Your 10-Point Plan to Avoid an Inadequate ICS

Your contract performance was stellar. You delivered what you promised to a happy federal customer.

Now it’s time to reconcile costs—detailed undertaking that can derail your profits if not done right. Fortunately, there are steps you can and should take to ensure that an inadequate incurred cost submission (ICS) does not play havoc with your company finances, at submission time, or during a possible audit.

A Reconciliation Is in Order

ICS requirements are part of the Federal Acquisition Regulations (FAR). An ICS is a mechanism through which you reconcile your actual Direct Cost and Indirect Rates with the costs that you provisionally billed for during the fiscal year.

If your cost-type or time and materials (T&M) contract has the triggering Allowable Cost & Payment Clause (FAR 52.216-7), your ICS is due six months after the close of your fiscal year (see our blog on ICS basics for more information). The clause requires a contractor to submit an ICS to the Defense Contract Audit Agency (DCAA), which evaluates your submission for adequacy. The agency provides an adequacy checklist to help GovCons meet ICS requirements. DCAA uses the same list to review your ICS.

Color in the Lines and Calculate Carefully

ICS documentation is a detailed and complex undertaking. Whether your firm is going DIY or calling in government accounting expertise, here are some guidelines you should be aware of to avoid the dreaded “inadequate” judgment on your ICS:

  1. Read the instructions carefully in the DCAA workbook. The agency provides an ICE (Incurred Cost Electronically) Model to help GovCons prepare an adequate ICS. Make the most of this useful guide.
  2. Keep original formulas intact. The ICE model contains several formulas and references within and among worksheets in the workbook. Do not change these. Copy formulas and add rows as needed or when noted in the instructions.
  3. Complete all mandatory schedules. An ICS consists of 15 separate schedules. A handful is optional, but it often pays to complete these as well, since DCAA will require the data during an audit.
  4. Ensure that schedules tie out where necessary. Check carefully for like data that are not already linked. For example, total subcontract costs on Schedule H tie to total subcontractor costs on Schedule J for applicable contract types.
  5. Categorize your contracts and direct costs appropriately on Schedule H. This is important because it drives requirements on other tabs that are verified during an adequacy review by DCAA.
  6. Pay attention to Schedule I data feed. This section of your ICS presents the cumulative cost incurred, cumulative billing, and calculation of the over or underbilling amount. Pay attention to the suggested data feed from other schedules and tabs.
  7. Include all wage accounts in Schedule L. This section reconciles claimed labor from other schedules to the actual paid amount reported on payroll tax forms. Remember to include all wage accounts as you complete Schedule L.
  8. Schedules Suppl A-1 through Suppl A-4. These schedules cover overhead, general and administrative expenses, intermediate pool costs, and direct costs. Because they use a macro, they should be completed after you finalize prior schedules in the workbook that supply data for these schedules. Review the guide for more clarification on this tab.
  9. Ensure all macros have been successfully run once you complete the required input data.
  10. Remember that an “adequate” rating does not avert an audit.

When the DCAA issues a letter stating that your ICS is adequate, it means that you’ve cleared the hurdle of submitting a complete document. The agency next considers whether to place your submission in a pool to be audited. If DCAA deems your ICS “low-risk,” the agency may remove you from the audit pool. Factors DCAA may consider when assessing your risk include:

  • Previous audit results.
  • Risks identified by the contracting officer (CO) or auditor.
  • History of late or inadequate ICSs.
  • Previous experiences that the CO or auditor had with your company.
  • Fraud referrals

Even the most business-savvy GovCons can be overwhelmed by the complexity and data demands of an ICS submission or DCAA audit. CAVU’s depth and breadth of government accounting experience can help you dot the i’s cross, cross the t’s, and consistently keep your costs in order.