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SF-1408 — Pre-Award Survey of Prospective Contractor — Accounting System

Form: Standard Form 1408 (SF-1408), referenced by FAR 53.209-1(f) and FAR 9.106 (Pre-Award Surveys). Purpose: Used by DCAA (or other contracting-officer-designated auditor) to evaluate whether a prospective contractor's accounting system is adequate to accumulate and report costs on cost-reimbursement, T&M, incentive, and progress-payment contracts. Date fetched: 2026-05-23 Form revision used: The text below reflects the SF-1408 layout as reproduced in current authoritative DCAA-aligned secondary sources (Reliascent, GRF CPAs, EverGlade, Cherry Bekaert, Sympaq, Aprio). Direct dcaa.mil PDF URLs returned HTTP 403 on automated fetch on 2026-05-23 (/Portals/88/Documents/Checklists%20and%20Tools/PreAward/DCAA%20Preaward%20Survey%20of%20Prospective%20Contractor%20Accounting%20System%20Checklist.pdf and the related 17740 AP audit program PDF). The Reliascent and Cherry Bekaert articles preserve the verbatim form wording; both are aligned and the text below reconciles them. Manual download from dcaa.mil recommended to confirm bit-exact wording before relying on this file for a contract submission.

Section Structure of the SF-1408​

The SF-1408 evaluation is organized into a few top-level questions, with question 2 expanded into ten sub-elements 2(a)-2(j), and question 3 split into 3(a)-3(b). Together they constitute the "14 evaluation criteria" commonly referenced by DCAA and the GovCon industry. The five top-level form questions are:

  1. Is the accounting system in accord with GAAP?
  2. Does the accounting system provide for the following? (10 sub-elements 2(a) through 2(j))
  3. Is the accounting system designed and are records maintained in such a manner that adequate, reliable data are developed for use in pricing follow-on acquisitions?
  4. Is the accounting system currently in full operation?

Below, each evaluation criterion is rendered as its own level-3 header (the form's "14 criteria" expansion).

Criterion 1: Accounting system in accord with GAAP​

"Is the accounting system in accord with Generally Accepted Accounting Principles applicable in the circumstances?"

Sub-elements / what auditors check:

  • Accrual basis accounting (cash-basis systems are insufficient).
  • Books closed at consistent intervals.
  • Financial statements (or a system capable of producing them) reflect earned revenue and incurred expenses, not just disbursements.

Criterion 2(a): Proper segregation of direct costs from indirect costs​

"Proper segregation of direct costs from indirect costs."

Sub-elements / what auditors check:

  • Separate ledger accounts for each major cost element.
  • Direct costs flow to job/project ledgers; indirect costs flow to overhead, fringe, G&A, or service-center pools.
  • Chart of accounts permits invoicing on a cost basis.

Criterion 2(b): Identification and accumulation of direct costs by contract​

"Identification and accumulation of direct costs by contract."

Sub-elements / what auditors check:

  • Integrated job cost subledger reconciled to general ledger.
  • Project/job numbers assigned to all direct transactions (labor, material, ODCs, travel, subcontracts).
  • Job cost ledger maintained by project and updated at least monthly.

Criterion 2(c): Logical and consistent method for allocation of indirect costs​

"A logical and consistent method for the allocation of indirect costs to intermediate and final cost objectives. (A contract is a final cost objective.)"

Sub-elements / what auditors check:

  • Indirect cost pools (overhead, fringe, G&A, material handling, service centers) are defined in writing.
  • Allocation bases (total cost input, value-added base, direct labor dollars, etc.) are defined and consistent with FAR 31.203 and CAS 410/418 principles.
  • Same methodology applied across all contracts and across periods.

Criterion 2(d): Accumulation of costs under general ledger control​

"Accumulation of costs under general ledger control."

Sub-elements / what auditors check:

  • Job cost subledger reconciled monthly to the general ledger.
  • Indirect rate calculations driven from general ledger balances, not from informal spreadsheets.
  • Subsidiary ledgers (AR, AP, payroll, fixed assets) reconcile to GL controls.

Criterion 2(e): Timekeeping system that identifies labor by intermediate or final cost objective​

"A timekeeping system that identifies employees' labor by intermediate or final cost objectives."

Sub-elements / what auditors check:

  • Every employee (including owners, executives, and admin staff) records time daily.
  • Charge codes map to projects, indirect accounts, or both.
  • Total-time accounting: ALL hours worked are recorded, including uncompensated hours over 40 per week.
  • Supervisory approval required; employee acknowledgment of corrections required; full audit trail of all changes.
  • System designed to reduce fraud, waste, and abuse risks.

Criterion 2(f): Labor distribution system that charges direct and indirect labor to appropriate cost objectives​

"A labor distribution system that charges direct and indirect labor to the appropriate cost objectives."

