Guide · Pre-Award Audits
DCAA Pre-Award Audit Checklist: The SF 1408 Requirements, Explained by a Former DCAA Auditor
A DCAA pre-award audit is a review of your accounting system’s design before the government awards you a cost-reimbursement or other flexibly priced contract. The contracting officer asks for it. The auditor checks whether your system can segregate, accumulate and allocate costs by contract, using the criteria on Standard Form 1408.
- 12 years inside DCAA
- 100+ DoD contractors audited
- CPA led
- QuickBooks, Costpoint, SAP & NetSuite
- Remote, nationwide
By Alexander Mungov, CPA, former DCAA Supervisory Auditor
Last updated: September 10, 2026
What a pre-award audit is
“Pre-award audit” is what most people call it. DCAA calls it a pre-award accounting system survey. The form is Standard Form 1408, “Pre-Award Survey of Prospective Contractor (Accounting System)”, still published by GSA (Rev. 1/2014) in its forms library.
The survey tests design, not historical cost: will the system you run, or have set up and are about to switch on, capture contract cost correctly? A company with no government revenue yet can pass. The form even asks which parts are running, set up, planned or nonexistent.
Two facts clear up a lot of confusion. There’s no “DCAA-approved” accounting system or software; DCAA says so in its own small business training. And you can’t order a pre-award audit for yourself. DCAA does one only when a federal requester, usually the contracting officer or DCMA, asks.
Section I of the SF 1408 is the auditor’s recommendation. Section II is the checklist below.
The checklist
The SF 1408 criteria, one by one
These are the Section II items on the official SF 1408, in the form’s order and in our words: what the auditor asks for, and where companies usually fall short.
DCAA’s Pre-award Accounting System Adequacy Checklist turns the same items into questions and adds a few: prior DCAA audits, CAS coverage, any outside CPA review of the system (your financial statement audit doesn’t count), and whether proposed labor rates follow your estimating practices and FAR Part 31. If you’re bidding cost-type work, it wants a written explanation under every question.
1. Accounting that follows GAAP
Asks for: an accrual-basis trial balance and financial statements.
Common failure: cash-basis tax books with no month-end accruals.
2a. Direct costs segregated from indirect costs
Asks for: a chart of accounts that keeps direct labor, materials, subcontracts and other direct costs apart from indirect accounts, plus a written rule for what’s direct.
Common failure: the same cost charged direct on one job and indirect on another.
2b. Direct costs accumulated by contract
Asks for: a job cost ledger showing each contract’s cost by element.
Common failure: no project dimension in the books, or a side spreadsheet that never reconciles.
2c. Logical, consistent indirect cost allocation
Asks for: your pools (fringe, overhead, G&A), the base for each, and a rate calculation built from the books.
Common failure: one blended “overhead rate” nobody can rebuild from the ledger.
2d. Costs under general ledger control
Asks for: the job cost subledger reconciled to the general ledger, with approved adjusting entries.
Common failure: job cost totals that don’t match the ledger.
2e. Timekeeping by cost objective
Asks for: daily timesheets for every employee, charged to contracts or indirect codes and approved by a supervisor.
Common failure: owners and salaried staff who don’t keep timesheets.
2f. Labor distribution
Asks for: the path from timesheet to payroll to job cost ledger, and the reconciliation.
Common failure: payroll booked as one salary line with no distribution to jobs.
2g. Contract costs determined at least monthly
Asks for: a month-end close routine and a current job cost report.
Common failure: quarterly catch-up bookkeeping, which DCAA lists among the most common areas of noncompliance.
2h. Unallowable costs excluded
Asks for: separate accounts for costs like entertainment, alcohol and lobbying, a written policy, and proof they stay out of rates and billings.
Common failure: alcohol and entertainment buried in “meals”.
2i. Costs by line item or unit, if the contract requires it
Asks for: how you’d set up sub-jobs by contract line item.
Common failure: one code per contract when line items are funded separately.
2j. Preproduction costs segregated from production
Asks for: for hardware makers, how startup and tooling costs stay apart from recurring production.
Common failure: “not applicable” with no explanation from a company that builds hardware.
3a. Data for limitation of cost or limitation on payments clauses
Asks for: how you track incurred cost against funding, and who watches it monthly.
Common failure: nobody notices the money running out until it’s gone.
3b. Support for progress payment requests
Asks for: cumulative incurred cost by contract.
Common failure: incurred cost mixed with cost that was only committed.
4. Reliable data for pricing follow-on work
Asks for: actual hours and cost by job and task you could use in the next proposal.
Common failure: actuals too coarse to support a basis of estimate.
5. The system is in full operation
Asks for: which parts are running, set up, or still planned, with dates.
Common failure: describing a planned system as if it’s live. Expect to be asked to show it.
Beyond the form
What else the survey touches
DCAA’s small business training on pre-award audits also walks through the DFARS accounting system criteria, so expect questions here even where the form has no separate box.
Timekeeping and labor distribution
Daily entry, all hours including unpaid overtime, supervisor approval, and labor that reconciles to payroll.
Monthly close
Books posted and closed at least monthly. A dated close checklist is the easiest evidence.
