DCAA INCURRED COST PROPOSALS & ICE SUBMISSIONS

WHAT IS A DCAA INCURRED COST SUBMISSION?

A DCAA Incurred Cost Submission (also called an Incurred Cost Proposal or ICE Submission) is an annual report required for federal contractors performing cost-type or time-and-materials contracts. The submission reconciles the actual indirect costs incurred during the fiscal year with the provisional rates used to bill the government throughout the year.

Per FAR 52.216-7, contractors must submit their incurred cost proposal within six months of the end of their fiscal year. For contractors with a December 31 fiscal year end, this means the submission is due June 30th.

The submission is typically prepared using the DCAA ICE (Incurred Cost Electronically) model, which includes multiple schedules reconciling financial statements, job cost reports, billed costs, and indirect rate calculations.

WHO MUST SUBMIT AN INCURRED COST PROPOSAL?

Cost type contracts and T&M contracts with cost elements are required to have an ICP/DCAA ICE Submission because a government contractor uses their provisional billing rates to determine the indirect cost rates that they can charge the Federal Government throughout the fiscal year. However, as estimated budget amounts are used to calculate the company’s provisional rates, the actual rates are often going to differ from the estimates made throughout the year. Thus, the purpose of the Incurred Cost Proposal is to “true up” the actual indirect costs to the indirect costs that were provisionally billed throughout the year (i.e. the Federal Government wants to make sure they are paying their fair share of your indirect costs, and not a penny more). When the contractor then submits the ICE/their incurred cost proposal, this determines their (final) actual indirect cost rates incurred. These rates are then compared to what was billed, and the contractor may end up owing the government money to “settle” the contract for the year (the government may also owe YOU money, so there is another incentive beyond compliance). 

WHAT IS THE DCAA INCURRED COST ELECTRONICALLY (ICE) MODEL?

ICE MODEL SCHEDULES OVERVIEW

The Workbook’s Table of Contents (TOC) is linked to all Schedules. Schedules A through O are generally the required schedules for the incurred cost proposal however, depending on your accounting practices you may not need all schedules (i.e., if your company does not have any intermediate pools then you will not be completing Schedule D since this schedule is used to provide details of intermediate pool costs). Here are the required schedules:

• Schedule A – Summary of all Claimed Indirect Rates
• Schedule B – General and Administrative (G&A) Expenses (Final Indirect Cost Pool)
  • You will enter your G&A data from your accounting data into this schedule. You will also enter your unallowable expense. The adjustment column is to reverse out the unallowable amounts.

• Schedule C – Overhead Expenses (Final Indirect Cost Pool)
• Fringe – Fringe Pool
• Schedule E – Claimed Allocation Bases by element of cost used to distribute indirect costs
• Schedule G – Reconciliation of Books of Account and Claimed Direct Costs
• Summary Sched H – Summary Schedule H of Direct Contract/Subcontract/IR&D/B&P
• Schedule H – Schedule of Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates
  • On this schedule you will list all of your contracts by contract type. Here you enter all of your contract costs by Labor, Travel, Materials, ODC and Subcontracts.
• Schedule H-1 – Subsidiary Schedule of Government Participation Percentages
• Schedule I – Schedule of Cumulative Direct and Indirect Costs Claimed and Billed by Contract and Subcontract
  • This is the reconciliation schedule the DCAA uses when they are closing your contracts. It is vital that prior year data be carried forward correctly and all costs are tracked on this schedule correctly.
  • This schedule must tie out to Schedule H.
• Schedule J – Subcontract Information
• Schedule K – Summary of Hours and Amounts on Time and Material/Labor Hour Contracts
  • This schedule is only required if you have contracts that were T&M or Labor Hour
• Schedule L – Reconciliation of Total Payroll per IRS Form 941 to Total Labor Costs Distribution
• Schedule M – Listing of Decision/Agreements, or Approvals Affecting Direct/Indirect Costs and Description of Accounting or Organization Changes
• Schedule N – Certification of Final Indirect Costs
• Schedule O – Schedule of Contract Closing Information for those Contract which Work Effort was Completed
  
  
  To learn more about the ICE Model, visit our blog: Incurred Cost Proposal Overview and FAQ for Contractors.
  
  
  

MOST COMMON ISSUES CONTRACTORS ENCOUNTER WITH THE DCAA ICE SUBMISSION

Preparing an ICE submission can be one of the most challenging reporting requirements for government contractors. While true, the model itself is standardized, many contractors struggle with ensuring that schedules reconcile properly with their accounting system and financial records (a problem made even more difficult if you are not properly maintaining a DCAA compliant accounting system and have in-house or outsourced accounting staff with a strong background in the FAR and DCAA).

The DCAA expects your submission to demonstrate clear and accurate relationships between your general ledger, job cost reports, billed contract costs, and calculated indirect rates, and when these records do not reconcile correctly, the submission may be deemed inadequate, resulting in delays, requests for revisions, or additional audit scrutiny.

