What is SF1408?

Navigating the world of government contracting can feel like being handed a puzzle with no picture on the box. For small businesses trying to land their first contract, Standard Form 1408 (SF1408) may feel like one of those pieces that seems impossible to figure out.

SF1408 compliance ensures your business qualifies for certain types of government contracts, which can grow your operations exponentially. Understanding SF1408 is crucial for small businesses diving into government contracting, and we’re here to help.

Understanding SF1408

SF1408 is how the Defense Contract Audit Agency evaluates your accounting system. At its core, SF1408, or the Pre-Award Accounting System Survey, is the government’s way of ensuring the system is robust enough to handle its high expectations. It evaluates your organization’s ability to:

Track costs accurately: SF1408 confirms your company can divide direct and indirect costs and allocate resources appropriately.
Handle government requirements: The form evaluates if your organization’s timekeeping and invoicing processes are airtight, without rounding errors.
Keep documentation clear: The government likes receipts, so it wants to establish that your organization can keep records consistently organized.
Manage internal controls: The system confirms your company has safeguards in place to prevent mistakes and fraudulent behavior.

Failing to meet SF1408 standards can disqualify you from cost-reimbursement contracts and other lucrative opportunities. Luckily, achieving compliance doesn’t require overhauling your entire business. It’s often simply about tightening existing processes and adopting a few key tools to fill the gaps.

SF1408 Requirements

Meeting SF1408 requirements means your business is creating a scalable system supporting long-term success in government contracting. It focuses on a few main areas:

General business information: The SF1408 form asks for basic information about your company, such as the official name, contact details and confirmation that your accounting system follows GAAP.
Supporting documentation: You must provide documents backing up your accounting practices. These include recent financial statements to prove stability and policy or procedure manuals to outline your internal controls.
Accounting system evaluation: The accounting system evaluation is at the heart of SF1408, which ensures your system can handle the complexities of a government contract.
The Davis-Bacon Act: The Davis-Bacon Act establishes requirements for timekeeping, certified payroll reporting, cost segregation, transparency and internal audits, and following it can help you avoid penalties and maintain eligibility for future federal contracts.

A Quick SF1408 Checklist

The survey will verify that your accounting system adheres to generally accepted accounting principles (GAAP) to confirm that it meets specific compliance criteria for handling government agencies. Here’s what the government is looking for and how to meet its expectations:

1. Cost Segregation

The government needs assurance that your business can separate direct costs, such as materials purchased specifically for a project, from indirect costs, like administrative expenses. Implementing job codes or project tags in your system will help delineate costs and meet clear cost segregation requirements.

2. Job Cost Accounting

Your accounting system must track all costs by individual contract or project, as each government contract must be treated as a stand-alone project. This requirement includes direct labor, materials and overhead. For example, if your business is building infrastructure for a federal agency, your system needs to allocate every dollar spent on that specific project without lumping it in with other expenses. Use customized job-costing modules to meet these government standards.

3. Timekeeping System

Accurate time tracking is nonnegotiable. Employees must log their hours daily, and those hours should tie back to specific projects. Manual or paper-based timekeeping systems are likely to fail audits, so opt for automated systems that integrate with accounting software, saving time and reducing errors.

4. Labor Distribution

With time tracking systems, you can correctly distribute labor costs across projects, ensuring direct labor costs are charged to the right contract and indirect labor costs are allocated correctly. Regularly review labor cost allocations to confirm accuracy, as mistakes can lead to audit findings.

5. Internal Controls

Auditors want to see that your organization has systems in place to prevent errors and detect fraud. This includes processes like approvals, reconciliations and checks on data accuracy. Review expense reports for proper documentation, reconcile accounts monthly and have strong internal controls in place to demonstrate your commitment to compliance.

6. Financial Reporting

Your business must have a system in place to generate reports that provide visibility into contract performance, costs and profitability. Auditors want to know you’re tracking the right metrics and can produce documentation on demand. Set up templates for the reports auditors request most frequently, such as those incurred cost submissions or progress billings.

How Partnering With an Accounting Expert Can Help

An expert with deep knowledge of government compliance standards and practical experience with accounting systems can bridge the gap between your current operations and the rigorous SF1408 requirements. Here’s how:

Gap analysis: Your current accounting system is analyzed to identify compliance gaps and recommend solutions, such as software updates or job-costing modules.
System customization: An expert can set up job codes for specific contracts, automate your reporting templates and integrate new timekeeping systems for real-time tracking.
Policy development: A third-party service provider can draft manuals detailing your internal controls and cost allocation processes, ensuring they align with government regulations.
Internal controls: An expert can implement access restrictions for financial data, set up approval workflows for invoices and establish regular reconciliation practices to correct discrepancies early.
Supporting documentation: A service provider can help compile financial statements, organize them in a way that’s easy for auditors to review and set up a system to help you retain records for the required duration.
Strategic guidance: An accounting expert can offer advice on structuring your accounting system for scalability and provide ongoing support and training throughout the contract’s life.

Get Started With SF1408 Compliance With Help From BOOST

SF1408 compliance is an opportunity for your company to level up. By tightening your processes and aligning with government standards, you’re setting your business up for sustainable growth. These key components will open new doors to a pipeline of opportunities that increase your revenue — you just want to make sure you’re using the right tools, resources and expertise to put your business on the map.

The team at BOOST specializes in GovCon, helping small business clients comply with Federal Acquisition Regulations and navigate the complexities of SF1408. From assessing your current accounting system to training your staff, implementing government-compliant practices, and providing or performing payroll, we’re here to guide you every step of the way.