SF1408 System Review Audit and Certification of Compliance

If you are a government contractor, it isn’t enough just to install accounting software and keep good records. Federal agencies have to make sure that you are complying with FAR standards, which include: tracking costs, proper timekeeping systems and internal controls, and financial records that are in accordance with GAAP. The issues are complex, and we can help you and your company meet the requirements.

DCAA/FAR compliant accounting systems are required for all government contractors submitting proposals on cost type contracts. In addition, prime contractors are responsible for providing evidence that their subcontractors are also compliant. So, how do you become compliant and how do you become certified?

Form SF1408 provides some guidance regarding what DCAA auditors look for in terms of accounting system requirements and your policies and procedures. SF1408 lists the following requirements.

Accounting System Requirements:

a. Proper segregation of direct costs from indirect costs.

b. Identification and accumulation of direct costs by contract.

c. A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives. (A contract is final cost objective.)

d. Accumulation of costs under general ledger control.

e. A timekeeping system that identifies employees’ labor by intermediate or final cost objectives.

f. A labor distribution system that charges direct and indirect labor to the appropriate cost objectives.

g. Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account.

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.

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.

j. Segregation of pre-production costs from production costs.

k. Accounting system is in full operation

Policies & Procedures Requirements:

Accounting software helps to keep track of various reports that contractors need to meet FAR and DCAA policies and procedures requirements. These pertain to comprehensive time and labor reports, effective cost allocation methods, and compliant chart of accounts. Software can be used as a device to aid in your company’s compliance, but not to supplant the overall system requirements.

E. Cohen and Company, CPAs can provide government contractors assistance with an SF1408 System Review Audit and certification of compliance, either in preparation for their audit with a government agency or in providing the audit directly. Call Alex Brager, CPA or Kevin Swatt, CPA to discuss the process. 301.917.6200.