Sub-elements / what auditors check:

  • Labor distribution is generated from the timekeeping system, not re-entered.
  • Labor distribution reconciles to: (i) timekeeping hours, (ii) payroll register, (iii) job cost ledger, (iv) general ledger.
  • Direct labor charged to projects; indirect labor charged to B&P, IR&D, overhead, or G&A as appropriate.

Criterion 2(g): Interim (at least monthly) determination of costs charged to a contract through routine posting​

"Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account."

Sub-elements / what auditors check:

  • Full cost absorption (direct + applied indirect at provisional rates) computed at least monthly.
  • Monthly project status report showing direct costs, indirect burden, and total cost by project.
  • No reliance on quarterly or annual catch-up postings.

Criterion 2(h): Exclusion from costs charged to government contracts of amounts not allowable under FAR Part 31​

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

Sub-elements / what auditors check:

  • Unallowable cost accounts (or flags) defined in the chart of accounts.
  • Unallowables identified and excluded BEFORE costs hit indirect pools, not after.
  • Specific identification required — percentage-based reductions (e.g., "scrub 5% of meals as personal") are flagged as deficiencies.
  • Compliance with FAR 31.201-6 (accounting for unallowable costs) and CAS 405.

Criterion 2(i): Identification of costs by contract line item and by units​

"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."

Sub-elements / what auditors check:

  • Capability — not necessarily current use — to track cost by CLIN, SLIN, or unit.
  • Direct cost charging at the CLIN level when CLIN-level reporting is required.
  • Indirect cost allocation to CLINs.

Criterion 2(j): Segregation of preproduction costs from production costs​

"Segregation of preproduction costs from production costs."

Sub-elements / what auditors check:

  • Separate accounting for preproduction / startup / nonrecurring costs.
  • Documentation that preproduction expenditures are contractually allowable.
  • Advance government agreement when preproduction costs are to be billed.

Criterion 3(a): Accounting system provides financial information required by contract clauses concerning limitation of cost (FAR 52.232-20) or limitation on payments (FAR 52.216-16)​

"Accounting system provides financial information required by contract clauses concerning limitation of cost (FAR 52.232-20) or limitation on payments (FAR 52.216-16)."

Sub-elements / what auditors check:

  • Cumulative cost-to-date by project against funding ceiling.
  • Current period, year-to-date, and inception-to-date cost reporting.
  • 75% / 85% notification triggers for limitation-of-cost notices.

Criterion 3(b): Accounting system provides financial information required to support requests for progress payments​

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

Sub-elements / what auditors check:

  • Per FAR 52.232-16, ability to support cost-based progress billings (typically 80% for large business / 85% for small business).
  • Total costs incurred to date reconcile to GL.
  • Liquidation calculations documented and traceable.

Criterion 4: Designed and records maintained to develop adequate, reliable data for pricing follow-on acquisitions​

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

Sub-elements / what auditors check:

  • Historical actuals retained at the CLIN / task / labor-category / cost-element level.
  • Data retrievable across multiple years for proposal pricing.
  • If the contractor passes Criteria 1-3, Criterion 4 is generally met automatically.

Criterion 5: Accounting system currently in full operation​

"Is the accounting system currently in full operation? (If not, describe in Section II Narrative which portions are (1) in operation, (2) set up, but not yet in operation, (3) anticipated, or (4) nonexistent.)"

Sub-elements / what auditors check:

  • Live data and system-generated reports demonstrate capability under each criterion.
  • Pre-award surveys allow contractors to demonstrate setup-but-not-yet-operational components with sample data.
  • Nonexistent system components receive an unfavorable rating; setup-but-not-operational components receive a conditional rating subject to demonstration.

SF-1408 Rating Outcomes​

After evaluating each criterion, the auditor renders one of three opinions on the system as a whole:

  • Adequate — System meets all 14 criteria; contractor qualifies for cost-reimbursement and other cost-based contract types.
  • Inadequate in Part — Some criteria met, others deficient; contracting officer may award the contract subject to a corrective action plan, or may deny.
  • Inadequate — System fails enough criteria that the contractor is not qualified for the proposed cost-based contract.

A separate finding of "Adequate for award only" is sometimes rendered when the system is operational but has not yet processed government contract costs (typical for first-time prime contractors).

Footnote: Historical SF-1408 versions​

The SF-1408 form has been substantively unchanged for two decades; the most recent OMB-controlled revision in wide circulation as of 2026-05-23 is dated 2021 (commonly cited as "SF-1408 (Rev. 7-2021)" in DCAA training materials). Older versions (1996, 2002) carried the same 14 criteria with minor formatting changes. The substantive language has not changed.

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