Is Your Company Bonus Plan Federal Acquisition Regulation (FAR) Compliant?

What is an SF1408? The Standard Form 1408, or SF1408, also known as the Pre-Award Survey of Prospective Contractor (Accounting System), is a document used by the U.S. Government to determine the acceptability of an accounting system for prospective government contracts. The form consists of two main sections the first used for describing the accounting systems features and responsibilities, and the second section evaluating the accounting system. Brief Explanation of the SF1408 Sections Section I of the SF1408 encompasses a recommendation section, outlining crucial elements such as the Statement of Acceptability, which indicates the suitability of the accounting system, followed by a Narrative. The narrative should be used to give an accounting system the ability to detail the system's features and functionality along with its clarifications of deficiencies. It also includes information on who conducted the survey and the reviewing official responsible for assessing the system. In Section II, the Evaluation Checklist delves into specific criteria to evaluate the accounting system. It begins by assessing if the system adheres to acceptable accounting principles. Then, it scrutinizes various attributes such as the segregation of direct and indirect costs, proper identification and accumulation of costs, as well as the presence of essential components like a timekeeping and labor distribution system. Additionally, the checklist evaluates whether the system provides requisite financial information mandated by FAR (Federal Acquisition Regulation) requirements and contract clauses, including support for progress payments. Furthermore, it considers the system's reliability, scalability, and operational status. Through these comprehensive evaluations, the SF1408 aims to ensure the accounting system's compliance and effectiveness in meeting contractual and regulatory requirements. Example of Section 1.2 Narrative The accounting system consists of the General Ledger with its chart of accounts (COA) plus reports as provided within the accounting system framework. Accounting systems include a variety of reports such as basic financial statements, basic job cost reports, and a variety of reports for transactions and labor reporting. The General Ledger system in an accounting system is the primary book of record and all other reports are derived and reconciled to this record. An accounting system, includes labor distributions to single cost objectives whether direct or indirect costs, calculation of monthly and year to date rates, application of the indirect rates to the jobs, monitoring of the status of funding and costs for each job on an inception to date basis, plus an analysis of revenue. The system can generate Cost Plus, T&M, and Fixed Price contract invoices. The Accrual basis of accounting is used in accordance with Generally Accepted Accounting Principles (GAAP). Costs input into the system are evaluated to determine if the costs are allocable, allowable and reasonable. In compliance with FAR 31, costs related to specific jobs are charged to the applicable jobs and related direct cost accounts. Unallowable costs are recorded in the unallowable accounts. Unallowable costs may be charged to a particular job if they are specifically caused by or benefit a specific job, but the amounts are not billable (this also allows full disclosure of ALL costs to a project). Indirect rates are calculated monthly to compare actual rates versus proposed/billing rates and the charges are allocated in the General ledger and are allocated to specific jobs. The monthly preparation of Job Cost Reports allows for interim determination of costs to contracts. Unallowable costs are separately recorded and are not billed (directly or indirectly) according to FAR 31 and the procedure on reviewing unallowable costs. Labor charges are recorded on timesheets which require identification of job and hours worked, signature, and approval. The labor hours are input into the accounting system Timesheet system. This allows the charging of appropriate jobs and calculation of charges. The actual distribution of hours and dollars to direct accounts, indirect accounts and unallowable accounts and related jobs occurs real time and a labor distribution is completed each month and posted to the general ledger. Timecards are currently in use by all employees. While the company supports 40 hours per week, some situations will require additional effort. All hours worked are recorded. In the case of an hourly (Fair Labor Standards Act (FLSA) – non-exempt) employee all hours are compensated including overtime premium for hours in excess of 40 hours per week. For salaried (FLSA – exempt employees) the system calculates an effective rate and applies that across all hours worked by the employee in compliance with Defense Contract Audit Manual (DCAM) 6-410.4(a). Vendor Invoices received are evaluated to determine the allocability, allowability and reasonability of each charge. Based on this review, charges are appropriately charged to direct, indirect, unallowable and appropriate jobs. Invoices are paid in the normal course of business, generally within 30 days. Jobs can be established to coincide with requirements for Task/Subtask or Contract Line Item (CLIN) accounting. Likewise, Jobs can be established to differentiate between preproduction and production costs. Since the Jobs are based on and reconciled to the General Ledger the costs can be summarized or detailed as necessary to allow for review and determination of follow-on contract pricing. The system can provide data to support progress payments/public vouchers. From the details of the General Ledger and the calculations on the job cost reports, plus the other related controls regarding payment of expenses and exclusion of unallowable costs, billings can be readily prepared and reconciled. Billings are submitted based on the terms of the contract based on incurred costs to the projects, Cost, Plus, T&M invoices, or Fixed Price contracts. Each project is given a project number. The hours each employee spends on each project are entered into the accounting system Time & Expense time tracking system daily. This data is monitored for accuracy, and the audit trail is reviewed to verify no improprieties or errors have occurred. Each employee’s supervisor, or designee, approves the data entered by their direct reports. At the end of each week, the time that has been entered is used to generate time sheet reports which are verified to be accurate by