Pre-Award Surveys for Government Contractors

Government Contracting
Pre-Award Survey Webinar – February 2012

Special Guest

Steven Cho
Glass Jacobson

Compliance
Auditing
8(a) Specialist

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

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.


What are the requirements of an
“adequate 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.


- 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.


What are the ramifications of NOT having an
- 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.

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


What are the ramifications of NOT having an
- 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.

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, CPA
Glass Jacobson

steve.cho@glassjacobson.com
www.glassjacobson.com/governmentcontracting

(301) 917-3040


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