DCAA Incurred Cost Submission

Government contractors usually bill incurred costs using estimated or provisional indirect rates. Once the fiscal year closes, they determine the actual costs incurred, meaning they can now calculate the final indirect rates. Incurred cost submission (ICS) or incurred cost proposal (ICP) allows contractors to calculate refunds due when they bill less than the actual indirect costs or determine how much they owe the government because they billed more. However, the costs claimed must be reasonable, allowable and allocable.

To verify compliance with this requirement, contractors must submit an ICS to the Defense Contract Audit Agency (DCAA). The DCAA conducts an audit to ensure compliance with federal laws and contractual terms. While somewhat complex, learning the fundamentals of ICS can help a great deal. You can also partner with professionals like BOOST for ongoing support.

What Is DCAA Incurred Cost Submission?

ICS involves government contractors submitting actual costs incurred during a specific accounting period to the DCAA for review and audit. The purpose is to ensure costs charged under government contracts are accurate and supported by the appropriate documentation. ICS also ensures that government contracts comply with the Federal Acquisition Regulation (FAR).

The DCAA determines, among other things, whether the claimed costs incurred under the government contract are reasonable and allowable. The agency scrutinizes indirect and direct costs, including:

Materials: Examples include the cost of raw materials and parts.
Overhead costs: Examples include indirect costs such as utilities, rent and insurance.
Labor: Examples include wages, benefits and payroll taxes.
General and administrative expenses: Examples include expenses like accounting and legal services.

The DCAA confirms whether the contractor incurred these expenses according to the contractual terms. Noncompliance can result in financial penalties or loss of future contracting opportunities.

Incurred Cost Electronically (ICE) Model

The DCAA ICE model is a web-based tool that facilitates the adequate submission and processing of ICS. This model aims to streamline the ICS process by making it user-friendly and efficient for contractors and auditors. Using the ICE model is optional but beneficial. It includes all required and optional schedules for convenience. Also, using the model can help contractors and auditors save time.

Who Is Required to Submit an Incurred Cost Submission?

Generally, contractors with cost-reimbursable and time-and-material (T&M) contracts subject to the allowable cost and payment clause must submit an ICS. All government contractors need to know their contract requirements and maintain accurate records. Learning about ICS and complying with the rules is crucial.

As you prepare for an ICS audit, compile and organize the necessary documents to support claimed costs. Remember, the costs must be necessary for the performance of the contract and reasonably priced. Moreover, contractors must allocate costs fairly and consistently.

Incurred Cost Submission Schedules

Government contractors must use the requirements under FAR 52.216-7(d)(2)(iii)(A)-(O) to prepare their ICS. The provision includes these schedules:

Schedule A: This summarizes rates for claimed indirect expenses, including base, pool and the calculated indirect rate.
Schedule B: This includes administrative and general expenses.
Schedule C: This schedule is for overhead expenses.
Schedule D: This schedule is for occupancy expenses.
Schedule E: This includes claimed allocation bases by cost element used in distributing indirect costs.
Schedule F: This computes a facility’s capital costs of money factors.
Schedule G: This schedule includes claimed direct costs by major cost element and the general ledger reconciliation.
Schedule H: This includes indirect expenses applied at claimed rates, direct costs by contract and subcontracts, and a subsidiary schedule of government participation percentages for each allocation base amount.
Schedule I: This includes all the indirect and direct costs claimed and billed by contract and subcontract.
Schedule J: This schedule lists information on subcontracts.
Schedule K: This summarizes information for labor-hour contracts and T&M.
Schedule L: This schedule is for payroll reconciliation.
Schedule M: This lists approvals, agreements, decisions and a description of organizational and accounting changes.
Schedule N: This is a certificate of the contractor’s final indirect costs.
Schedule O: This schedule includes information on contracts closed or physically completed within the fiscal year.

The information you provide must be accurate and detailed.

Incurred Cost Submission Due Dates

You must submit the ICS within six months after the close of the fiscal or calendar year. For example, if your fiscal year ends on December 31, you must submit the ICS on June 30. In exceptional cases, you can request an extension from the administrative contracting officer (ACO).

For example, you may seek an advanced agreement when your company is undergoing a transition, like a merger or acquisition. Late submission can result in penalties or disallowance of costs. The DCAA may also recommend a decrement factor, reducing the costs you can recover.

Best Practices for ICS Compliance

Submitting an ICS to the DCAA is necessary for government contractors. Following these tips and best practices can be helpful:

1. Learn the Requirements

Familiarize yourself with laws like the FAR and Cost Accounting Standards (CAS) to understand the requirements. Also, review DCAA guidance documents and resources to learn the expectations and stay updated with any changes.

2. Maintain Accurate Records

Keep detailed and accurate accounting records throughout the contract period. Ensure all direct and indirect costs are appropriately documented with supporting evidence, such as invoices, receipts and time cards.

3. Use a Standardize Format

If applicable, use DCAA’s recommended formats and templates for ICSs, such as the ICE model. Also, ensure consistency in how you categorize and present costs.

4. Engaging in Continous Training

Provide training for your accounting staff on best practices and compliance requirements. Ensure the training is continuous and create a plan that considers relevant changes.

5. Implement Strong Internal Controls

Establish internal controls to ensure compliance with accounting policies and procedures. Additionally, review internal processes to identify and mitigate risks related to cost reporting.

6. Work With Trusted Professionals

Consider outsourcing ICS compliance to accounting professionals specializing in government contractors. You can partner with a third-party expert for added support even if you have an established internal team.

How BOOST Can Help

Working with experienced professionals like BOOST can be advantageous. Here are three ways we can help:

Expert support: BOOST has a team of trained specialists capable of handling your DCAA compliance needs. We know the ICS requirements and can help you stay compliant.
Informed insight: Our team can help you stay updated with the DCAA ICS requirements. We leverage the latest technologies to comply with the law and drive business success.
Cost-effective solutions: We provide cost-effective solutions to government contractors needing assistance with ICS compliance. Companies with or without in-house accounting teams use our services to reduce or avoid noncompliance penalties.

Contact BOOST for Your GovCon Accounting Needs

Adhering to the DCAA ICS requirements can be challenging, but we are ready to help. With years of experience and resources, BOOST can assist with your accounting needs. Our focus on GovCons allows us to provide personalized solutions. We serve small and large businesses, ensuring they comply with the DCAA ICS requirements. Do you need urgent support or want to learn more? Contact us now!