accounting. Other Direct Charges (ODCs) such as travel, and materials expenses are entered into the accounting system as they are incurred and paid. A copy of all supporting documentation for material purchases and travel for each specific project is collected as well. Minimum of 2 quotes for all material purchases. The travel expenses are reviewed for compliance with the requirements of the contract. Most follow the requirements of FAR 31.205-46(a)(2) with guidance listed in the Joint Travel Regulations (JTR). Each trip must have a travel approval form signed by supervisor/Program Manager, if possible two weeks in advance of the trip. These forms are cross referenced with the expense reports to make sure all locations, dates, and project numbers match before being processed for reimbursement. Customer approvals for trips may be required before those travel costs can be included with the Invoice. Each employee is given specific information on the per diem rules in the Employee manual and can be found in the GSA website for most trips rules and must have written approval for any costs that go over the per diem rate when it is not available. The material purchases and travel expenses for each specific project are verified against the corresponding accounts in the accounting system General Ledger and Job Costing Journal. FAR 31.2 Unallowable costs are entered into segregated accounts and are excluded in the calculation of indirect rates and excluded from client billings. All subcontractor invoices are checked against the subcontract documentation package for accuracy and to ensure that no limits have been exceeded. If issues are found, the subcontractor is contacted, and the issue is resolved before the invoice is submitted for billing When a Subcontractor submits a bill, it is immediately checked for accuracy in labor, fee, rates, and period of performance and compliance with the terms of the contract including invoicing and payment conditions, allowable versus unallowable expenses, fees and other contract flow-down clauses. Depending on the CDRLs and reporting required by the main contract, backup documentation for ODC charges included in a subcontractor invoice may be required. If the bill is found to be complete and correct, it is then entered into the Accounts Payable system. The Accounting Department keeps track of the monthly status of tasks having subcontractors so that the combined amount to be billed by both the subcontractors and company remains under the overall contract limits. If applicable, Invoices are generated based only on information entered in the accounting, including interim public vouchers. Invoices are generated using DCAA –approved provisional Contractor and Government site overhead rates and General and Administrative rate are applied to the direct labor and other direct costs for cost plus fixed fee task orders. Vouchers are generated and verified to be correct. The vouchers are then submitted to the Government or other Paying Agency either electronically or by mail, as required. Any individuals responsible for the preparation of public vouchers are trained. These individuals receive hands-on training by preparing vouchers that are reviewed by accounting for accuracy and completeness. Periodic training is provided to our accounting department staff to reinforce the initial training and provide updates on changing rules and regulations. Accounting will oversee the provisional billing rate adjustments. The spot rate and projected actual rates will be monitored monthly. This status is reported to management each month. If management determines there is a material difference between provisional rates and the forecasted actual rates, then a change in provisional rates will be submitted to DCAA when applicable. Provisional rates can never be changed without written permission by DCAA. Direct Contract Costs Costs incurred in performing contract work that can be directly associated with a given contract and task are charged to a separate charge number (final cost objective) established in the job costing system. Direct costs consist of direct labor and other direct costs such as travel, or equipment purchases. Employees must charge to a direct contract if the task given can be identified to that single cost objective which is in accordance with FAR 31.202 Direct Costs. Indirect Contract Costs Costs that cannot be directly associated with a given contract and task are charged into one of the indirect final cost pools: Company Overhead pool or General and Administrative pool. Using the bases described below, indirect cost rates are computed and are then used to allocate the costs to contracts. Company Indirect Cost Pool All expenses that are related to contract performance on contracts that are performed at the Company, but that cannot be reasonably related to a specific contract or task are charged to the Company Overhead Cost Pool. These expenses include, but are not limited to, company-site indirect overhead labor, fringe benefits applied to company-site indirect overhead labor, incentive bonus, training and allocations of the Facility Service Center. Once such costs are collected, they are divided by the base of total company direct labor (includes R&D and B&P as direct labor) and fringe benefits applied to company- direct labor. This calculation yields the Company Overhead rate, which is then applied to company direct labor to determine the amount of company overhead costs that should be applied to each individual contract incurring company direct labor. General and Administrative Cost Pool All expenses that are related to the overall running of the business but that cannot be reasonably related to contract performance, or a specific contract or task, are charged to the General and Administrative Cost Pool. These expenses include, but are not limited to, G&A indirect labor, fringe applied to G&A indirect labor, accounting services, tax services, allowable legal fees, and bank service charges. Once such costs are collected they are divided by the base of the total of company direct labor, company overhead applied to company direct labor, and total other direct costs. Also, included are any applicable unallowable costs. This calculation yields the G&A rate which is then applied to the company direct labor. Total Cost Input or “TCI”) is used to determine the amount of G&A costs that should be applied to each individual contract. Note: The information of an SF 1408 can be someway embedded in your proposal when you receive it. Often times, it is in the schedule L of the RFP. GovIRG is here to help you in any way we can!