DCAA Compliance· · 4 min read
The DCAA Pre-Award Accounting System Review: What the Auditor Actually Checks
Before a cost-reimbursable award, a DCAA auditor checks your accounting system against a fixed set of SF-1408 criteria. Here is exactly what they verify, and what to have ready.
Before a cost-reimbursable award, the government confirms your accounting system can handle it. The good news is that the criteria are public and fixed. Here is exactly what a DCAA auditor verifies, and what you need ready for each.
The pre-award accounting system review is the gate to cost-reimbursable work, and it is one of the few audits where you know the questions in advance. The auditor is not improvising: they work from a fixed checklist of accounting-system criteria, and that checklist is public. If you know what is on it, you can walk in ready. This guide lays out each criterion, in plain terms, with what to have on hand.
For the plain-English basics of the form behind this review, see What Is the SF-1408?. This article goes a level deeper, into what the auditor checks and how to be ready. It also fits within the wider picture of which DCAA audit you might face.
What This Review Is (and Is Not)
The pre-award review looks at the design of your accounting system, not your actual spending. Its question is narrow: is your system capable of cost-reimbursable contracting before you are trusted with a cost-reimbursable award? Because it is pre-award, it happens before you win, which is why readiness cannot wait until after the award. It uses the criteria on Standard Form 1408 (SF-1408), and a common part of it is an auditor asking to see, live, how you produce a report out of your system.
The Auditor's Playbook: Audit Program 17740
DCAA auditors do not decide case by case what to look at. For this review they follow an internal master audit program, Activity Code 17740, "Preaward Survey of Prospective Contractor Accounting System." It is the step-by-step program the auditor runs, and it evaluates your system against the SF-1408 criteria. The program is published on the agency's website, dcaa.mil, which is why the criteria below are not a secret: they come straight from the document the auditor is holding.
What the Auditor Verifies
The SF-1408 criteria, in Section II of the form, come down to the following. Grouped by what they are really testing:
A foundation in GAAP. The system runs on generally accepted accounting principles: an accrual, double-entry general ledger you post costs to, capable of producing standard financial reports.
Costs kept separate and accumulated correctly. Direct and indirect costs are segregated so neither is charged as the other; direct costs are identified and accumulated by contract, at the level of detail used in your proposal; and those costs stay under general ledger control, with the job cost ledger reconciling to control accounts.
Indirect costs pooled and allocated logically. Indirect costs are gathered into logical pools, such as fringe, overhead, and G&A, and allocated to cost objectives based on the benefit received, with a written description of what each pool and base contains.
Labor handled properly. Labor is charged to cost objectives from timekeeping records, with timesheets certified by the employee and approved by a supervisor, and a labor distribution that reconciles to payroll and to the labor accounts in the ledger.
Costs posted at least monthly. Contract costs are recorded on the books at least once a month, not reconstructed at year end.
Unallowable costs screened out. There is a plan to identify unallowable costs and exclude them from amounts charged to government contracts, consistent with FAR Part 31.
Extra detail where the contract requires it. The system can break costs out by contract line item or unit if the contract calls for it, and, for manufacturing work, can segregate preproduction from production costs.
Rates and billings that reconcile. Interim indirect rates can be readily calculated from the books and are monitored through the year, and billings reconcile to the cost accounts for both current and cumulative amounts.
Adequate, reliable data overall. Taken together, the system produces cost information detailed enough to price follow-on work.
The interactive checklist below walks each criterion with what to have ready, and lets you tick off what you already have to see where you stand.
How WiseCost Helps You Meet Them
Most of these criteria are about structure and traceability, which is exactly what WiseCost adds on top of QuickBooks Online. It keeps direct and indirect costs in separate cost pools, ties costs to contracts through job cost detail, runs compliant timekeeping and labor distribution that reconciles to payroll and the ledger, calculates indirect rates from the books, screens unallowable costs into dedicated accounts, and keeps an immutable audit trail behind every figure. You keep QuickBooks Online, and the design an auditor checks for is built in.
The DCAA Master Audit Program 17740. This is the actual program a DCAA auditor follows for this review, published by the agency: download the official PDF. Use the interactive checklist above for the one-page, criterion-by-criterion version of what the auditor verifies and what you need ready.
You can also run our free DCAA Readiness Self-Assessment to check your system against these criteria, or book a demo to see how WiseCost builds them in.
Criteria drawn from Standard Form 1408, Section II, and DCAA Audit Program 17740, both public at dcaa.mil. Educational summary, not a substitute for the official forms or your CPA.