Preparing for a DCAA Accounting System Adequacy Audit

As a government contractor, your first interaction with a DCAA auditor will likely involve an Accounting System Adequacy Audit (SF1408 Pre-award Survey). The audit does exactly what the title states. DCAA will be scrutinizing your internal processes and information systems to determine if your accounting system, procedures and internal controls are capable of resulting in compliant cost tracking and billing if your company were to be awarded with a cost-type federal contract award.

• Do my procedures and accounting records follow Generally Accepted Accounting Principles?
• Are my indirect costs segregated from my direct costs? You can determine this by reviewing your chart of accounts to make certain that you have grouped your expense accounts by those that are directly contract related and by then by fringe, overhead and general & administrative expenses, respectively. 
• Are my unallowable costs segregated from both direct and indirect costs? Familiarize yourself with those costs that are deemed unallowable per FAR Part 31 and make certain that they are excluded from your indirect cost pools. 
• Is my timekeeping system set up in a manner that would pass an audit? Each of your staff or subs must have access to a timesheet system that enables the recording of time spent on direct effort as well as indirect cost objectives (e.g. paid time off). 
• Does my timekeeping system connect with a labor distribution system to calculate raw labor costs for both direct and indirect cost objectives? Auditors place a high premium on accounting for incurred labor dollars.
• If I were to pull a sample of timecards, would the timecard, labor distribution summary, paycheck detail and the billing voucher all agree? Never, ever go into an audit without first reconciling your supporting schedules. 
• When allocating indirect costs to direct costs incurred by contract, are my allocation formulas defined in a logical and consistent manner? For example, fringe benefits are only allocated to total salaries and wages less paid absences and overhead is only allocated to direct labor costs. 
• Are all employees following policies and procedures set by the company? It’s important to remember that company policies need to be followed in accordance with 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!