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A pre-award accounting system audit is an evaluation of the design of your accounting system for the award of cost-type contracts, including Cost-plus-fixed-fee and Time & Materials (T&M). An adequate accounting system is required pursuant to FAR 16.104:

(i)  Adequacy of the contractor's accounting system. Before agreeing on a contract type other than firm-fixed-price, the contracting officer shall ensure that the contractor’s accounting system will permit timely development of all necessary cost data in the form required by the proposed contract type.

What is SF 1408?

DCAA, and prime contractors alike, us the Standard Form SF-1408 to evaluate if a contractor’s accounting system is adequate for the award of these types of contracts. Without an adequate accounting system that passes the criteria in the SF-1408, a contractor will not be able to compliantly perform under cost-type contracts so it’s critical that a contractor understand the criteria, and how to demonstrate compliance with the criteria.

The Standard Form 1408 (SF1408), otherwise known as the Pre-Award Accounting System Survey, or Pre-Award Accounting System Adequacy Checklist, is a checklist used by Defense Contract Audit Agency (DCAA) auditors in the performance of a “pre-award audit”. The “pre-award audit” is technically a review and not a true audit because it does not look at any actual costs, rather it determines whether the design of a contractor’s accounting system is “adequate”

The SF1408 is usually a self-certification that documents the contractor’s accounting system adequacy and is used by DCAA during its Accounting S

system Review, but in some cases, it can be utilized by a third-party CPA to issue a determination of acceptability. It should be noted, however, that acceptance of a third-party CPA’s determination by the Federal customer is usually stated explicitly within the solicitation.


SF1408 Criteria

The SF1408 criteria requires that a contractor be able to demonstrate the following:


What if a Contractor Does Not Meet the SF1408 Criteria?

If a contractor cannot demonstrate it maintains an “adequate accounting system”, it may be denied the award or required to correct the deficient elements prior to reconsideration. If a contractor has been awarded a Federal contract and cannot pass an Accounting System Audit, DCAA can suspend the contract until the deficiencies are resolved.

As such, it is always in a contractor’s best interest to proactively conduct and submit an SF1408 if it plans to bid on a cost-reimbursable award, or show proof of a previous determination of an “acceptable accounting system”. If gaps within the accounting system have been identified during the process, the contractor should include a detailed plan with implementation date for bringing its system into compliance.

What is the Difference Between a Pre-Award Accounting System Audit and a Post Award Accounting System Audit?

A lot! A pre-award accounting system audit evaluates the design of the accounting system, namely that it can collect costs at the project level and has sufficient cost accounting set-up with policies to demonstrate it is capable of properly invoicing under cost-type awards. A post award accounting system audit tests the operating effectiveness of the system, specifically evaluating transactions that run through the accounting system. They are entirely different audit programs:

Pre-Award Accounting System Audit Program: 17740 Preaward Survey of Prospective Contractor Accounting System AP (

Post-Award Accounting System Audit Program: 11070 Compliance with DFARS 252.242-7006 Accounting System Administration Requirements Audit AP (

Need Assistance?

Navigating a DCAA audit can be a complex and challenging process, and ensuring that your accounting system is audit-ready is crucial for success. Whether you're seeking assistance with supporting an ongoing DCAA audit or evaluating the preparedness of your accounting system for an upcoming audit, our expert team is here to guide you. We specialize in providing comprehensive support, from assessing compliance with DCAA requirements to implementing necessary adjustments in your accounting practices.


If a contractor has received a contract containing the Allowable Cost and Payment clause (FAR 52.216-7), the clause requires preparation of an Indirect Cost Rate Proposal (ICRP).  The clause is applicable to all cost-type contracts.  The proposal also goes by the following industry names “Incurred Cost Proposal” (ICP) and “Incurred Cost Submission” (ICS).  The proposal is prepared using the Defense Contract Audit Agency (DCAA) Incurred Cost Electronic (ICE) Model (DCAA > Customers > Checklists & Tools > ICE Model) and is due  six months after the contractor’s fiscal year end.

Under cost-type contracts, contractors utilize a provisional billing rate throughout the year.  The intention of the Incurred Cost Proposal is to true-up a contractor’s provisional billing rate to actual under its cost-type contracts. The actual rate is compared to what was billed and the calculated over/underbill is either credited back to the government or invoiced, respectively.

The proposal includes a series of Schedules from Schedule A through O, including Supplemental Schedules.  Some of the more impactful Schedules Include Schedule A Summary of Indirect Rates, Schedule H Summary of Direct Contract Costs, and Schedule I Cumulative Costs Claimed & Billed.

Upon completion, the Incurred Cost Proposal is submitted to DCAA and your Administrative Contracting Officer (ACO) for audit.  DCAA uses an Incurred Cost Submission Adequacy Checklist (DCAA > Customers > Checklists & Tools > Incurred Cost Submission Adequacy Checklist) to determine if the submission is adequate for audit.  Upon acceptance, DCAA may audit the submission for compliance including accuracy of rate calculations and applications.  This is the most frequent audit performed by DCAA year over year.  Their findings routinely center on unallowable costs pursuant to FAR 31 and exceptions to exceptions to cost accounting practices used by contractors.

The Defense Contract Audit Agency (DCAA) maintains multiple audit programs to monitor and verify government contractor compliance.  DCAA audit programs may occur before, after, or during contract performance through Preaward Audits, Postaward Audits, and Contractor Business System Audits. DCAA is chartered with identifying and evaluating all activities that contribute to or impact proposed or incurred costs of Government contracts.

DCAA’s major areas of emphasis include: DFARS Business Systems such as Accounting Systems, Estimating Systems, and Purchasing Systems; management policies and procedures; accuracy of contractor forward pricing and incurred cost representations; adequacy and reliability of records and accounting systems; and contract compliance with contractual provisions having accounting or financial significance such as the FAR Cost Principles (FAR Part 31), the Cost Accounting Standards (CAS), and clauses pertaining to the Truth in Negotiations Act (TINA).

The timing of DCAA’s audit will depend on the risk profile of your organization and its contracts.  DCAA uses a variety of risk assessment tools to determine which areas of regulatory risk warrant audit attention.  In addition, Contracting Officers have very broad discretion as to where audit resources should be deployed.

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