K e y s t o S u b m i t t i n g a n A d e q u a t e I n c u r r e d C o s t P r o p o s a l

Presented by CohnReznick’s Government Contracting Industry Practice

Christine Williamson, Partner and Keith Romanowski, Government

Contracting Compliance/Managed Services

Director

P L E A S E R E A D

This presentation has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice.

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A G E N D A

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Who - Needs to submit an ICP?

What - Are attributes of an adequate ICP?

What - Are my chances of being audited?

Where - Do I file an ICP?

When - Do I submit an ICP?

Why - Are adequate submissions important?

W H AT I S A N I N C U R R E D C O S T P R O P O S A L ?

• Statement of direct and indirect

costs by contract and cost

element

• The final avenue of

reimbursement for both direct

and indirect costs

• Used to review, audit, and

approve direct costs and final

indirect rates for every year

• Required for contract closeout

• Required by the Federal

Acquisition Regulation

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W H O N E E D S T O S U B M I T A N I C P ?

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• Requirement triggered by FAR 52.216-7, Allowable Cost and

Payment Clause

• All Cost-type or T&M contracts

• FP contracts with cost reimbursable clins

• “Christian Doctrine” (even if clause not included)

• Required of Subs as well as Primes

S U B M I S S I O N R E Q U I R E M E N T S

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• The contractor shall submit an adequate final indirect cost rate proposal to the Contracting Officer (or cognizant Federal agency

official) and auditor within the 6-month period following the expiration of each of its fiscal years.

• The Contractor shall support its proposal with adequate supporting

data. (See DCAA Information for Contractors)

• Final annual indirect cost rates and appropriate bases shall be

established in accordance with Subpart 42.7 of the Federal Acquisition

Regulation (FAR) in effect for the period covered by the indirect cost

rate proposal.

I N A C C U R A T E O R I N C O M P L E T E S U B M I S S I O N

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• How does this happen?

• Lack of adequate review

• Inadequate version control

• System reports are incorrect

• Contract types are mixed

• Data entry is sloppy or incomplete

• Contract date base is not maintained

• Schedule totals from schedule to schedule DO NOT MATCH

• Started preparation Late

C O N S E Q U E N C E S O F I N A C C U R A T E S U B M I S S I O N

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• Increased probability of future audits

• Administrative, Civil & Criminal Penalties

• May be an indicator of an inadequate accounting system

• Incorrect final indirect rates

• Incorrect / inaccurate billings

• Reduced revenue and profit and/or reversal of revenue and profit

already taken

• Contract close out delays

F I L I N G L A T E O R N O T F I L I N G A T A L L

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• How does this happen?• Not realizing you must file

• No one clearly assigned the responsibility

• Simply not getting to it

• What are the Consequences?• Filing in arrears is difficult; historical knowledge may be lost

• ACO can unilaterally set indirect rates and close contracts (FAR 52.705-1)

• Statute of limitations extended

• Elevates your contractor risk factor

• “Inadequate accounting system?”

E S C A L A T I O N P R O C E S S

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• Failure to file can go undetected for years

• Three month letter

• If overdue 6 months, letters begin to escalate

• After six months the DCAA will recommend a unilateral rate

determination

• ACO can unilaterally set indirect rates and close contracts

W H A T I S T H E I C E M O D E L ?

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• ICE (Incurred Cost Electronic)

• Electronic form provided by the DCAA for completion of the

Incurred Cost Submission

• The ICE model schedules ARE required

• FAC 2005-52, effective June 11, 2011 incorporated the ICE Model

schedules into the Allowable Cost and Payment clause, FAR 52.216-7

• Template model in Excel Format (located at www.dcaa.mil)

H O W C A N W E S U C C E E D ?

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• Start as soon as possible after the close of the fiscal year• Utilize the DCAA ICP adequacy checklist, “GUIDE FOR DETERMINING

ADEQUACY OF CONTRACTOR INCURRED COST PROPOSAL”, as a benchmark

• Competent Preparer• Knows where to get the data

• Won’t take data or things at face value

• Understands the schedules

• Doesn’t just fill in the boxes

• Competent and thorough review• Tie GL to the IC submission

H O W C A N W E S U C C E E D ? ( C O N T. )

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• Ensure that all schedules Tic and Tie

• Final review / sanity check

• Version Control• Save the reports you create!

