Incurred Cost Submissions Are Due June 30
By: Javier Diaz and Susan Moser
Contractors with cost reimbursable and time & materials (“T&M”) contracts are required to submit an Incurred Cost Submission (“ICS”) six months after their accounting year ends. These contractors use provisional billing rates to invoice indirect costs to the government throughout the year. At the end of the year, the contractor must calculate their actual indirect rates, which are often different than the billing rates used throughout the year. For this reason, Federal Acquisition Regulation (“FAR”) 16.307 requires that cost reimbursable and T&M contracts include FAR clause 52.216-7.
FAR 52.216-7(d)(2)(i) states the following:
The Contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency official) and auditor within the 6-month period following the expiration of each of its fiscal years.
The keyword being ”adequate”… An adequate submission is key to smooth audits and less scrutiny from the Defense Contract Audit Agency on other engagements. Auditors are quick to deem an ICS inadequate for a variety of reasons. Some of them are:
- Missing or incomplete cost schedules
- Schedules not reconciling within the ICE model
- Schedules not reconciling to the general ledger
- Lack of explanatory notes
- Unallowable expenses are not identified as an adjustment to booked indirect expenses recorded in the general ledger
- Inconsistent contract detail between Schedules H, I & K
- Contract ceilings or voucher numbers are not listed on Schedule I
- Contracts that have the penalty clause are not identified on Schedule I
- Missing subcontractor information on Schedule J or the amount does not reconcile to Schedule H
- Missing contract information on Schedule O when identified as closed out on Schedule I
In summary, for companies whose fiscal year ends on December 31, the June 30 deadline to submit the company’s ICS in accordance with the requirements of FAR 52.216-7 is very near.
Cherry Bekaert has the expertise and depth of staff to successfully assist you through the ICS completion process, including initial construction, remediation, or reviews for adequacy. Please contact Cherry Bekaert’s Government Contractor Services Group if you have any questions or concerns. We are very happy to perform a ”no-cost” high-level preliminary review either in person or virtually. Please reach out to schedule a time if this is of interest to you and your company.
Additionally, keep an eye out for our articles, which will include additional tips you should consider when completing the Incurred Cost Submission.