pre-award surveys for government contractors

Government ContractingPre-Award Survey Webinar – February 2012

1901 Research Blvd, Suite 300 Rockville, MD 20850 - - - www.glassjacobson.com - - - (301) 917-3040

Special Guest

Steven ChoGlass Jacobson

ComplianceAuditing 8(a) Specialist

http://www.glassjacobson.com/


Objectives

- Cover the basics of Standard Form 1408, the Pre-Award Survey



Agenda

- Know that Standard Form 1408 is the Pre-Award Survey for accounting system.

- Understand the ramifications from a failure to have an “adequate accounting system.”

- Understand the basics for an “adequate accounting system” that is DCAA compliant.



Standard Form 1408

Pre-Award Survey of Prospective Contractor Accounting System



The Pre-Award Survey

- It is a walkthrough, not a full blown DCAA audit.

- The objective of the survey is to obtain an understanding of the accounting system to appropriately complete Standard Form 1408.




- The FAR states that “a cost-reimbursement contract may be used only when the contractor’s accounting system is adequate for determining costs applicable to the contract.”




- Upon completion of the Pre-Award Survey, the auditor makes recommendations to the ACO.

- DCMA rules state that only the ACO can make a determination as to the adequacy of the accounting system.



- A timekeeping system that identifies employee’s labor my intermediate or final cost objectives.

- A labor distribution system that charges direct and indirect labor to a contract through routine posting of books of account.

- Exclusion from costs charged to government contracts of amounts which are not allowable in terms of FAR 31, Contract Cost Principals and Procedure, or other contract provisions.

- Segregation of preproduction costs from productions costs.

What are the requirements of an “adequate accounting system?”



- Identification of costs by contract line item and by units (as if each unit or line item were a separate contract) if required by the proposed contract.

- Accounting system provides financial information required to support requests for progress payments.

- Is the accounting system designed, and are the records maintained in such a manner that adequate, reliable data is developed for use in pricing follow-on acquisitions?

- Is the accounting system currently in full operation?




- Accounting in accordance with Generally Accepted Accounting Principals.

- Proper segregation of direct costs from indirect costs.

- Identification and accumulations of direct costs by contract.

- A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives.

- Accumulation of costs under general ledger control.




- Loss of contract to competitors that you would have otherwise awarded.

- Unable to generate reports necessary to manage contract costs.

- Inability to efficiently and effectively monitor indirect rates for competitive pricing and determine profitability.

What are the ramifications of NOT having an “adequate accounting system?”

It is NOT OPTIONAL. It is a basic contract requirement with a pass or fail determination!



- False Claims Act, 18 U.S.C. 287, criminal proceedings. Penalties may include fines and prison terms.

- False Claims Act, 31 U.S.C. 3729, civil proceedings. Civil penalties are minimum $5,000, up to $10,000, plus 3x amount of unallowable costs.

- False Claims Act, 18 U.S.C. 1001. Fines, penalties and possible prison sentences.

- Major Fraud Act of 1998, 18 U.S.C. 1031. Fines up to 1 million, imprisoned up to 10 years, or both.

What are the ramifications of NOT having an “adequate accounting system?”



Now, let’s explore some of the major elements in more detail.



Accounting in Accordance with GAAP

- Must be an accrual basis

- No cash basis

- Maintain a set of written policies, procedures and internal controls



Timekeeping System

- Employees time recorded on a daily basis.

- Timesheets, whether in paper form or electronic, must allow for audit trail for erasure and alteration.

- Changes to timecard must be traceable.

- Employees must record all hours, paid or unpaid.

- Timecard is signed by employee and supervisor.



Unallowable Costs- Alcoholic beverages

- Entertainment, including membership in country clubs, social clubs and dining clubs

- Advertising costs (NOTE: some advertising costs are allowable, such as help wanted ads, advertising for items related to contract performance, and promotion for export of products to other countries).

- Public relations (NOTE: certain community service activities are allowable, as well as costs require by contract).

- Lobbying and political activity costs



Unallowable Costs- Contributions and donations

- Gifts

- Interest

- Fines and penalties imposed by federal, state, local or foreign regulations

- Bad debts

- Contingencies



Unallowable Costs- Goodwill

- Organization costs

- Asset valuation resulting from business combinations or acquisitions

- Relocation cost if the employee resigns within 12 months

- Compensation in excess of the Benchmark Executive Compensation Cap, currently at $693,951 for fiscal years after December 31, 2009. (There are pending proposals to reduce the cap)



Steven Cho, CPAGlass Jacobson

[email protected]/governmentcontracting

(301) 917-3040


mailto:[email protected]

http://www.glassjacobson.com/governmentcontracting

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