June 30th Deadline Approaching ‐ Is your Incurred Cost Submission Complete?

Government contractors be aware! Your company’s incurred costs submission (ICS) is due June 30th to your contracting officer (CO). Contractors having flexible priced government contracts, such as cost reimbursable contracts, with the “Allowable Cost and Payment” clause (FAR 52.216‐7) are required to submit an ICS within six months of their yearend unless a waiver is granted.

The Incurred Cost Electronically (ICE) Model is user friendly and can be used to prepare an adequate incurred cost proposal in accordance with FAR 52.216‐7. This model can be found on the DCAA website: http://www.dcaa.mil/ice_model.html

An adequate indirect cost rate proposal shall include the following data unless otherwise specified by the cognizant Federal agency official (per FAR 52.216‐7):

(A) Summary of all claimed indirect expense rates, including pool, base, and calculated indirect rate.

(B) General and Administrative expenses (final indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts).

(C) Overhead expenses (final indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts) for each final indirect cost pool.

(D) Occupancy expenses (intermediate indirect cost pool). Schedule of claimed expenses by element of cost as identified in accounting records (Chart of Accounts) and expense reallocation to final indirect cost pools.

(E) Claimed allocation bases, by element of cost, used to distribute indirect costs.

(F) Facilities capital cost of money factors computation.

(G) Reconciliation of books of account (i.e., General Ledger) and claimed direct costs by major cost element.

(H) Schedule of direct costs by contract and subcontract and indirect expense applied at claimed rates, as well as a subsidiary schedule of Government participation percentages in each of the allocation base amounts.

(I) Schedule of cumulative direct and indirect costs claimed and billed by contract and subcontract.

(J) Subcontract information. Listing of subcontracts awarded to companies for which the contractor is the prime or upper‐tier contractor (include prime and subcontract numbers; subcontract value and award type; amount claimed during the fiscal year; and the subcontractor name, address, and point of contact information).

(K) Summary of each time‐and‐materials and labor‐hour contract information, including labor categories, labor rates, hours, and amounts; direct materials; other direct costs; and, indirect expense applied at claimed rates.

(L) Reconciliation of total payroll per IRS form 941 to total labor costs distribution.

(M) Listing of decisions/agreements/approvals and description of accounting/organizational changes.

(N) Certificate of final indirect costs (see 52.242‐4, Certification of Final Indirect Costs).

(O) Contract closing information for contracts physically completed in this fiscal year (include contract number, period of performance, contract ceiling amounts, contract fee computations, level of effort, and indicate if the contract is ready to close).

The following supplemental information is not required to determine if a proposal is adequate, but may be required during the audit process:

(A) Comparative analysis of indirect expense pools detailed by account to prior fiscal year and budgetary data.

(B) General Organizational information and Executive compensation for the five most highly compensated executives. See 31.205‐6(p). Additional salary reference information is available at: http://www.whitehouse.gov/omb/procurement_index_exec_comp/.

(C) Identification of prime contracts under which the contractor performs as a subcontractor.

(D) Description of accounting system (excludes contractors required to submit a CAS Disclosure Statement or contractors where the description of the accounting system has not changed from the previous year’s submission).

(E) Procedures for identifying and excluding unallowable costs from the costs claimed and billed (excludes contractors where the procedures have not changed from the previous year’s submission).

(F) Certified financial statements and other financial data (e.g., trial balance, compilation, review, etc.).

(G) Management letter from outside CPAs concerning any internal control weaknesses.

(H) Actions that have been and/or will be implemented to correct the weaknesses described in the management letter from subparagraph (G) of this section.

(I) List of all internal audit reports issued since the last disclosure of internal audit reports to the Government.

(J) Annual internal audit plan of scheduled audits to be performed in the fiscal year when the final indirect cost rate submission is made.

(K) Federal and State income tax returns.

(L) Securities and Exchange Commission 10‐K annual report.

(M) Minutes from board of directors meetings.

(N) Listing of delay claims and termination claims submitted which contain costs relating to the subject fiscal year.

(O) Contract briefings, which generally include a synopsis of all pertinent contract provisions, such as: contract type, contract amount, product or service(s) to be provided, contract performance period, rate ceilings, advance approval requirements, pre‐contract cost allowability limitations, and billing limitations.

Your ICS will be reviewed for adequacy which will include but is not limited to reviewing all cost pools and bases for reasonableness and verifying unallowable costs under FAR 31.205 are not included. DCAA will question costs that are expressly unallowable costs and penalties may be incurred in accordance with FAR 42.709. The inclusion of unallowable costs could result in other administrative, civil and criminal penalties.

The assessment of penalties is at the discretion of the CO (within certain guidelines). The contractor should be aware that, if penalties are assessed there may be relief under FAR 42.709‐5 if the contractor can demonstrate that (1) It has established policies and personnel training and an internal control and review system that provide assurance that unallowable costs subject to penalties are precluded from being included in the contractor’s final indirect cost rate proposals (e.g., the types of controls required for satisfactory participation in the Department of Defense sponsored self‐governance programs, specific accounting controls over indirect costs, compliance tests which demonstrate that the controls are effective, and Government audits which have not disclosed recurring instances of expressly unallowable costs); and (2) The unallowable costs subject to the penalty were inadvertently incorporated into the proposal; i.e., their inclusion resulted from an unintentional error, notwithstanding the exercise of due care.

In accordance with 10 U.S.C. 2324(h) and 41 USC 256(h) the ICE must be certified by an individual at a level no lower than vice president or chief financial officer of the business. If the ICE is not certified the contracting officer may unilaterally establish the rates.

If you need an extension, you should contact your CO and make a request for a waiver.

In order to ensure your company is in compliance with the regulations it is best to seek professional assistance from firms that are experienced with this type of consulting services.

If you would like assistance from KatzAbosch please contact Terry Grant, CPA, CCIFP, CCA at 410‐828‐6432 or tgrant@katzabosch.com


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