By: Eric Poppe, Senior Manager, and Susan Moser, Partner
We are almost there. When the financial statement audits and tax returns are finally wrapped up, it is time for those with cost reimbursable or T&M contracts to start their annual Incurred Cost Submission (“ICS”). For companies with a fiscal year ending December 31, 2018, the 2018 ICS will be due by June 30, 2019, six months after the close of the fiscal year.
The requirement to submit an ICS is found in Federal Acquisition Regulation (“FAR”) Clause 52.216-7, Allowable Cost and Payment. If this clause is included in one of your contracts, you are required to submit an ICS. Late submissions can be subject to a unilateral decision by the Contracting Officer (“CO”) to apply a decrement factor which will reduce reimbursement of incurred costs.
As a refresher, here are a few things to consider when starting to prepare your ICS during this busy time of year:
- Start early. The ICS has numerous schedules which need to reconcile for the Defense Contract Audit Agency (“DCAA”) to consider it adequate.
- Collect all year-end vouchers. For smaller companies, this may be an easy task. For larger companies, consider starting this effort in advance to ensure there are no major issues when completing Schedule I and Schedule O.
- Reconcile your IRS Form 941s. What seems like a simple task can often turn into a tedious exercise.
- 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 reconciliation can alleviate issues down the line with the DCAA or other auditors.
- Complete an Unallowable Cost Scrub. Almost all cost type contracts include FAR 52.242-3, Penalties for Unallowable Costs, which may require companies to pay penalties on expressly unallowable costs when they have been claimed in the ICS.
- Depending on the size of your company, the process of removing unallowable costs from claimed costs (scrubbing) may be completed throughout the year, or as little as once before the completion of the ICS. Either way, you should focus on high-risk accounts (e.g., travel, consultant costs, business development, executive compensation, etc.) to ensure that the costs being claimed are allowable per FAR 31.205, Selected Costs, and the transactions are adequately supported.
- Compare the ICS to DCAA’s Adequacy Checklist. While some companies may never have the luxury of working with timely DCAA auditors, the best practice is to ensure your submission complies with the DCAA adequacy checklist.
As always, Cherry Bekaert is here assist any contractors with review or preparation of their incurred cost submissions. We are very happy to perform a ‘no-cost’ high level preliminary review either in person or remotely. Please contact us via our website to schedule a review.
