SF 1408 readiness: A complete prep guide for government contractors
From gap analysis to audit evidence binder, we walk through every phase of DCAA accounting system preparation. System design starting at $7,500. SF 1408 readiness assessment starting at $3,500.
Your SF 1408 readiness engagement, from gap analysis to audit binder
A structured nine-phase approach that prepares government contractors for a DCAA pre-award accounting system review, delivered from Sarasota.
Phase 1–3: Assess, Gap, Design
We begin with an initial readiness assessment, walk through every SF 1408 requirement, and redesign your accounting system where deficiencies exist.
Phase 4–6: Policies, Controls, Rates
Written SOPs for timekeeping, labor charging, and billing. Documented internal controls. Provisional indirect rate development for fringe, overhead, and G&A.
Phase 7–9: Mock Audit, Binder, Training
A full practice audit with typical DCAA interview questions. Preparation of a complete audit evidence binder. Management coaching on answering auditor questions.
DCAA Audit Support & Deliverables
Support during the DCAA review plus a full package: gap analysis report, compliant chart of accounts, policies manual, and audit evidence binder.
Start your SF 1408 readiness engagement
Schedule a free initial assessment call. We'll review your current system against DCAA standards and outline the path to SF 1408 readiness.
From your first discovery meeting to a complete audit evidence binder
Phase 1 — Initial Readiness Assessment We begin by determining whether the contractor is ready for an SF 1408 review. The Initial Discovery Meeting covers: • Review of current business operations • Review of anticipated contract types • Determination of whether cost-reimbursement or T&M contracts will be pursued • Identification of current accounting software • Review of organizational structure • Understanding of the billing process • Determination of whether indirect rates already exist • Review of payroll and timekeeping processes Deliverable: Gap Analysis Report Phase 2 — SF 1408 Gap Assessment We walk through every SF 1408 requirement. Every item is documented as Compliant, Partially Compliant, or Not Compliant. Typical checklist areas include: • Proper segregation of direct costs, indirect costs, allowable costs, and unallowable costs • Ability to accumulate costs by contract, task order, and CLIN when required • General ledger controls • Job cost ledger • Labor distribution • Timekeeping controls • Indirect cost pools • Billing capability • Financial reporting • Interim cost determination • Written accounting policies • Management controls • Audit trail This is essentially a mock SF 1408 performed before DCAA ever sees your company. Phase 3 — Accounting System Design If deficiencies exist, we redesign the accounting system. Typical work includes: Chart of Accounts — separate accounts for direct labor, direct materials, direct ODCs, fringe, overhead, G&A, unallowable expenses, bid & proposal, IR&D, facilities, and independent projects. Job Cost Structure — contracts, projects, task orders, CLINs, cost objectives, and cost pools. Cost Pools — fringe pool, overhead pool, and G&A pool with allocation bases and cost elements. Labor Distribution — employee labor charging by labor category, direct labor vs. indirect labor, leave, PTO, holiday, and training. Timekeeping System — daily entry, supervisor approval, employee certification, audit trail, documented corrections, and electronic timestamps. Phase 4 — Written Policies & Procedures We develop written SOPs that become evidence during the audit: • Accounting policies • Timekeeping policy • Labor charging policy • Billing procedures • Indirect rate methodology • Journal entries • Closing process • Cost transfers • Purchasing • Travel • Expense reports • Credit cards • Payroll • Vendor payments • Internal controls • Document retention • Unallowable costs Phase 5 — Internal Controls We document your internal control framework: • Segregation of duties • Bank reconciliations • Approval hierarchies • Vendor approval process • Payroll approval • Invoice approval • Journal entry approval • Access controls • Password controls • System permissions Phase 6 — Indirect Rate Development We develop provisional rates for fringe, overhead, and G&A: • Allocation bases • Pool composition • Rate calculations • Monthly monitoring • Variance analysis Phase 7 — Mock Audit We conduct a full practice audit with typical DCAA interview questions: • How does labor flow from the employee's timesheet into payroll? • How does payroll reach the General Ledger? • How does labor reach a contract? • How are indirect costs allocated? • How do you identify unallowable costs? • Show your indirect rate calculations. • What happens if an employee forgets to enter time? • How are corrections documented? Phase 8 — Documentation Package We prepare your audit binder before DCAA arrives: • SF 1408 checklist • Accounting manual • Timekeeping manual • Labor distribution reports • Organizational chart • Chart of accounts • Trial balance • General ledger • Job cost ledger • Payroll register • Employee handbook • Timekeeping screenshots • Indirect rate calculations • Sample invoices • Sample journal entries • Financial statements • Internal control narratives Phase 9 — Management Training Executives are coached on answering auditor questions consistently: • Accounting system overview • Internal controls • Cost accounting • FAR Part 31 • Timekeeping • Billing • Cost transfers • Roles and responsibilities
What a DCAA SF 1408 audit typically consists of
After the contracting officer requests an accounting system review, the DCAA's objective is to determine whether your accounting system is designed to adequately support a prospective cost-reimbursement or other flexibly priced contract. The review focuses on system design and operational capability rather than testing months or years of historical transactions. 1. Entrance Conference The auditor explains audit scope, identifies requested documents, establishes a timeline, and identifies company contacts. 2. Walkthrough — Often the Longest Part The auditor asks you to demonstrate: • Accounting software • Job costing • Timekeeping • Payroll • General ledger • Billing • Indirect rates • Financial reports This is very much a "show me how your system works" exercise. 3. Policy Review The auditor reviews written policies including: • Timekeeping • Labor charging • Purchasing • Accounting • Billing • Internal controls 4. Accounting System Review The auditor evaluates whether the system provides for: • Proper segregation of direct and indirect costs • Accumulation of direct costs by contract • Identification of unallowable costs • General ledger control • Timekeeping and labor distribution • Interim determination of costs • Contract cost reporting • Cost-by-line-item capability when required • Reliable audit trails • System operation in practice, not only on paper 5. Sample Testing The auditor may request: • Employee timesheets • Payroll reports • Journal entries • Vendor invoices • Expense reports • Contract reports • Labor distribution reports • General ledger detail 6. Interviews Typical personnel interviewed: • Controller • CFO • Accountant • Payroll administrator • Project manager • HR • Employees who charge labor 7. Exit Conference The auditor discusses findings, deficiencies, recommendations, and potential corrective actions. 8. Audit Report The DCAA issues its report to the contracting officer with an opinion on whether the accounting system is acceptable for award of the prospective contract. If deficiencies are identified, the contractor may be asked to implement corrective actions before being considered adequate.
Typical deliverables from an SF 1408 readiness engagement
GovCon Interactive packages SF 1408 readiness services into a comprehensive engagement that includes: • SF 1408 Readiness Assessment • Gap Analysis Report • DCAA-Compliant Chart of Accounts • Accounting Policies & Procedures Manual • Timekeeping Policy Manual • Labor Charging Policy • Indirect Cost Rate Structure • Job Costing Configuration • Internal Control Documentation • FAR Part 31 Allowability Matrix • Mock DCAA Audit • Management Interview Coaching • Audit Evidence Binder • On-site or virtual support during the DCAA review • Assistance responding to any DCAA findings or corrective action requests