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1 How do I survive an audit of an incurred cost submission? If you require a copy of this presentation, please provide your contact information to either Christopher Weir or Bob Eyer and we will be sure to provide you with a copy. Feel free to also visit our website at where the presentations will be published after Showcase for Commerce

2 Agenda Background What is an incurred cost submission (ICE Model)? Requirements Recommendations for Surviving a DCAA Audit (Best Practices) Ramifications of non-compliance Closeout Resources

3 What is an Incurred Cost Submission? Incurred Cost Electronic (ICE) Model It is a financial representation of your work performed as a contractor for a given reporting period. Used to reconcile claimed actual costs to billed costs The submission can be complex must identify rate structure, direct costs to contract(s), indirect and unallowable costs Dependent on an effective accounting system for audit accuracy

4 Background Template model in Excel Format (located at Designed to assist contractors in preparing adequate Incurred Cost Proposals in accordance with FAR ICE consists of an excel workbook that contains summary and detailed schedules to support claimed indirect expense, occupancy, G&A, and cost of money rates May be modified to be more complex or less complex

5 What is going on with DCAA? The backlog of incurred cost audits increased DCAA has modified its audit approach (more time consuming) DCAA and DCMA recently realigned work to reduce overlap Hired additional staff to meet needs DCAA is playing catch up Auditing multiple years at once DCAA continues to focus on business system audits & preaward audits as well as incurred cost audits.

6 Requirement FAR Allowable Cost & Payment Required for solicitations and contracts when a cost reimbursement contract or a time and materials contract (other than a contract for a commercial item) is contemplated. Final annual indirect cost rates and the appropriate bases shall be established in effect for the period covered by the indirect cost rate proposal. Due Date: within the 6 month period following the end of each fiscal year. Reasonable extensions, for exceptional circumstances only, may be requested in writing by the Contractor and granted in writing by the Contracting Officer.

7 What can we do to prepare for a DCAA audit? Follow written policies and procedures Consider common questioned costs: Meals provided to employees for working lunches. Travel expenses over Per Diem. Excessive Compensation Salaries above certain Caps. Employee Bonuses Related Party Transactions Items placed in Overhead that are questionable as to benefiting the government.

8 What can we do to prepare for a DCAA audit? Understand what the DCAA is looking for Information ties to the Trial Balance & GL. Claimed Indirect Rates are below ceilings. Government Participation in Indirect expenses, compared to other contracts, is fair and reasonable. Costs are reasonable and not prohibited by statute or contract clauses. Expenses claimed concur with corporate policies as well as GAAP. Costs are supported by adequate documentation Schedules are mathematically accurate

9 What can we do to prepare for a DCAA audit? Ensure the ICE model is complete (Schedule N is signed, Schedule L reconciles payroll costs to Federal Form 941 s, Subcontractors listed on Schedule J, Contract Briefs are included in Schedule S, Schedule T is complete, indirect rates are accurate, etc) Be sure amounts and rates tie within the various tabs of the ICE model Maintain supporting data until ICE models are audited Understand where the information came from sometimes individuals who prepared the ICE model leave the company. Review record and retention policies (maintain invoices, timecards, etc)

10 Understand how to approach a DCAA audit: 1. Understand the audit objectives Review audit program Research the DCAA CAM 2. Be cooperative 3. Negotiate due dates for data requests 4. Be responsive. Communicate any delays 5. Ask for clarification 6. Engage the audit supervisor if necessary 7. Generate white papers on questions costs that can be provided to the Contracting Officer for negotiated final indirect rate costs

11 Understand how to approach a DCAA audit: Provide DCAA with access to records. documentation supporting the contractor s assertion (e.g., the contractor s proposal or other submission) should be readily available. Therefore, unless the request requires analysis by the contractor or there are extenuating circumstances (e.g., the request is for a voluminous amount of data or for data stored at an off site location), the contractor should provide the documentation upon request. Costs that the auditor is not able to evaluate due to denial of access to records/data should be questioned in the audit report.

12 What if we don t submit an ICE model? Failure to provide ICE may disqualify a contractor from billing CO may unilaterally establish indirect rates Rates would be based on audited historical data and set low enough to ensure unallowable costs are not reimbursed Immediately engage with CO and work quickly to remedy the issue May be Administrative, Civil, & Criminal Penalties! Engage an attorney/consultant with government contract experience

13 Closeout ICE Adjustment Billings Contracts should settle over/under billings on contracts after the final annual indirect cost rates have been accepted. Physically completed contracts should be marked as such within the ICE model to prompt a contract closeout (Schedule O)

14 Resources ICE Manual DCAAM (Chapter 6) Consultants ICP audits Incurred cost audit program Download from Excel version is available for download at DCAA website FAR Cost Principal Guide

15 Thank you.

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