PreAward Survey of Prospective Contractor Accounting System (including SF1408)

Defense Contract Audit Manual

5-201 Introduction **

This section provides guidance for performing preaward surveys of prospective contractor accounting systems and post award accounting system audits. The audit programs and report “shells” for both the preaward survey of a prospective contractor accounting system and the post award accounting system audit are available on the Agency Intranet and in the APPS.

5-202 Preaward Survey of a Prospective Contractor’s Accounting System **

a. A preaward survey of a prospective contractor’s accounting system is an examination of the accounting system at either a large or small contractor before contract award. The audit is performed at the request of a contracting officer to determine the acceptability of a contractor's accounting system for accumulating costs under a prospective Government contract. It is usually requested as part of an overall preaward survey of a contractor conducted by a contract administration office under FAR 9.106 or DFARS 209.106 or PGI 209.106. The audit scope should be limited to obtaining an understanding of the design of the prospective accounting system so as to appropriately complete Standard Form 1408, "Preaward Survey of Prospective Contractor Accounting System" (see FAR 53.301-1408) and those procedures essential to reach an informed opinion on whether or not the design of the prospective contractor’s accounting system is acceptable for accumulating costs under a Government contract. It is not necessary to conduct an in-depth evaluation of the operational effectiveness of the accounting system.

b. When performing the preaward survey of a prospective contractor’s accounting system, the auditor will determine the acceptability of the design of the contractor’s system and determine if the system is:

(1) in operation, or

(2) set up, but not in operation,

The SF 1408 also discusses accounting systems which are either anticipated or nonexistent. It is not possible to perform an examination level engagement under those circumstances since procedures would most likely be limited to inquiry alone. If requested to perform an audit for an accounting system that is either anticipated or nonexistent, the auditor or supervisory auditor should notify the requestor that we are unable to provide an audit report or SF 1408, but will be available to do so once the system is set up or in operation.

c. If a prior preaward survey of a prospective contractor’s accounting system has been performed and is relatively current, it should be provided to the requestor. If the prior preaward survey is not current, perform an examination of sufficient scope and depth to evaluate the acceptability of the design of the contractor's accounting system for accumulating costs under a Government contract. If a recent preaward audit disclosed deficiencies that are considered material weaknesses, a follow-up audit can be performed to evaluate corrective actions taken provided the original audit was completed in the last 12 months and there have been no significant revisions to the design of the accounting system. The scope of the follow-up audit is limited to verifying there have been no significant revisions to the design of the system (other than those required as corrective action to cited deficiencies) and whether the corrective action adequately addresses the deficiencies. If the follow-up discloses no significant revisions to the system design and that the contractor corrected the deficiencies, the report should indicate that the contractor has effectively implemented corrective action and the accounting system is suitably designed, in all material respects, for award of a prospective contract in accordance with the criteria contained in FAR 53.209-1(f). A proforma version of the preaward accounting system follow-up report is available as other audit guidance.

d. If requested to perform a preaward accounting system audit on a contractor that has an active Government contract, the auditor should check the files to determine if prior work has been performed that will provide the contracting officer the information necessary to fill in the SF 1408 without the completion of the preaward audit (e.g., if a prior preaward or post contract award accounting system audit has been performed). If prior information does exist, contact the contracting officer to determine if the prior report will meet their needs. Additionally, if there are known system deficiencies or voucher processing problems, this information should be provided to the contracting officer as well. Auditors should not issue an opinion stating the design is acceptable for award when there are known deficiencies in the operating effectiveness. If no information is on file, the auditor should proceed with performing the preaward as requested.

e. A customer request for a preaward survey of a prospective contractor’s accounting system should be started as soon as practicable. An untimely response to such a request could delay the award of a contract. Acknowledge the request in accordance with CAM 4-104.

f. If the contracting officer also requires an assessment of the company’s financial condition during the preaward survey of the prospective contractor’s accounting system, refer the requestor to DCMA (see CAM 14-302). However, in all audit situations, auditors should be alert to conditions which may indicate unfavorable or adverse financial conditions or other circumstances which could impede a contractor’s ability to perform on Government contracts.

Standard Form (SF) 1408

The Pre-Award Survey is normally done using the government Standard Form (SF) 1408. It is done prior to a cost type contract award, and is done to demonstrate compliance with FAR 16 which prohibits the award of a cost type contract to a contractor that does not have an adequate accounting system. There are 2 sections to this survey.

Section I - Recommendation

Section I is the recommendation. The Contracting Officer (with the assistance of DCAA or the Administrative Contracting Officer (ACO) makes a determination regarding the accounting System. They are:

Unacceptable

• 1. No. The contractors prospective Accounting System is unacceptable for cost type contracts. In this case the contracting officer needs to explain why it is not acceptable.
• 2. The prospective contractor's Accounting System is acceptable for award of prospective contract. Normally there is a recommendation that a follow on Accounting System review be performed after contract award.

Section II - General

SECTION II - EVALUATION CHECKLIST

• 1. EXCEPT AS STATED IN SECTION I NARRATIVE, IS THE ACCOUNTING SYSTEM IN ACCORD WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES APPLICABLE IN THE CIRCUMSTANCES?

• 2. ACCOUNTING SYSTEM PROVIDES FOR:
  • 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 preproduction costs from production costs.

• 3. ACCOUNTING SYSTEM PROVIDES FINANCIAL INFORMATION:
  • a. Required by contract clauses concerning limitation of cost (FAR 52.232-20 and 21) or limitation on payments (FAR 52.216-16).
  • b. Required to support requests for progress payments.

• 4. IS THE ACCOUNTING SYSTEM DESIGNED, AND ARE THE RECORDS MAINTAINED IN SUCH A MANNER THAT ADEQUATE, RELIABLE DATA ARE DEVELOPED FOR USE IN PRICING FOLLOW-ON ACQUISITIONS?

• 5. 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.)

File:SF 1408 - Preaward Survey form.pdf

Related Pages

Cost Plus Incentive Fee (CPIF). -- This page talks about the requirements for a CPIF contract.