Incurred Cost Submission Checklist: Quarterly Preparation to Meet Your June 30 Deadline

Summary:

• An inadequate incurred cost submission—missing schedules, reconciliation errors, or incomplete documentation—triggers a DCAA Notification of Inadequacy, requiring you to resubmit before the audit begins and delaying your final rate settlement and cash flow certainty.
• Contractors who approach the incurred cost submission as a year-round discipline by reviewing indirect cost pools in Q1, screening for unallowable costs in Q2, documenting schedules in Q3, and completing reconciliations in Q4 avoid rushed revisions and compressed timelines that put compliance at risk.
• Starting your incurred cost submission preparation early catches divergences between billing and final rates, labor documentation gaps, and unallowable costs before year-end, eliminating expensive last-minute corrections that could delay your audit and jeopardize your contract performance.

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The incurred cost submission (ICS) is due June 30 for calendar-year contractors. Contractors who approach the ICS as a year-round discipline move through the process smoothly, while those who wait until May face rushed revisions and compressed timelines. This checklist outlines what you should do each quarter so that by June, you’re ready to submit.

What makes an incurred cost submission “adequate” under FAR requirements

The Federal Acquisition Regulation (FAR) requires contractors to submit an adequate final indirect cost rate proposal within six months of the fiscal year end. For calendar-year contractors, that’s June 30. You can get an extension from the contracting officer by submitting a written request, but only for exceptional circumstances.

The word “adequate” carries teeth. The DCAA reviews every submission for completeness before it even enters the audit process. If your submission has missing schedules, reconciliation errors, or incomplete documentation, the DCAA will issue a Notification of Inadequacy, requiring you to revise and resubmit before the audit process can begin. We’ve seen otherwise solid submissions rejected purely because a schedule was outdated or a reconciliation didn’t tie to the general ledger. The cost of that delay isn’t just time—it’s uncertainty about what your final rates will be, what you owe the government, and when you’ll know either answer.

Q1 (January–March): Review indirect cost pools and billing rates

January through March, start by walking through your indirect cost pool structure. These are the buckets you’re building—fringe benefits, overhead, general and administrative expenses. The pools should mirror how your business actually operates. If your contract mix shifted last year, you picked up a new service line, or your overhead categories reorganized, your pool structure needs to reflect that before another 12 months of misaligned data pile on.

Then, compare your provisional billing rates to what actually happened last year. FAR requires that billing rates be “as close as possible” to your final rates. If your final rate settlement last year showed a significant divergence (for example, you billed at 45% but settled at 38%), this year’s provisional rates should move closer to reality before you submit invoices. The math you defer early in the year becomes the reconciliation you scramble through at year‑end or close-out.

Q2 (April–June): Monitor indirect rates and screen for unallowable costs

By June, you’ve got enough actual data to run a real comparison of your current indirect rates against what you’re billing. If the gap is widening, you’re either over- or under-billing the government. That difference doesn’t disappear—it gets resolved at rate settlement, typically with an adjustment in your favor or theirs.

This is also the right time to do a clean pass on unallowable costs. FAR Part 31 lists categories of costs that can’t be included in indirect pools, including certain entertainment, lobbying, fines, and penalties. Catching these in June is infinitely less stressful than in December. You still have time to reclassify, adjust, or document without the pressure of a year-end close bearing down on you.

Q3 (July–September): Begin ICS schedule documentation and timekeeping review

By September or October, you’ve accumulated enough year-to-date data to start drafting the schedules that take the most time: your indirect cost pool detail, allocation base documentation, and preliminary contract listing. These schedules form the backbone of your ICS.

This is also the right time to review your timekeeping records for the year so far. Labor costs are a significant component of your indirect pools, and the DCAA has strict requirements for how those costs must be documented and approved. Labor must be charged based on timekeeping documents that employees complete and certify, and supervisors approve. Labor distribution records must then reconcile to payroll and trace back to your general ledger. If gaps have accumulated, such as corrections that haven’t been posted or timecards that were entered incorrectly, address them now. Waiting until December to discover that your labor documentation doesn’t reconcile will force expensive last-minute corrections and could delay your audit.

Q4 (October–December): Complete year-end reconciliations and file your ICS

Complete your unallowable cost review before the fiscal year closes. FAR carries penalties for contractors who include expressly unallowable costs in their indirect cost pools. These penalties apply to contracts over $800,000. To maintain accuracy and compliance, approach this process methodically and give yourself adequate time to review all documentation. A thoughtful, organized strategy helps you avoid last-minute stress and make sure your submission meets all requirements.

Collect all year-end vouchers and reconcile them to your books. Reconcile your financial statements to your trial balance and document any gaps between GAAP-basis reporting and your cost accounting treatment. Reconcile your IRS Form 941 quarterly payroll filings to your labor cost records.

Finally, download the current version of the DCAA’s Incurred Cost Electronically (ICE) model directly from their site. Using last year’s version is a common mistake that results in submissions that don’t meet current adequacy standards. The model changes. You need the current one.

Avoid ICS audit rejections: Get started now

ICS deadlines are immovable. But with consistent quarterly discipline, they don’t have to be a crisis. The contractors we work with who move through this smoothly aren’t smarter than the ones who scramble in May—they just started earlier and caught problems before they compounded.

If you’re ready to get your indirect rate structure reviewed or want to get a head start on your ICS preparation, our government contracting team is here to help. Reach out using the form below.