Slide 1. Slide 2. Slide 3 Standard Form 1408 ACCOUNTING SYSTEM ESSENTIALS

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1 Slide 1 Slide 2 ACCOUNTING SYSTEM ESSENTIALS P r e p a r e d f o r Alliance Northwest 2014 By T e r r y S. N u z z o, C P A, C G M A P a c i f i c N o r t h w e s t C o n s u l t a n t s, L L C Slide 3 Standard Form 1408 Preaward Survey of Prospective Contractor Accounting system (SF 1408) Government will use the SF 1408 to evaluate your accounting system Contains 15 criteria Some may not be applicable Depends upon the type of contract being awarded Flexibly priced contracts (CPFF, CPIF, CPAF) have the highest standards

2 Standard Form 1408 Slide 4 Slide 5 ACCOUNTING SYSTEM ESSENTIALS Overarching Accounting System Principles Not part of the SF 1408 Must comply with applicable laws Ensure the proper recording, accumulating, and billing of costs on Government contracts Comply with GAAP* applicable in the circumstances * Generally Accepted Accounting Principles Slide 6 Proper segregation of direct costs from indirect costs Direct costs are those that can be identified directly to a specific contract or other final cost objective. Indirect costs are those that benefit more than one contract/project.

3 Slide 7 Identification and accumulation of direct costs by contract Commonly referred to as a job cost system A logical and consistent method for the accumulation and allocation of indirect costs to intermediate and final cost objectives Requires you to consider indirect expense pools and causal/beneficial allocation bases Could be single rate or multiple rates Slide 8 Accumulation of costs under general ledger control With today s accounting software (e.g. QuickBooks) compliance is easier than it once was Companies that use spreadsheets for accounting tend to have problems with this requirement Companies that outsource payroll need to ensure integration into their accounting records Slide 9 A timekeeping system that identifies employees labor by intermediate or final cost objective Timekeeping is extremely important don t sell it short A labor distribution system that charges direct and indirect labor to the appropriate cost objective Or, how to convert hours on the timesheet to dollars in your accounting system

4 Slide 10 Interim (at least monthly) determination of costs charged to a contract through routine posting of books of account Emphasis on monthly posting Requires not only accumulation of direct costs but also the allocation of indirect costs Slide 11 Exclusion from costs charged to Government contract of amounts which are not allowable in terms of FAR Part 31, Contract Cost Principles or other contract provisions Requires someone in your company to be knowledgeable about FAR Part 31 cost principles Requires understanding of contract provisions Slide 12 Identification of costs by contract line item and/or by units if required by the contract For small contracts, this is rare Segregation of preproduction costs from production costs Preproduction costs might be Unallowable Capped

5 Slide 13 Provides financial information required by contract clauses concerning limitation of costs or limitation on payments Contract clauses require that contractors advising the contracting officer when they re getting close to exhausting contract funds The contractor will incur 75% of costs within the next 60 days Days can vary between 30 and 90. Percentage can vary between 75 and 85 Provides financial information required to support requests for progress payments Slide 14 System is designed and records are maintained in a manner such that adequate, reliable data are developed for use in pricing follow-on acquisitions Is the accounting system in full operation? In operation Set up but not operating Anticipated Nonexistent Slide 15 Questions?