SF 1408 Pre-Award Accounting System Audit: Common Questions and How to Prepare 

SF 1408 Pre-Award Accounting System Audit – FAQs

Government contractors know compliance isn’t optional, but the specific requirements of each pre-award step can still catch even experienced firms off guard. The SF 1408 is one of the more consequential hurdles in that process. The questions below break down what it is, how it works, and what contractors need to have in place before the DCAA comes calling. 

What is the SF 1408 pre-award accounting system audit? 

Standard Form 1408 is the DCAA’s pre-award accounting system adequacy checklist. It’s used to assess a contractor’s accounting system before a contract award is issued. In practical terms, it’s the government’s due diligence—a structured way of confirming that a contractor’s accounting system meets compliance requirements and that costs are reported accurately and on time. 

How does the DCAA SF 1408 audit process work? 

Once the DCAA receives a completed SF 1408, the agency carefully reviews and verifies the contractor’s responses, identifies potential risks, and provides feedback to the government agency or department issuing the award. It’s important for contractors to understand the requirements and be aware of what the pre-award audit specifically looks for, beyond general information such as the legal business name, address, and signatures. The crux of the SF 1408 is the accounting system evaluation checklist and its supporting documentation. 

What does the SF 1408 checklist require? 

Government contractors must verify that their accounting system conforms with generally accepted accounting principles (GAAP) and that it accurately performs the following: 

• Segregates direct costs and indirect costs 
• Identifies direct costs by contract 
• Allocates indirect costs to intermediate and final cost objectives 
• Accumulates direct costs under a general ledger 
• Records timekeeping and matches employee labor to intermediate and final cost objectives 
• Confirms that direct and indirect labor are charged to the correct cost objectives 
• Excludes costs charged to government contracts that are not allowable under contract provisions 
• Identifies costs by line item, units, and contract line item number (CLIN) if required by the contract 
• Separates preproduction and production costs 
• Supports and substantiates requests for progress payments 

What documentation do contractors need for the SF 1408? 

All supporting documentation must be readily available to confirm the responses on the evaluation checklist. While requirements can vary by contract, the DCAA generally requires financial statements, a policies and procedures manual, and organizational charts. The accounting system must also be able to produce specific financial information required by certain contract clauses—such as limitations on costs or payments and information for progress payments—and must maintain records in a way that generates reliable data for pricing follow-on acquisitions.  

Contractors must also indicate the current status of their accounting system: fully operational, set up but not yet operational, anticipated, or nonexistent. Contractors holding cost-reimbursable contracts should also be aware that the recordkeeping standards established for the SF 1408 carry through to ongoing compliance obligations, including the incurred cost submission, which requires contractors to reconcile actual indirect costs against provisional billing rates at fiscal year-end. 

Why does passing the SF 1408 matter for future contracts? 

Being awarded government contracts carries implications beyond the contract itself. A contractor’s previous relationships and standing with the DCAA signal to agencies whether they’ve been frequently subcontracted by a prime on other work or have a reliable track record. Agencies want to know who will confidently deliver on what was promised. A strong pre-award record builds credibility that compounds over time, while a weak one can damage standing with the DCAA in ways that affect future opportunities. 

How do you prepare for the SF 1408 pre-award audit? 

• Confirm that direct and indirect costs are accurate. Cost segregation is one of the primary things the DCAA verifies—it must be correct before anything else matters. 

• Consistently maintain organized systems and documentation. Supporting documentation should be readily accessible at any time, not assembled under deadline pressure. 

• Complete monthly accounting process reviews. Regular internal reviews demonstrate that the accounting system is actively managed and not simply set up and left to run. 

With proper documentation and sound accounting practices in place, external reviews—including the SF 1408 itself—can be seamless. These same practices reduce the risk of delays that may not only affect the pre-award audit outcome but can also damage a firm’s reputation with the DCAA. 

Does accounting software affect SF 1408 compliance? 

The SF 1408 does not mandate specific accounting software. What matters is whether the system—however configured—meets the checklist requirements above. KatzAbosch works with contractors who use Unanet and other ERP and accounting systems and can help assess whether their setup meets DCAA expectations. 

Where can contractors get expert help with SF 1408 compliance? 

KatzAbosch works with government contractors navigating the SF 1408 pre-award audit process and DCAA compliance requirements. Whether you are anticipating a review or are currently in the middle of one, contact our team to discuss how to prepare your accounting system. 

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