What Is The SF 1408 And Why Is It So Important To Your DOD Contract?

When a prospective government contractor submits a proposal to the DoD, they are frequently asked to prepare and submit a pre-award accounting survey, the Standard Form 1408 Accountancy System Survey (SF 1408).

SF 1408 – Representations and Certifications that disclose your accounting practices to DCAA before a pre-award audit

As a rule, the federal government wants contractors and subcontractors to be good stewards of its funds and achieve cost objectives. The Department of Defense requires contractors to maintain a FAR Part 31 compliant accounting system, especially when a cost-reimbursement contract may be awarded.

The SF 1408 is a self-certification form used to document your accounting system adequacy. You will represent to the federal government that your contract accounting is maintained in compliance with FAR 48 CFR – Federal Acquisition Regulation (FAR) Part 31 and the DFARS.

To complete form SF 1408 successfully and position yourself for a DOD contract award, you must show that an adequate accounting system is in place and can meet DOD’s accounting system requirements for contract accounting, such as:

• Maintaining a General Ledger based on accrual basis accounting
• Accurately identify direct costs
• Accurately identify and allocate indirect costs and fringe benefits
• Segregates unallowable costs
• Have a written, practiced, and demonstrable timekeeping system or policy in place
• Show distribution of labor costs among accounts and jobs
• Issue indirect cost rate and job cost reports periodically and on-demand
• Demonstrate understanding of RFP requirements
• Show ability to achieve appropriate cost objectives

If you have gaps in your accounting system, you must include a detailed plan with implementation dates for bringing your system into compliance.

Once completed, the SF 1408 accounting system survey is returned to your prospective contracting officer who will then turn the form over to the Defense Contract Audit Agency (DCAA) and request an initial Accounting System Review.

To ensure that you get it right, we’ve written a whitepaper – “Understanding the Basic Accounting Requirements for Federal Government Awards”.

The Importance of a DCAA Accounting System Review

The DCAA Accounting System Review is basically an audit of a contractor’s accounting system and internal controls to ensure compliance with FAR Part 31. This includes everything from tracking direct and indirect costs, to timesheets preparation policies and labor distribution systems. These audits are typically done on-site by a DCAA auditor, though during the pandemic, we saw quite a few done virtually.

If you’re a smaller, new government contractor – your goal is to be categorized as “low risk”, so passing this initial audit without findings is critical.

Ramifications of Accounting System Audit findings.

If you’ve submitted a DOD proposal and can’t demonstrate that you are maintaining a compliant accounting system, you may be denied a contract or forced to wait until all issues are resolved.

If you’ve been awarded a DOD contract and can’t pass an Accounting System Audit, the DCAA can recommend shutting off your progress payments, effectively suspending your DOD contract (and cash flow) until you fix the problem.

What’s more, you will no longer be classified as “low risk” and will be subject to many other types of audits.  For a deeper understanding of the different types of DCAA audits, when they typically happen, and how difficult they are to pass, check out our whitepaper – https://www.jamesoncpa.com/learning-center/understanding-the-different-types-of-dcaa-audits

Jameson & Company CPAs provide outsourced DCAA compliant accounting services

If you have doubts about your government accounting systems and internal controls, we’re here to help. We’re experts in DOD contract accounting and offer a proprietary DCAA-compliant accounting system using QuickBooks, and represent our clients during DCAA audits.

If you have any questions or concerns, please call 781-230-7304 or complete the form below.