DCAA Pre-Award Audit
Pass the DCAA pre-award audit and take the award.
Before a contracting officer can award you a cost-reimbursable contract, DCAA has to find your accounting system adequate. That review is the pre-award audit, done on Standard Form 1408. We get you ready, and we sit with you through it.
- 12 years inside DCAA
- 100+ DoD contractors audited
- CPA led
- QuickBooks, Costpoint, SAP & NetSuite
- Remote, nationwide
What the DCAA pre-award audit is, and what it is not
Standard Form 1408 is the Pre-Award Survey of Prospective Contractor (Accounting System). Most contractors call it the DCAA pre-award audit, and DCAA calls it a pre-award accounting system survey. A contracting officer requests it when you are in line for a cost-reimbursable or other award where the government will be paying your actual cost and therefore needs assurance your books can track it.
The critical thing to understand is that SF 1408 evaluates design, not history. The auditor is asking whether the system is capable of accumulating cost properly going forward, not whether you have years of clean records behind you. This is why a startup with three employees and a well-built system passes, while an established company with sloppy structure does not.
DCAA pre-award audit requirements
The pre-award audit covers the same ground every time. To be judged adequate, your accounting system has to show:
- Direct and indirect costs kept separate in the general ledger, not in a spreadsheet beside it
- Costs accumulated by contract, and by line item where the contract requires it
- A logical, consistent way to allocate indirect costs to contracts
- Timekeeping that records labor daily by project, with employee and supervisor approval and an audit trail for corrections
- A labor distribution that ties timesheets to payroll and to the ledger
- Unallowable costs identified and kept out of billings and indirect rates
- Costs determined at least monthly, with books closed on a routine schedule
- Written policies and procedures that match what your people actually do
Preparation matters enormously, because almost every failure we have seen was avoidable. For every SF 1408 criterion, what the auditor asks to see and where contractors fail, read our DCAA pre-award audit checklist.
Where contractors fail
Having examined these from the auditor side, the failure patterns are remarkably consistent.
Timekeeping is the number one killer
Hours recorded weekly from memory, no supervisor approval, corrections made without an audit trail. This alone fails a survey regardless of how good the general ledger is.
Direct and indirect cost are not truly segregated
A chart of accounts that mixes them, or segregates them only in a spreadsheet outside the accounting system, does not meet the criterion.
No monthly interim cost determination
The system must be able to determine cost at least monthly. Books closed quarterly, or only at year end, will not satisfy the reviewer.
Unallowable cost is not identified
FAR 31.205 unallowables have to be identified and excluded from billings and claims. Finding them at year end is not a system.
No written procedures
The auditor asks for the accounting manual and the timekeeping policy early. Not having them signals an informal system even where practice is sound.
Nobody prepared the people in the room
The entrance conference sets the tone. Staff who cannot explain their own process create doubt that clean records cannot always undo.
How we prepare you
Gap assessment against the checklist
We walk your system against the SF 1408 criteria exactly as the auditor will, and tell you what would fail today.
Remediation
We fix the gaps: chart of accounts, pool structure, timekeeping process, unallowable screening, and the written procedures.
Mock review
We run the survey the way DCAA runs it, including the questions your staff will be asked, so nothing on the day is a surprise.
Support through the actual review
We help manage the entrance conference, the data requests, and the auditor relationship, and we respond to questions in the language the audit team expects.
Corrective action if needed
If a deficiency is identified, we address it and prepare the response and follow-up.
Price
What SF 1408 preparation costs
Our pre-award readiness review starts at $2,500 for a small contractor whose books are current. At our $160 hourly rate, that is roughly 16 hours of CPA work.
- Readiness review, from $2,500: gap assessment against the SF 1408 criteria, fixes to the chart of accounts, pool structure and written procedures, and a mock review.
- Cleanup, quoted separately: books that are behind, costs never coded by project, or a chart of accounts that needs rebuilding.
- Timekeeping policy and staff training: from $1,200.
- Support during the survey itself: $160 an hour, with a not-to-exceed cap agreed in advance.
We reply to every inquiry within one business day and send a written proposal within two business days after the intro call. Project work starts within five business days of a signed engagement. If your survey date is less than two weeks away, start with pre-award audit help. All GovCon prices are on our pricing page.
The Criteria
What the auditor is actually checking
SF 1408 sets out a defined list of design criteria. There is no mystery to it, and the form is public. What separates contractors who pass from those who do not is having honestly tested themselves against each item before the auditor does.
The last item deserves attention. A system that exists only as a plan will not satisfy the reviewer. It does not need years of history, but it does need to be running. This is why starting preparation when the solicitation drops is usually too late: timekeeping in particular needs a genuine adoption period before it will hold up.
