The Clock is Ticking: Getting an Edge on Your Annual ICS
It’s that time of year. Your personal tax returns are complete. Your company completed its taxes on time. The auditors wrapped up the financial statement audit. Is there time to breathe?
Certainly not…It’s finally time to prepare your annual Incurred Cost Submission (ICS)! For companies with fiscal year ending December 31, 2015, the 2015 ICS will be due by June 30, 2016, six months after the close of your fiscal year.
Throughout the years, we have seen a variety of different hiccups and struggles for companies as they shift out of “busy season.” Here are a few things to consider when starting to prepare your ICS:
- Collect all year-end vouchers. For smaller companies, this may be an easy task. For larger companies, consider tasking this effort in advance to ensure there are no major issues when completing Schedule I and Schedule O. Besides easing the effort in completing a more complicated ICS, the last voucher of the year may reveal many clues that you may not have previously considered. For example, you may be able to determine which contracts on Schedule I are physically complete, and therefore should also be included on Schedule O.
- Reconcile your IRS Form 941s. What seems like a simple task can often turn into a tedious exercise. Take the time to reconcile your quarterly 941s back to the general ledger in advance, or take the opportunity to delegate to a junior staff for training opportunities. In the event your company uses a Professional Employer Organization (PEO), those 941s may not be available to your company. Consider what alternative reporting your PEO has if they file an aggregate 941 and determine how you can reconcile your 941s for the sake of completing Schedule L.
- Reconcile your financial statements to your trial balance. If your financial statements are compiled, reviewed or audited, consider taking the time to develop a work paper that reconciles those final statements to your trial balance. As many know, there can be differences between financial statements (i.e., GAAP) and the incurred cost submission (costing). Preparation of this can alleviate issues down the line with the Defense Contract Audit Agency (“DCAA”) or other auditors. Where differences exist, this is your opportunity to ensure you have the proper backup in case you and your team are no longer with the company when the audit comes around. Additionally, for companies where the financial statements roll up a series of more detailed accounts, ensuring that the high level reconciles to the more detailed level provides you and your team additional assurance that you’re looking at the right numbers, as well as recouping the company the proper amount of indirect expense on cost type or time and materials contracts.
- Perform the DCAA Adequacy Checklist. While some companies may never have the luxury of working with timely DCAA auditors, its best practice to ensure that your submission complies with the DCAA adequacy checklist. DCAA’s Incurred Cost Electronically Model is not a requirement, but meeting the basis objectives of that model are. Considering finding someone in your organization savvy enough to navigate through an ICS, but unfamiliar enough to identify any issues with the model that you may not see while compiling. An adequate submission is key to smoother audits and less scrutiny from DCAA on other engagements.
This is not an all-inclusive list of issues we see companies run into, but are some recommendations for ways to better prepare for, enhance, and fine tune your process during ICS season.
For any questions or assistance with current incurred cost submissions, please contact one of Cherry Bekaert’s GovCon industry professionals.