• Document what you did and how you did it for future reference / audits/ etc

• Understand your contract types and how costs are accumulated

(CPFF, T&M, FP, etc)

• Knowledge of how the contract is invoiced by task or as one line item• If by task, the cost has to be reported by task

R E Q U I R E D S C H E D U L E S

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• Sch A - Summary of Claimed Indirect Expense Rates

• Sch B - General and Administrative (G&A) Expenses (Final Indirect

Cost Pool)

• Sch C - Overhead Expenses (Final Indirect Cost Pool)

• Sch D – Occupancy Expenses (Intermediate Indirect Cost Pool)

• Fringe

• Sch E - Claimed Allocation Bases

• Sch F - Facility Capital Cost of Money Factors Computation

• Sch F(1) - Calculation of net book value

R E Q U I R E D S C H E D U L E S ( C O N T. )

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• Sch G – Reconciliation of Books of Account and Claimed Direct Costs

• Sch G(1) – Reconciliation of G/L to JCL

• Summary Sch H – Schedule of Direct Costs by Contract/Subcontract

and Indirect Expense Applied at Claimed Rates

• Sch H – Direct and indirect costs by contract

• Sch H(1) – Government participation Percentages

• Sch I – Schedule of Cumulative Direct and Indirect Costs Claimed and

Billed

R E Q U I R E D S C H E D U L E S ( C O N T. )

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• Sch J – Subcontractor information

• Sch K – Summary of Hours and Amounts on T&M/Labor Hour

Contracts

• Sch L – Reconciliation of Total Payroll to Total Labor Distribution

• Sch M – Decisions/Agreements/Changes

• Sch N – Certificate of final indirect rates

• Sch O – Contract Closing information for contracts completed

during the Fiscal Year

• Sch P – Allowable IR&D/B&P

O P T I O N A L S C H E D U L E S

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• Sch Q(1) to Q(4) – Comparative schedules

• Sch R – Tax return reconciliation

• Sch S – Contract Briefs

• Sch T – Executive Compensation

K E Y S C H E D U L E S

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• Sch H – Direct and indirect costs by contract

• Sch I – Summary of claimed and billed

• Sch J – Subcontractor info

• Sch K – Hours and amounts on T&M contracts

S C H H – D I R E C T A N D I N D I R E C T C O S T S B Y C O N T R A C T

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• Direct costs by major cost element by contract or contract task• Contracts are grouped by contract type, show job number and client,

sub or prime• Hybrid contracts

• Fixed price/commercial contracts summarized

• Labor is entered by overhead pool (IMPORTANT)• Include unbillable cost• Direct costs are totaled and burdened with fringe, overhead, G&A, or

other indirect cost and totaled again• Good place to check against system generated direct cost reports

S C H H – S A M P L E

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S C H H – P I T F A L L S

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• Not enough detail

• Not listing contracts by contract type

• Not providing cost by task if funded by task

• Labor not detailed correctly by overhead pool

• Incorrect totals

• Totals do not tie to GL amounts

• Formulas are wrong

• Links are incorrect

S C H I – S U M M A R Y O F C L A I M E D A N D B I L L E D

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• Prior Years settled costs

• Prior Year unsettled claimed costs – direct and indirect burdened at

claimed rates – by year

• Current year claimed costs – direct and indirect burdened at claimed

rates

• Cumulative Billed, Voucher number of last invoice, date billed through

• Calculates over (under) billing

• Yes / No – is the contract subject to the Penalty Clause (FAR 52.242-

3)

S C H I – S U M M A R Y O F C L A I M E D A N D B I L L E D ( C O N T. )

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• Yes/No – is contract physically complete?

• Costs only/No Fee

• CPFF claimed from Sch H

• T&M Claimed from Sch K

• Prior year settled costs

S C H I – S A M P L E

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S C H I – P I T F A L L S

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• Inadequate Review – Review, review, review

• Make sure links to Schedule H are correct

• Prior year data not correct

• Ceilings on indirect rates not addressed

S C H J – S U B C O N T R A C T O R I N F O

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• Includes all subcontracts awarded on flexibly priced prime contracts

and/or upper-tier subcontracts

• Be sure to include all information

• Identifies subcontractors to audit

S C H J – S A M P L E

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S C H K – T & M , O D C

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T&M labor hours by contract or contract task

Show Labor Category, Hours, Hourly Rate, and total

ALL Travel & ODC’s incurred at actual

Indirect costs applied at claimed rates

Ceilings identified on Sch I

S C H K – S A M P L E

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S C H K – P I T F A L L S

Contracts/delivery orders not reported consistent with Schedule H

Cost detail not consistent with billing detail

Contract ceiling is not correct

ODC claimed for each contract/D.O. does not tie to ODC claimed in

schedule H

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S C H A – D A N D F R I N G E -P I T F A L L S

Not using the adjustment column

You can correct known mistakes in the GL here

If you know you charged unallowable as allowable, change it here, take it out

before the audit finds it!

