:

“IS THE ACCOUNTING SYSTEM CURRENTLY IN FULL OPERATION? (if not, describe in Section I Narrative which portions are (1) in operation, (2) set up, but not yet in operation, (3)   anticipated, or (4) nonexistent.)”

Having an adequate accounting system that is not in full operation will count somewhat less than having a non-compliant system that is, so don’t fool yourself into believing that your investment in a compliant accounting package that you’re not currently utilizing will enable you to get past the preaward scrutiny of the DCAA. They’ll likely stump you when it comes to the last question on the SF1408.

SF1408

DCAA Identifies Audit Priorities

A defense industry blogger at About.com is reporting that DCAA has identified a couple of areas of emphasis in their audit activities.

Business Development vs Marketing: They will be looking closely to determine if  marketing costs, which are generally not allowable, are getting rolled into contract specific business development costs, which are allowable.

Travel Expenses: They will also be looking closer at Per Diem expenses for unallowable overages based on your location.

Best of luck with splitting time spent on business development from time spent on marketing. And make sure that business lunch is within your M&IE limits.

DCAA Approved Accounting Systems

We get a lot of visitors to this web site from the search term “DCAA Approved Accounting System.” So I thought this would be a good opportunity to clarify exactly what constitutes a DCAA Approved Accounting System.

The answer is nothing. It doesn’t exist. DCAA does not approve accounting systems. When DCAA audits your company, they are auditing policies, procedures, and the implementation of whatever accounting software you may be using. I won’t go as far as to say every accounting system can be made to be compliant, either. SYMPAQ has the built in audit trails and reports that a DCAA auditor will be examining, so accounting system acceptability when implemented, is much more likely. However, if you have SYMPAQ properly implemented, but have poorly documented accounting policies and procedures, you can potentially fail your audit. If you have good timekeeping policies, but are using QuickBooks which lacks internal controls, you might just fail your audit.

A DCAA audit is a three-legged stool. Software is only one of the legs, and arguably, the easiest one to get right. You should be very skeptical of any vendor or consultant that says a software package will make you DCAA approved. The DCAA does not work like that.

Subcontractors need to be DCAA compliant too

Yesterday, I was speaking with a smaller contractor, a 12 person firm with no direct contracts with the government. All their work is as a subcontractor. One of their primes mandated that they get a DCAA compliant system in place. This will necessitate moving off of QuickBooks.

It’s a myth that subcontractors don’t need to have a compliant cost accounting system. The reforms in late 2008 made prime contractors responsible for ensuring the adequacy of their subcontractor’s accounting systems and procedures. Prime contractors are besieged daily by smaller companies wanting to subcontract for them. If your company isn’t compliant, the  prime can find another sub that is, and they will. The best way to avoid that is to put a compliant system in place before your prime forces the issue. If you are proactive and take the steps to get compliant, and you market that fact to your primes, you will be in a position to pick up work when other subcontractors fail to maintain an adequate (by DCAA standards) accounting system.

Spreadsheets: You Are Doing It Wrong

Spreadsheets are wonderful tools. However, if you are manually updating spreadsheets each accounting period with the same information (sales numbers by task order, labor hours on projects, etc) and doing it more than once, you are doing it wrong. You are needlessly spending time punching numbers into Excel, instead of spending that time using the data to make better decisions.

SYMPAQ is built on the Microsoft SQL Server database. SQL Server has native support for Excel. It is easy to connect Excel to your SYMPAQ database to automate the updating of spreadsheets with periodic data. In addition, SYMPAQ features the the F9 Financial Reporter, an Excel add-in that gives you very powerful and flexible financial reporting capabilities. It even simplifies preparation of the DCAA’s ICE submission schedules.

If you spending any time  punching data into Excel, then stop! Contact us for more information on how SYMPAQ can give you financial data within Excel to enable better decision making, all with much less effort than you are putting forth today when you are maintaining a collection of spreadsheets that you manually update.

What in the Sam Hill is “FAR compliant” accounting software?

The Federal Acquisition Regulations (FAR) is comprised of 53 Parts, including three “reserved” parts that are without content.  So, what in the many volumes of regulations contained in the other 50 parts and subparts relate to a “compliant” cost accounting system? The long answer is that references to the Cost Accounting Standards and phrases that contain words such as  “adequacy of the contractor’s accounting system” and “cost accounting records” appear throughout the FAR, including but not limited to FAR Parts 4 (Administrative Matters), 7 (Acquisition Planning), 9 (Contractor Qualifications), and 15 (Contracting by Negotiation). But, the short answer is when it comes to the specific feature set of your accounting software, it really boils down to six parts of the FAR in particular:

Part 16 – Types of Contracts (adequate contractor’s accounting system is required for most contract types)

Part 30 – Cost Accounting Standards Administration (application of CASB rules and regulations to negotiated contracts)

Part 31 – Contract Cost Principals and Procedures (allowable and unallowable costs)

Part 32 – Contract Financing (progress payments based on costs)

Part 42 – Contract Administration and Audit Services (direct reference to DCAA and a subpart on indirect cost rates)

Part 52 – Solicitation Provisions and Contract Clauses (invoicing, limitation on payments, limitation of funds, allowable costs and payment)

These are the six specific sections of the FAR that you should most concern yourself with in relation to your current  accounting software and its suitability for government contracting. To be sure, there are other parts of the FAR that are relevant and where it would be desirable to have an adequate cost accounting system in operation, such as Part 43 (Contract Modifications) and Part 49 (Termination of Contracts). However, the six parts as outlined above are most pertinent when it comes to your internal capacity and controls to administer and report on negotiated federal contracts and, most importantly, be prepared for follow-on DCAA audits. SYMPAQ is one of only a few commercially available accounting and timekeeping packages that provide true FAR compliance.

Preparing for a DCAA Accounting Systems Adequacy Audit

As a government contractor, your first face-to-face interaction with a DCAA auditor will likely be an Accounting Systems Adequacy Audit (Pre-award Survey). The audit does exactly what the title states. DCAA will be looking at your processes and systems to determine if your accounting systems, policies, and procedures are capable of resulting in compliant cost tracking and billing.

You should ask yourself these types of questions when preparing for an audit. If you are comfortable with your answers, then you are probably ready for an audit.

• Do my procedures and accounting records follow Generally Accepted Accounting Principles?
• Are my indirect costs segregated from my direct costs?
• Are my unallowable costs segregated from both direct and indirect costs?
• Is my timekeeping system set up in a manner that would pass an audit?
• Are my employees ready for a timesheet floorcheck audit?
• If I were to pull a sample of timecards, would the timecard, job cost summary, paycheck detail, and the billing invoice all agree?
• Am I following all guidelines as explained in the Joint Travel Regulations for direct travel?
• Are all employees following policies and procedures set by the company? It’s important to remember that company policies need to be followed as well as FAR regulations.

Audits are a fact of life when selling to the government. However, by insuring that you have compliant systems and processes in place before the audit, they don’t have to stressful!

Source.