One of the most common issues contractors encounter involves reconciliation errors between the ICE schedules and the accounting system. For example, Schedule H (which summarizes direct contract costs) must reconcile to job cost reports and the general ledger. Similarly, Schedule I must accurately reflect cumulative contract billings and incurred costs by contract. If a contractor’s accounting system does not properly segregate costs by project or contract, or if job cost reports are inconsistent with financial statements, these schedules will not align. Other frequent problems include improper treatment of unallowable costs, failure to properly segregate indirect cost pools and allocation bases, and inconsistencies between the financial statements and Schedule A of the ICE model. It is also fairly common for contractors to overlook required certifications and supporting documentation. 

These types of problems are particularly common among contractors attempting to prepare their first ICE submission without experienced government contract accounting support, which is why we always strongly suggest contractors ensure they are properly maintaining a DCAA compliant system throughout the period of performance, and using the support of a govcon accounting firm or consultant to complete the ICE. 

WHAT HAPPENS AFTER YOU SUBMIT AN INCURRED COST PROPOSAL?

Once a contractor submits an incurred cost proposal, the DCAA will typically perform an Adequacy Review. During the review (which is typically the first 60 days after submission), auditors use the Incurred Cost Submission Adequacy Checklist to evaluate whether the submission contains all required schedules, reconciliations, and supporting documentation necessary to begin an audit. If the submission is incomplete or contains errors or inconsistencies, the contractor may receive a Notification of Inadequacy, requiring revisions before the proposal will be accepted. This step alone can delay the process significantly if the submission was not properly prepared.

If the proposal passes the adequacy review, that does not mean that the process if complete. Instead, your submission is now moved to a different pool of submissions that may or may not be audited. For high-risk (typically larger) contracts, the submission will almost always be selected for a full audit. If however, your contract is smaller or deemed "low-risk," your submission is put into a pool of contractors that are audited randomly OR you may be issued a "low-risk memo" and never audited.  In general, DCAA has 12 months from the date of your submission to determine if they will audit your ICP.

DCAA INCURRED COST AUDITS - THE PROCESS

If your submission is selected for an audit, the DCAA's auditor will meet with you to set the expectations and provide a list of all the documentation they will require for the audit.  They will then examine your accounting records, labor distribution, indirect rate calculations, and supporting documentation to determine whether the costs billed to the government were allowable, allocable, and reasonable under the applicable provisions of the FAR.  After reviewing your records and testing ("field work"), the auditor present the finding in a draft report and allows you to respond before finalizing the audit results.

Once the audit process is completed, the government establishes final indirect rates for the fiscal year (though audit findings are sent to your Administrative Contracting Officer, who can negotiate the final indirect cost rates), which are used to reconcile the provisional rates that were used for billing during contract performance. If the final indirect rates are lower than the provisional rates previously billed, the contractor may be required to refund overbillings to the government. Conversely, if the final rates are higher than those used during billing, the contractor may be entitled to recover additional allowable costs. 

INCURRED COST SUBMISSION SUPPORT SERVICES 

ReliAscent's accountants and consultants handle Incurred Cost Proposal submissions for our monthly accounting clients. However, our experts can also help your business complete and submit an ICE (even if you perform the accounting in-house), on an as-needed basis. To get the process started, contact us today.

To begin the process, our experts will need the following questions answered:

• What is the total number of employees?

• Are you practicing job costing?

• What was your revenue for year in question for the ICE?

• What was the total number of government contracts for the year (and number of cost type contracts for this ICE submission)?

• When was the your ICE due, and have you requested an extension (if applicable)?

• Have you completed a previous ICE? If so, can you send ReliAscent that submission?

• If you do not have a recent, previous ICE, can you send ReliAscent a copy of your P&L from the year in question?

• If you do not have a recent, previous ICE, can you send an example of a previous Invoice for the Cost type contract from that year?

• Can you send us the proposal and budget for the CPFF contract (this is to ensure billing and rate calcs align across all submittals)?

INCURRED COST SUBMISSION TRAINING

ReliAscent's experts can also provide Incurred Cost Submission training services to companies and their accounting departments. In most cases, this involves a review of the accounting system to determine gaps in DCAA compliance, and may require personnel travel to your facility.

More often than not, issues with Incurred Cost Proposals are due to misunderstandings or discrepancies with how labor flows. Common Incurred Cost Proposal Training topics and steps covered include:

• Making sure the ICP ties out to the independent rate calculation
• Making sure all tabs tie back to the income statement (through Schedule H)
• Making sure schedule H ties to COGS
• Making sure schedule I billed ties to invoicing
• Making sure schedule I total claimed costs match job cost reports
• Making sure schedule K (if applicable) ties to hours and costs for T&M projects
• Making sure schedule L is reconciled and has appropriate adjustments listed

Reviewing the Accounting System for proper ICP preparation and submission:

• The accounting system must be reviewed for DCAA compliance
• Labor Distribution process must match timekeeping
• The system must have proper job costing
• The system must have proper accrual accounting
• The system must have a proper way of identifying and segregating unallowable costs

To learn more about our ICP training and support services, contact us today.

INCURRED COST PROPOSAL RESOURCES