Decoding the Incurred Cost Submission (ICS): A Small Contractor Guide to On-Time, Accurate Filing

For small government contractors (govcon) navigating the complexities of government contracting, the Incurred Cost Submission (ICS) can be a daunting annual requirement. This comprehensive report, submitted electronically through the Incurred Cost Electronically (ICE) model, is a critical component of maintaining compliance and ensuring accurate cost reimbursement on government contracts. For many small businesses, a single misstep in this process can lead to significant delays, audits, and even financial penalties.

This guide, from the DCAA Accounting experts at Bay Business Group, will break down the purpose of the ICE model and its various schedules. We’ll offer a timeline and best practices to help your small business avoid common errors, ensuring a smooth, on-time, and accurate filing. Our goal is to demystify the ICE submission process, so you can focus on what you do best – running your business.

What is the Purpose of the Incurred Cost Submission?

The Incurred Cost Submission is an annual requirement for government contractors with cost-reimbursable contracts. It serves to reconcile the provisional indirect rates you’ve been using to bill the government throughout the year with your actual incurred costs. In essence, it’s a “true-up” to ensure that the government has not overpaid or underpaid you for your work. A timely and accurate ICS is crucial for:

• Transparency and Accountability: It provides the government with a detailed breakdown of your direct and indirect costs, ensuring that taxpayer dollars are being spent appropriately.
• Compliance: The ICS demonstrates your adherence to the Federal Acquisition Regulation (FAR) cost principles, a cornerstone of government contracting.
• Contract Closeout: A clean and audited ICS is often a prerequisite for closing out your contracts and receiving final payment.

Decoding the ICE Model and Its Schedules

The Defense Contract Audit Agency (DCAA) provides the ICE model, an Excel-based template, to standardize the submission process. While it may seem complex at first glance, the model is designed to guide you through the necessary calculations and data entry. Here’s a breakdown of some of the key schedules:

• Schedule A: Summary of Indirect Cost Rates: This is the cover sheet of your submission, providing a summary of your claimed indirect rates, including fringe benefits, overhead, and General & Administrative (G&A) expenses.

• Schedules B, C, and D: Indirect Cost Pools: These schedules provide a detailed breakdown of the expenses that make up your indirect cost pools. Schedule B focuses on G&A expenses, Schedule C on overhead expenses, and Schedule D on any intermediate cost pools.

• Schedule E: Allocation Bases: This schedule details the bases used to allocate your indirect costs, such as direct labor dollars or total costs.

• Schedule H: Direct Costs by Contract: This schedule provides a summary of the direct costs incurred for each of your government contracts.

• Schedule I: Cumulative Costs Claimed and Billed: This schedule tracks the cumulative costs claimed and billed for each contract from its inception to the end of the fiscal year. This helps to identify any over or under-billings.

• Schedule K: T&M and Labor Hour Contracts: This schedule summarizes the hours and amounts incurred on Time & Materials (T&M) and Labor Hour contracts.

• Schedule L: Payroll Reconciliation: This schedule reconciles your total payroll from your general ledger to your quarterly IRS Form 941s.

• Schedule N: Certificate of Indirect Costs: This is your certification that the submitted costs are allowable, allocable, and reasonable in accordance with FAR.

Your Timeline for a Stress-Free Filing

The deadline for submitting your Incurred Cost Submission is six months after the end of your fiscal year. For most small businesses with a December 31st year-end, this means a June 30th deadline. To avoid a last-minute scramble, we recommend the following timeline:

• January-February:

• • Close out your books for the previous fiscal year.
  • Gather all necessary financial data, including your general ledger, trial balance, payroll records, and subcontractor invoices.

• March-April:

• • Begin completing the ICE model schedules.
  • Reconcile your claimed costs to your general ledger and financial statements.
  • Identify and segregate any unallowable costs.

• May:

• • Conduct a thorough review of your completed ICE model, double-checking all calculations and formulas.
  • Have a second pair of eyes, preferably a professional experienced in government contract accounting, review your submission.

• June:

• • Finalize and certify your submission.
  • Submit your ICS electronically through the Contractor Submission Portal.
  • Retain all supporting documentation for potential DCAA audit.

Best Practices to Avoid Common Pitfalls

An accurate and timely ICS can save you from the headaches of a DCAA audit. Here are some best practices to keep in mind:

1. Start Early: Don’t wait until the last minute to begin preparing your submission. The process is detailed and time-consuming.
2. Maintain Meticulous Records: Keep organized and detailed records of all your costs throughout the year. This will make the ICS process much smoother.
3. Understand Unallowable Costs: Familiarize yourself with FAR Part 31 to understand which costs are unallowable and should be excluded from your submission. Common examples include entertainment expenses, alcohol, and lobbying costs.
4. Reconcile, Reconcile, Reconcile: Ensure that all the numbers in your ICS tie back to your general ledger and financial statements. Discrepancies are a major red flag for auditors.
5. Use the DCAA’s Adequacy Checklist: The DCAA provides a checklist that its auditors use to determine the adequacy of an ICS. Use this checklist to review your own submission before you file.
6.  Don’t be afraid to ask for help. An outsourced accounting firm with experience in government contracting can be an invaluable resource in preparing an accurate and compliant ICS.

Let Us Handle the Details

At Bay Business Group, we specialize in providing outsourced accounting services to small business government contractors. We understand the nuances of the Incurred Cost Submission and can help you navigate the process with confidence. From preparing your ICE model to supporting you through a DCAA audit, our team of experts is here to ensure your compliance and peace of mind.

Contact us today for a consultation and let us help you take the stress out of your next Incurred Cost Submission.