Unallowable costs
A written policy naming the categories, the accounts they go to, and who reviews coding.
Billing
Invoices that reconcile to the books. Under FAR 52.216-7, unpaid vendor costs are billable only if you’ll pay them on terms and ordinarily within 30 days of your payment request.
General ledger control
Subledgers reconciled to the general ledger, approved adjusting entries, and closed periods that stay closed.
Written policies
Short procedures describing what you actually do. The auditor compares them with the walkthrough.
In practice
What the auditor actually looks at
The request. On DoD work the contracting officer or DCMA, as surveying activity, asks DCAA for the accounting system piece. DoD’s guidance at PGI 209.171-2 says the surveying activity gets that information from the auditor. Expect a call to set up an entrance conference.
The entrance conference. A short meeting on the prospective contract, who does what in your accounting, and the documents needed. Bring whoever actually keeps the books.
The document request. Usually the completed DCAA checklist, chart of accounts, organization chart, written procedures, sample timesheets, a recent trial balance and your proposal.
The walkthrough. This is the heart of it. You’ll trace how a timesheet becomes labor cost on a job, how a vendor invoice gets coded to a contract or pool, and how a rate comes out of the ledger. The auditor is checking that the written procedure matches the real process.
Sample or mock transactions. If you have jobs, they’ll look at a few. If you’re new, expect to show a mock job cost report and sample invoice for the prospective contract.
The conclusion. DCAA’s Contract Audit Manual frames the goal as understanding the system well enough to complete the SF 1408 and give an opinion on whether its design is acceptable for accumulating cost under a government contract.
What sinks a system. In our experience it’s rarely one missing policy. It’s a structural gap: no job cost ledger, no project-level timekeeping, no way to compute a rate, or quarterly books. Any one can decide the survey.
Triggers
Who triggers a pre-award audit, and when
The contracting officer does, while deciding whether you’re responsible. One standard is having the necessary “accounting and operational controls” (FAR 9.104-1(e)). For cost-type work the bar is sharper: the overhaul text of FAR Part 16 allows a cost-reimbursement contract only when the contractor’s accounting system can adequately segregate, accumulate and allocate costs to it (16.301-3(a)(3)). DoD’s standard at DFARS 209.104-1(e) also covers incentive and progress payment contracts.
The request usually lands after you’ve proposed and look likely to win, often on a tight deadline, and most often when you’re new to cost-type work or your last survey is old.
One wrinkle: the FAR overhaul reserved FAR 9.106, the old preaward survey section. The survey hasn’t gone away. DoD kept its procedures at DFARS 209.171 and PGI 209.171 under Class Deviation 2026-O0042.
After the survey
How long it takes and what happens next
No regulation sets a clock. The contracting officer usually needs the answer before award, so surveys tend to move quickly, and DoD’s guidance tells contracting officers to allow extra time for new contractors and accounting system reviews. In our experience most delay comes from the contractor side, usually documents that don’t exist yet.
The SF 1408 recommendation comes out one of three ways:
- Acceptable. You move on toward award.
- Acceptable, with a follow-on review. The design works but something wasn’t operating yet, so the auditor recommends a post-award accounting system review.
- Not acceptable. The narrative lists the deficiencies. The contracting officer can find you nonresponsible for the cost-type award or consider another contract type. A small business found nonresponsible is referred to the SBA, which decides whether to issue a Certificate of Competency.
If you fail, fix the specific gaps and document the fix. The next look usually comes with your next cost-type procurement. If a loss turns into a protest question, we work alongside your counsel.
Comparison
Pre-award vs post-award reviews
What’s tested
Pre-award: the system’s design against the SF 1408, before award. Post-award: whether it operates as designed, against the 18 criteria in DFARS 252.242-7006, renumbered 252.242-7999 under DoD Class Deviation 2026-O0050.
Evidence
Pre-award: policies, walkthroughs, sample or mock transactions. Post-award: real transactions over time, including labor and billing tests.
Findings
Pre-award: a recommendation on the SF 1408. Post-award: material weaknesses, the DFARS term in place of “significant deficiency” since January 17, 2025, then a contracting officer determination.
Money at stake
Pre-award: the award. Post-award: withholding under the Contractor Business Systems clause (252.242-7005, now 252.242-7998), capped at 5 percent of billed payments per disapproved system and 10 percent in total.
Software
Can you pass on QuickBooks?
Yes. DCAA’s own training says an accounting system is more than a software package. It’s your methods, procedures and controls, and many packages can be part of an acceptable system or be set up in a way that fails.
What matters is structure. Each contract, and each line item where needed, is a project. Direct and indirect costs are split by account or class. Unallowables have their own accounts. Employees enter time against projects and it ties to payroll. The closing date is locked each month. Indirect rates come from a workbook that reconciles to the ledger. Get that right and the software is rarely the problem.
Nontraditional defense contractors
If you’re a nontraditional defense contractor
Section 1826 of the FY2026 NDAA (Public Law 119-60, signed December 18, 2025) exempts products and services of nontraditional defense contractors on DoD contracts, subcontracts and agreements from ten listed requirements unless the head of the contracting activity waives it in writing. Two matter here: DFARS 252.242-7006, the accounting system clause (now 252.242-7999, reached as a successor regulation), and FAR Part 31. The text is in the notes to 10 U.S.C. 3014.