| Criterion | What it means in practice |
|---|---|
| GAAP conformity | Your accounting is in accord with generally accepted accounting principles. Cash-basis books are a problem here. |
| Direct/indirect segregation | Direct cost and indirect cost are separated in the accounting system itself, not in a spreadsheet beside it. |
| Cost by contract | Direct cost is identified and accumulated by contract, and by task or CLIN where the contract requires it. |
| Logical allocation of indirect cost | A consistent, defensible method allocates indirect cost to intermediate and final cost objectives. |
| General ledger control | Cost is accumulated under general ledger control, so the job cost detail actually reconciles to the books. |
| Timekeeping | A system that identifies each employee’s labor by cost objective. Daily entry, documented corrections, supervisor approval. |
| Labor distribution | Labor charges flow from timekeeping into job cost at actual rates, direct and indirect alike. |
| Monthly interim cost determination | Books are posted routinely enough to determine contract cost at least monthly. |
| Exclusion of unallowables | FAR Part 31 unallowable cost is identified and excluded from amounts billed or claimed. |
| Cost by line item and unit | Where the prospective contract requires it, cost can be identified by CLIN and by unit. |
| Preproduction cost segregation | Preproduction cost is separated from production cost where that distinction applies. |
| Limitation of cost / funds support | The system produces the data needed for limitation of cost and funds notifications and progress payment requests. |
| Reliable data for follow-on pricing | Records are maintained so that adequate, reliable data exist for pricing future acquisitions. |
| System in operation | The system is currently in operation, not merely designed on paper or partially implemented. |
The Day Itself
What the survey actually looks like
Contractors imagine something more adversarial than it is. The auditor has a checklist, a limited amount of time, and no interest in manufacturing problems.
Entrance conference
The auditor explains scope and asks about your business, your contracts, and your accounting. Answer plainly. Guessing at something you are unsure of, and being caught, costs more than saying you will confirm and following up.
Documentation request
Chart of accounts, trial balance, accounting manual, timekeeping policy, a sample of timesheets, payroll registers, and job cost reports. Having these assembled in advance signals a controlled operation before anyone examines the content.
Walkthrough
The auditor traces a transaction end to end: an employee’s hours from timesheet through labor distribution into job cost and the general ledger. If that path is clean, most of the review is already going well.
Staff interviews
Whoever runs timekeeping and whoever runs the books will be asked how the process works. They should be able to describe it in their own words. Rehearsed answers are obvious and unhelpful; genuine familiarity is what counts.
Exit conference
The auditor summarizes what they found. If a deficiency is raised, this is the moment to understand it precisely and ask what evidence would resolve it, while the report is still draft.
Before And After
Pre-award is not the end of it
A pre-award determination reflects your system as it was reviewed, on that date, for that prospective award. It is not a permanent certification and it does not travel with you indefinitely.
Once you are performing on cost-type work, your system can be revisited through a post-award accounting system review or a full business system review under DFARS 252.242-7006. Those go deeper, because now there is operating history to examine rather than just design.
The practical implication is that systems drift. A contractor who passed comfortably at twelve employees can develop real problems at forty, when new people join, processes get informal, and nobody owns the timekeeping policy any more. If it has been a few years since anyone looked, it is worth looking.
Questions
Frequently asked
What are the DCAA pre-award audit requirements?
Your accounting system has to keep direct and indirect costs separate, accumulate costs by contract, allocate indirect costs consistently, record labor daily by project, exclude unallowable costs, and determine costs at least monthly. You also need written procedures that match how you work. DCAA reviews all of this on Standard Form 1408.
How much notice do we usually get?
Often not much, which is why the contractors who do well are the ones who prepared before the solicitation. If you are already under a deadline, tell us the date and we will tell you honestly what is achievable.
Do we need operating history to pass?
No. The survey evaluates whether the system is designed to accumulate cost properly. New companies pass regularly when the design and documentation are right.
Is a DCAA “approval” permanent?
No. An adequate determination at pre-award reflects the system as reviewed at that time. Post-award reviews and later audits revisit it, and systems drift as companies grow.
What if we fail?
The survey comes back with the system found not acceptable. The contracting officer can find you nonresponsible for the cost-type award or use a different contract type, and a small business found nonresponsible is referred to the SBA for a possible Certificate of Competency. It is far cheaper to prepare properly than to fix things under a contracting officer’s deadline.
Can you support us if the survey is next week?
Sometimes. It depends on what is already in place. Tell us the survey date on the first call. If we can’t get you ready in time, we tell you the same day rather than take an engagement we can’t deliver.
How much does DCAA pre-award audit preparation cost?
Our readiness review starts at $2,500 for a small contractor with current books. Cleanup, if needed, is quoted separately, and support during the survey itself is $160 an hour with a not-to-exceed cap agreed in advance.
More
Related services
Guide: DCAA pre-award audit checklist
Every SF 1408 criterion, what the auditor asks to see, common failures, and a 30-day plan to get ready.
DCAA-compliant accounting systems
Design, configure, and document a system that meets DFARS 252.242-7006 and survives a system review.
Incurred cost submissions
Adequate ICE submissions filed on time, with schedules that reconcile the first time.
Indirect cost rate structures
Pool design, allocation bases, provisional billing rates, and the annual true-up.
Contract pricing & proposal support
Cost volumes and basis of estimate for FFP, cost-reimbursable, and T&M solicitations.
Government audit support
Preparation and representation for DCAA and DCMA audits and buying command cost analysis.
Forward pricing rates (FPRP & FPRA)
Forward pricing rate proposals and agreements so every future bid prices faster and with less argument.
CAS Disclosure Statements
Form CASB DS-1 preparation, cost impact analysis, and disclosed practice compliance.
Post-award & business system reviews
DFARS 252.242-7006 reviews, material weaknesses, payment withholding, and corrective action.
Terminations, REAs & claims
Termination settlement proposals and requests for equitable adjustment. Frequently underclaimed.
Have a pre-award survey coming?
Tell us the timeline and the contract type. We will tell you where you stand and what is realistically achievable before the review.