Not reviewing rates with system generated ones

Not checking pool totals with system generated totals

Unallowable costs not identified

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S C H E – A L L O C A T I O N B A S E S

Lists all indirect cost pools and bases and calculates rates

Pulls base and pool information from individual schedules

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S C H G – R E C O N C I L I A T I O N O F B O O K S

Reconciles the GL with claimed costs

Links to trial balance cost accounts and Schedule H totals – DL, Travel,

ODC, material, etc

Any discrepancies are explained in notes

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S C H L – P A Y R O L L R E C O N C I L I A T I O N

Reconciles IRS Form 941’s to Total Labor Distribution

Lists ALL employee labor cost by type and account

Direct Labor

Indirect Labor

Vacation, Sick, PTO

Holiday

Bonus, etc

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S C H M , N , O , Q , R , S , T -P I T F A L L S

Not explaining organizational changes - Schedule M

Certifying without reviewing - Schedule N

Not knowing if your contract is ready to close - Schedule O

Not reconciling or explaining delta between Schedule R & L

Not having contract briefs - Schedule S

Not providing ALL executive compensation - Schedule T

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D C A A A N D E X E C U T I V E C O M P E N S A T I O N

2011 Statutory limit $763,029

FAR 31.205-6 Compensation for personal services

Compensation must be reasonable for work performed

DCAM 5-803-1 Audit of executive compensation

More than 110% of reasonable compensation may be justified by clearly

superior performance…

DCAA policy is to use 10% range of reasonableness

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W H A T D O E S A N A D E Q U A T E I C P M E A N ?

DCAA adequacy checklist

Mandatory schedules are there

Schedules tie to one another

Claimed costs on schedules B, C & D tie to schedule A

Certified

Statute of limitations clock starts

Rate adjustment invoice

ICP ready for audit

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D C A A ’ S R E V I S E D P O L I C Y

Effective July 6, 2012 – Modification of DCAA Process for Sampling

Low-Risk Incurred Cost Proposals

Effective September 6, 2012 – Audit Guidance on Revised Policy and

Procedures for Sampling Low-Risk Incurred Cost Proposals

All ICP’s will be evaluated upon receipt for adequacy

IAW FAR 52.216-7

Using the DCAA Incurred Cost Proposal Adequacy checklist

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I C P D E T E R M I N A T I O N – N O T A D E Q U A T E

ICP is determined to be NOT adequate and the deficiencies cannot be

remedied with minor effort

ICP will be returned to the contractor with written instructions on required

corrective actions, IAW CAM Chapter 6

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I C P D E T E R M I N A T I O N -A D E Q U A T E

In-process assignments – continue as planned

All high risk proposals will be audited

All proposals >$250million auditable dollar value (ADV) will be audited

Low risk proposals <$250million auditable dollar value (ADV) sampled

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L O W R I S K P R O P O S A L C R I T E R I A

Must have prior incurred cost audit experience

No significant audit risks or leads

Known system deficiencies

Concern of Contracting Officer

Significant changes in organization or operations

Risks identified by audit team

No significant total exception dollars

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L O W R I S K P R O P O S A L C R I T E R I A( S I G N I F I C A N T E X C E P T I O N D O L L A R TA B L E )

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L O W R I S K P R O P O S A L C R I T E R I A( S A M P L I N G P E R C E N TA G E S )

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L O W R I S K P R O P O S A L C R I T E R I A

• If ICP not audited DCAA to issue a memorandum for the CO, including the

key steps performed from the adequacy checklist

• If Contractor has multiple low risk audits open and one year sampled,

• All years will be kept open until audit is complete

• If significant questioned costs are found, all years will be audited.

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K E Y C H A N G E S TO D C A A’ S L O W R I S K C R I T E R I A

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G A O R E P O RT O N D O D A U D I T B A C K L O G

DCAA estimates they will be current by 2016

High risk proposals are 250% of anticipated

Initiative appears promising, but…

DCAA has not fully developed measures to reduce backlog and protect taxpayers’ interests

DOD is missing information on contracts to close

DCMA contract closeout metrics established and monitored

Army goal to close 475,000 contracts by 9/2014 –

Missing info and no implementation plan

Navy & Air Force – performance metrics not established for closeout

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R E S O U R C E S

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• ICE Manual

• DCAA Information for Contractors (updated 6/26/12)

• DCAAM (Chapter 6)

• ICP audits – Incurred Cost Audit Program – download from

www.dcaa.mil

• Excel version of ICS – down load from www.dcaa.mil

• FAR Cost Principal Guide

• ICP Adequacy Checklist

Q U E S T I O N S / C O M M E N T S

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R E S O U R C E S

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Christine Williamson, PartnerChristine.williamson@cohnreznick.com(703) 847-4412

Keith Romanowski, Government Contracting Compliance/Managed Services DirectorKeith.romanowski@wjtechnologies.com(703) 885-8168

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