FAR Part 16 isn’t on the list. The rule that a cost-reimbursement contract needs an accounting system that can segregate, accumulate and allocate costs still applies, in the overhaul text DoD uses under Class Deviation 2026-O0045, Rev. 1. The responsibility standards and DoD’s preaward survey procedures aren’t listed either. So a nontraditional bidding a cost-type DoD award should still expect a pre-award adequacy review.
What changes is after award: no DFARS accounting system clause and no business system withholding, unless waived. One SF 1408 line cites FAR Part 31 unallowables; with Part 31 off, we’d expect questions on how you’d exclude whatever your contract makes unallowable. Civilian agency work isn’t covered.
Templates
Do you need a template?
For the forms, no. The SF 1408 is a free PDF on gsa.gov, and DCAA’s checklist is a fillable PDF on dcaa.mil; DCAA says to open it in a desktop PDF reader, not a browser.
For written procedures there’s no official template. Most small contractors need a short manual on timekeeping and labor distribution, job setup, indirect pools and bases, unallowable costs, month-end close, billing, and adjusting entries.
A copied template can backfire. The auditor reads your procedures, then watches you work. A purchased manual describing overhead pools you don’t have, approvals nobody performs, or software you don’t use is written evidence that the system and the paper don’t match. Write what you do, then do what you wrote.
30-day plan
Getting ready in 30 days
Days 1 to 3: read the solicitation
Contract type, line items, funding and billing terms set how detailed your job structure must be.
Days 4 to 8: fix the chart of accounts
Separate direct, indirect and unallowable accounts. Define your pools and their bases.
Days 9 to 13: set up jobs and timekeeping
Create the prospective contract as a job. Start daily, project-level timesheets for everyone, owners included.
Days 14 to 18: build the rate calculation
Compute fringe, overhead and G&A in a workbook that reconciles to the trial balance.
Days 19 to 23: close a month
Close and lock the period, then run a mock job cost report and sample invoice.
Days 24 to 27: write the procedures
Short policies that match what you set up. Complete DCAA’s checklist with a narrative under every question.
Days 28 to 30: rehearse the walkthrough
Have someone play the auditor and trace a timesheet and a vendor bill through to an invoice.
Regulatory status
A note on the FAR overhaul
The FAR is being rewritten under the Revolutionary FAR Overhaul (Executive Order 14275, April 15, 2025). DoD applies the new text through class deviations for Parts 209, 215, 216, 231, 242 and 244, among others, listed on its class deviation index, and clause numbers have changed. Because the FAR is mid-rewrite and DoD deviations apply, we check the current text of every part we cite on every engagement.
Questions
Frequently asked
What is a DCAA pre-award audit?
DCAA’s review of your accounting system’s design before a cost-reimbursement or other flexibly priced award, requested by the contracting officer or DCMA. DCAA calls it a pre-award accounting system survey, and the auditor records the result on Standard Form 1408.
What are the SF 1408 requirements?
GAAP accounting; direct costs separated from indirect and accumulated by contract; consistent indirect allocation; general ledger control; timekeeping and labor distribution by cost objective; monthly cost determination; unallowables excluded; and data for funding limits, progress payments and future pricing.
What triggers a DCAA audit?
A request from a government official, never the contractor. A pre-award audit usually starts with a contracting officer weighing a cost-type award. Other DCAA audits follow proposals, incurred cost submissions, business system reviews and claims.
Is there a DCAA pre-award checklist template or PDF?
Yes for the forms: the SF 1408 is a PDF on gsa.gov, and DCAA’s Pre-award Accounting System Adequacy Checklist is a fillable PDF on dcaa.mil. There’s no official template for your written policies.
What happens if you fail a DCAA pre-award audit?
The SF 1408 comes back “not acceptable” with a narrative of the deficiencies. The contracting officer can find you nonresponsible for the cost-type award or choose another contract type. Small businesses are referred to the SBA for a possible Certificate of Competency.
How long does a DCAA pre-award audit take?
No regulation sets a timeline. Because the contracting officer is usually waiting to award, surveys tend to move quickly. The biggest variable is how fast you produce procedures, a job cost report and a walkthrough.
Can you pass a DCAA pre-award audit using QuickBooks?
Yes. DCAA says an accounting system is methods, procedures and controls, not just software. QuickBooks passes when contracts are jobs, direct and indirect costs are split, unallowables have their own accounts, and time is tracked by project.
More
Related services and guides
SF 1408 pre-award surveys
We get your system, procedures and walkthrough ready before DCAA arrives.
Post-award accounting system reviews
DFARS reviews, material weaknesses, withholding and corrective action.
Nontraditional defense contractors
What Section 1826 of the FY2026 NDAA exempts, and what still applies.
Pre-award survey on the calendar?
Send us the solicitation and a description of how you keep your books today. We’ll tell you what the auditor will ask for and what to fix first.