Compliance Readiness for Government Contractors: A Strategic Guide to Building Audit-Proof Systems for SF1408, ICE, and CAS

Stronger controls. Smarter systems. Confident compliance.

Government contractors operate in a uniquely high-stakes financial environment. Whether you are executing on a Small Business Innovation Research (SBIR) award, a cost-reimbursable contract, or transitioning into Cost Accounting Standards (CAS) territory, regulatory compliance is both mandatory and foundational to long-term success.

Without the proper systems in place, companies risk failed audits, disallowed costs, billing delays, and damage to their reputation with contracting officers. However, organizations that take a proactive, structured approach to compliance can turn these challenges into competitive advantages. Understand what it takes to be compliance-ready and thrive under SF1408, ICE, and CAS requirements.

What Is Compliance Readiness?

Compliance readiness is a holistic state of operational integrity, financial accuracy, and system adequacy that ensures you are always prepared for government audits and reviews. This means more than simply passing a DCAA pre-award survey or filing an incurred cost. Submission means embedding strong financial controls, consistent practices, and FAR-aligned policies across your organization.

Contractors achieving this readiness level experience faster approvals, fewer audit findings, greater eligibility for advanced contract types, and increased trust from government stakeholders.

4 Pillars of Compliance Readiness

Compliance in government contracting is not achieved through a single certification or one-time audit. It is built on a framework of interconnected practices that support financial accountability and regulatory transparency. These pillars form the operational backbone of audit readiness and long-term contract success. Understanding and reinforcing each one helps government contractors reduce risk, improve systems, and operate more confidently under federal scrutiny.

SF1408 Accounting System Adequacy

The DCAA’s SF1408 survey is a critical gatekeeper for any contractor seeking flexibly priced or cost-type contracts. To pass, contractors must demonstrate that their accounting system can track costs by project, segregate direct and indirect expenses, maintain timekeeping integrity, and support GAAP-compliant reporting.

A Government Contracts CPA will perform a mock SF1408 audit, test your chart of accounts, examine time entry controls, and help establish written procedures that align with FAR Part 31 and DCAA expectations.

Accurate and Defensible Indirect Rate Structures

Fringe, overhead, and general and administrative (G&A) rates are the financial engine of your government contracts. Misstated or misallocated indirect rates can lead to audit findings, cash flow problems, and competitive pricing failures. Your CPA helps you build forward-looking provisional billing rates, review and true-up indirect pools, and defend your rates with supporting documentation.

Incurred Cost Submission (ICE) Mastery

If you hold cost-reimbursable or T&M contracts, you are likely required to submit an annual incurred cost proposal using the DCAA’s ICE model. A Government Contracts CPA will prepare mock submissions, reconcile ICE schedules with your general ledger, and identify unsupported or questioned costs before submission. This minimizes the risk of delays or rejections from DCAA.

Cost Accounting Standards (CAS) Awareness and Compliance

As your contract volume increases, so does the likelihood of CAS coverage. CAS is a complex framework that requires formal disclosure of your accounting practices and consistent application of cost allocation methods. A CPA will draft your CASB Disclosure Statement, reconcile actual practices to disclosures, and ensure your systems are equipped to meet audit scrutiny.

When strengthened, these pillars create a resilient compliance infrastructure that can withstand audits, support growth, and improve trust with contracting officers. Whether pursuing your first cost-type contract or scaling into CAS-covered territory, mastering these foundational elements ensures your organization is ready for government oversight and positioned to lead in the federal marketplace.

Common Pitfalls and How to Prevent Them

Even experienced contractors stumble into avoidable compliance issues. Here are frequent traps and how your CPA helps prevent them:

• Manual or inconsistent timekeeping: Use electronic systems with audit trails and require manager approvals.
• Commingling of unallowable costs: Maintain clear account codes and written procedures to separate expenses.
• Unsupported indirect rates: Conduct quarterly reviews and document changes and assumptions.
• Late or incomplete ICE filings: Use a compliance calendar and assign clear ownership of deadlines.
• CAS misalignment: Periodically test actual practices against your disclosed accounting methods.

The Role of a Government Contracts CPA

A Government Contracts CPA is both your accountant and your strategic compliance advisor. They understand DCAA audit protocols, IRS cost deductibility, FAR allowability rules, and CAS consistency standards. A Government Contracts CPA brings a unique combination of financial acumen and regulatory knowledge to help you:

• Conduct mock audits (SF1408, ICE, and Disclosure Statement reviews)
• Build and defend indirect rate models
• Prepare and submit compliant ICE models
• Review and strengthen internal policies and procedures
• Represent you during DCAA, DCMA, or IRS audits

Building Long-Term Competitive Advantage

Compliance readiness is a growth strategy. Government contractors prioritizing audit readiness increase their win rates, accelerate billing, minimize compliance risks, and become trusted partners to federal agencies. 

Start Building Resilience Today

You do not need to wait for an audit letter to act. Work with a Government Contracts CPA to help you establish a solid compliance foundation that supports your business now and as it scales. Let us build a system that complies with the rules and powers your long-term growth.

Contact us today to begin your compliance readiness journey.