For most of us, June is a time for rejoicing! The pool is open, school is almost out, your summer vacation is on the horizon and you can’t wait to tear open that new bag of charcoal for Saturday afternoon’s cookout. However, if you are a government contractor with a December 31st year end, you only have 30 days remaining until your incurred cost submission (ICS) is due.
As you probably know, the incurred cost submission is required by the Federal Acquisition Regulation (FAR) and must be submitted within six months of the end of the company’s fiscal year. Failure to comply with the Allowable Cost and Payment Clause (FAR 52.216 – 7(d)(2)) can have a detrimental effect on your business. Here is some advice on Incurred Cost Submissions.
First, understand the Incurred Cost Submission and what it involves.
In the simplest of terms, the incurred cost submission is a summary of the corporate accounting records for a one year period. However, the Defense Contract Audit Agency (DCAA) Excel template, also known as ICE (Incurred Cost Electronically), can make this task seem insurmountable. The ICE is not required to be used by government contractors, but can be helpful for businesses with less sophisticated accounting software. Depending on the type of accounting software your company is using, the ICS schedules might already be available to you. In other cases, the information must be extracted from the accounting system and manually input into the ICE or other ICS document.
Start your summer right by filing your ICS on time.
Just because you passed a pre-award audit, or can get through your annual financial statement review or audit with your CPA, does not guarantee you will have an easy time preparing the ICS. Understanding how your business operates, having a well-designed chart of accounts and a sound filing system will make the preparation of the ICS much easier. This is because the ICS is a summary of last year’s costs and understanding how that information was accumulated is critical.
In DCAA’s 2017 report to Congress, they stated that it takes about 808 days to issue an audit report on an adequate ICS. However, DCAA changed their calculation of elapsed days in 2017 to be the time between the entrance conference and the issuance of the report. This decreased the number of elapsed days for an incurred cost audit to 143 days. This is a five day increase over 2016’s 138 days. Regardless of how the audit timeframe is measured, this lapse in time raises another issue. In order to respond to any inquiry from DCAA, make sure all documentation that was used in the preparation of the ICS is retained. It is also important to include notes about various travel or other costs that could be questioned. It is much more difficult to fight questioned costs if the documentation is insufficient. The burden of proof is on the contractor!
Understand the importance behind filing your ICS on time.
- By not submitting timely, or at all, DCAA can recommend that the Contracting Officer (CO) make a unilateral determination on the contractor’s final indirect rates or contract costs.
- By submitting it timely, your company can start the clock on the Government. Also, not only can you comfortably meet the Government’s deadline, but the contractor can use that information to determine the reasonableness of their provisional rates. If adjustments are necessary, the contracting officer can be notified.
The information contained in the ICS may also be important in a contractor’s Bid & Proposal efforts. The deadline for many proposals to the Federal Government is September 30th. Please do not hesitate to contact me if you believe your government contracting business would benefit from working with us.
With that being said, enjoy the pool and get plenty of rest, because you have a busy summer ahead of you!
About the author:
Jason Mills is a partner at Lanigan, Ryan, Malcolm & Doyle, P.C. and has provided services to the government contracting community for his entire career. He has helped clients develop indirect rates, become compliant with the regulatory requirements imposed on government contractors and has interfaced with government audit agencies on behalf of his clients.
Lanigan, Ryan is a team of CPAs, senior business consultants and associates specializing in the growth and development of privately-owned companies. As a result of working with Lanigan, Ryan, government contractors are better equipped to prepare for DCAA, track indirect rates, prepare reliable bids, and make more informed decisions about moving their business forward.
This post updated 6.6.19.