New Audit Restrictions on Preaward Accounting System Surveys

A preaward survey of a prospective contractor's accounting system is an examination of the accounting system before contract award. The audit scope is limited to obtaining an understanding of the design of the prospective accounting system so as to appropriately complete Standard Form 1408, "Preaward Survey of Prospective Contractor Accounting System" and those procedures essential to reach an informed opinion on whether or not the design of the prospective contractor's accounting system is acceptable for accumulating costs under a Government contract.

DCAA recently revised its guidance by limiting audits of prospective contractor accounting systems to only those that are in operation or set up but not in operation. Previously, DCAA would also assess accounting system that were "anticipated" or "nonexistent" (e.g. the prospective contractor does not currently have an accounting system but, if awarded the contract, will implement this or that).

DCAA explains that it is not possible to perform an examination level engagement under circumstances where an accounting system is anticipated or nonexistent (despite what the SF 1408 states). And DCAA is correct. If requested to perform an audit for an accounting system that is either anticipated or nonexistent, the auditor will notify the requester that DCAA will be unable to provide an audit report or SF 1408, but will be available to once the system is set up or in operation.

This change is audit guidance will have ramifications for prospective contractors that do not currently have accounting systems but would be more than willing to implement one, if and when they get a Government contract. Those companies do not want to incur the time and expense necessary to implement a complaint system if the prospective contract is awarded to another firm. Under the previous guidance, DCAA could complete the SF 1408 based on "inquiry" with (sometimes) a recommendation that a follow-up audit be requested after contract award. Under DCAA's new policy, the Agency will refuse to perform an audit or complete the SF 1408 which means that more prospective/potential contractors may be disqualified from competition for lack of an adequate accounting system.