Incurred cost submissions refers to the process by which government contractors submit their actual costs incurred during a specific accounting period to the Defense Contract Audit Agency (DCAA) for review and audit. These costs can include items ranging from labor and material costs to overhead and general and administrative expenses. The purpose of the submission is to allow the DCAA to determine whether the contractor’s costs are reasonable, allowable, and allocable under the terms of their government contract. Understanding what is required for accurate incurred cost submissions is the best way to ensure you stay compliant and pass future audits.
Why Are Incurred Cost Submissions Required?
Incurred cost submissions are a way for contractors to submit their actual costs incurred during a specific accounting period to the DCAA for review and audit. To ensure compliance, the DCAA then uses the information provided by the incurred cost submission to perform a compliance audit, which is designed to ensure that the contractor is adhering to the cost principles and other requirements set forth in the Federal Acquisition Regulation (FAR) and the terms of the contract. The DCAA will then also use that information to determine whether the contractor’s proposed costs for future accounting periods appear to be reasonable and consistent with the contractor’s historical costs.
What You Need to Know About Incurred Cost Submissions
If you’re a government contractor, it’s important to be familiar with all of the requirements for incurred cost submissions, as failure to submit a timely and accurate incurred cost submission can lead to the disallowance of costs, the assessment of penalties, and other negative consequences. For this reason, it is crucial that government contractors have a thorough understanding of the incurred cost submissions process.
To help you navigate this process, we’ve put together a list of frequently asked questions and answers to help you understand what you need to know when it comes to incurred cost submissions.
Incurred Cost Submissions: FAQ
Who Is Required to Submit Incurred Cost Schedules?
All government contractors must submit an incurred cost schedule to the federal government for cost-reimbursable type and time and material contracts.
How Frequently?
Incurred cost submissions are typically due within six months after the end of the contractor’s accounting period. It’s important to stay on top of this deadline, as submitting late can lead to the disallowance of costs, penalties, and other negative consequences.
What Costs Are Included?
Cost-reimbursable type and time and materials must be reasonable and allocable. The kinds of costs covered here include:
- Labor costs, including wages, benefits, and payroll taxes
- Material costs, including the cost of raw materials, parts, and other items used in the performance of the contract
- Overhead costs, including indirect costs such as rent, utilities, and insurance
- General and administrative expenses, including costs such as accounting and legal services
What Does “Reasonable and Allocable” Mean?
The DCAA will review the incurred cost submission to ensure that the costs are reasonable and allocable to the specific contract in question. This means that the costs must be necessary for the performance of the contract, and they must be reasonably priced. Additionally, the costs must be allocated to the contract in a fair and consistent manner.
What Records Are Required?
In order to submit an accurate and complete incurred cost submission, you will need to provide a variety of supporting documentation. This can include things like payroll records, invoices, and other financial records. The importance of accurate, thorough, and ongoing record-keeping is significant.
What If a Submission Is Late?
It’s important that accurate and timely reports be submitted every six months following the end of your fiscal year (or as spelled out in your specific contract). Don’t skip a submission; the government audits these frequently, so it’s critical to stay on top of keeping accurate, thorough records, and submitting them on time.
Failure to submit a timely and accurate incurred cost submission can lead to the disallowance of costs, the assessment of penalties, and other negative consequences.
Will I Be Audited?
Yes. After the DCAA receives the incurred cost submission, they will perform a compliance audit. This is designed to ensure that the contractor is adhering to the cost principles and other requirements set forth in the FAR and the terms of the contract.
How Do I Stay Compliant and Pass My Audits?
Preparing an incurred cost submission can be a complex and time-consuming process. One way to ensure compliance is to work with a company like GovCon that specializes in DCAA compliance and regulations. GovCon is an industry leader in DCAA compliance audit support, and we can help you at any step along the process.
GovCon has a long history of handling DCAA Incurred Cost Proposals, and has an experienced team that can prepare or review your annual year-end Incurred Cost Proposal (ICE) to ensure that your claims are submitted correctly and up to all codes and regulations. Other services we can provide for these proposals include the following:
- Preparation/adequacy of each schedule
- Determination of Cost over/under run of each cost type contract/grant
- Review of the accuracy of your fiscal year close
- Audit/classification of allowable/unallowable costs
- Actual indirect rate calculation
- Cost Management Reports/Job Cost adjustment to actual indirect rates
- Contract Briefs
- Review of the adequacy of the ICE before submitting to the DCAA
If you have any questions or concerns about incurred cost audits or DCAA compliance, we’re here to help! For over 20 years, GovCon has helped hundreds of clients navigate the complex world of DCAA compliance, streamline their operations, pass audits, and win contracts. We use our real-world experience to simplify your process, reduce the cost of compliance, and improve accuracy. Our government contracting software is built specifically to manage DCAA accounting and compliance, leaving no expense unaccounted for. We’d love to show you how GovCon can simplify DCAA compliance for you. Contact us any time.