The recent cancellation of the General Services Administration (GSA) $15Billion Alliant 2 Small Business (A2SB) contract highlights the need for small government contractors to have a properly evaluated cost accounting system.

This cancellation points out that, even as a small business contracting with the federal government, you are expected to have a cost accounting system that is capable of properly accounting for costs incurred on government contracts.  While there are other small business IT vehicles (8(a) STARS, VETS II, CIO-SP3 and SEWP V), they all require a cost accounting system that meets the established accounting system capability requirements.

Pre-award accounting system surveys, utilizing the standard form SF1408, Preaward Survey of Prospective Contractor Accounting System, are performed either by the Defense Contract Audit Agency (DCAA) or by a certified public accountant/accounting firm (CPA).  Post-award accounting system evaluations are performed only by DCAA.  Internally performed self-evaluations, while helping to identify areas of non-compliance requiring corrective actions, are not acceptable in confirming the existence of a compliant cost accounting system for evaluation.

Key attributes of an adequate cost accounting system include:

  1. Identification of direct and indirect costs,
  2. Collection and recording of direct costs by contract, contract line item or cost objective,
  3. Development and implementations of a comprehensive labor recording process,
  4. A method of allocating indirect costs to contract, contract line-item or cost objective, and
  5. Identification and segregation of unallowable costs.

A MOST important attribute of a compliant accounting system is the development and implementation of guiding policies, internal control practices and detailed operating procedures to support each adequacy attribute listed. While DCAA looks at policies and procedures as the first line of defense against fraud, waste and abuse their existence alone does not ensure compliance. They look beyond the written words and verify that you are practicing what you preach (i.e. be careful in buying one size fits all policies and procedures off the internet).