Cracking the ICE: Ensuring a Compliant Incurred Cost Submission Carlos Alvarado, VP, FP&A
Agenda Introduction Incurred Cost Proposal ICE Model Leveraging Reporting Applications Inadequacy Letters Q&A 2
Who is NeoSystems? Grow Ahead We ve Got Your Back Office Founded 2000; Deltek Partner since 2003 Strategic Back Office Services Accounting, HR, and IT Consulting Implementations, Upgrades, FP&A 125 employees Secure private cloud hosting 450 companies with 27,500 Employees
Incurred Cost Submission What is an Incurred Cost Proposal? Statement of direct and indirect costs by contract and cost element Who needs to submit one? Contracts governed under FAR clause 52.216-7 Required for contract closeout All cost-type or T&M contracts Fixed Price contracts with cost reimbursable CLINs 4
Consequences of Non-Compliance Civil & criminal penalties and sanctions Increased likelihood of future audits Could signal an inadequate accounting system Incorrect / inaccurate billings Inaccurate final indirect rates Delays in contract close outs Upon delay ACO can unilaterally set indirect rates 5
DCAA ICE (Incurred Cost Electronic) Model What is the ICE Model? Electronic form provided by DCAA for completion of Incurred Cost Submission Use as a template for its instructional value Be aware of ICE Model macros Macros apply changes across all schedules Study the Setup worksheet Consider using your own model Keep up with changes Internal and external 6
Schedule Changes Released Renamed Schedule Q (1-4) Suppl A (1-4) Schedule S Suppl O Schedule T Suppl B Requirement Changes Removed Schedule P, R, W and X no longer required Modifications Schedule J - Report by contract type and include Delivery Order ID and PoP Schedule K - Compute Material OH if required 7
Schedule A - Summary of Claimed Indirect Rates Show all claimed: Pools Bases Rates Neo Tip: Add Statement of Indirect Expenses column Pull data from your accounting system Use as reference and validation Not just % but also pool and base amounts 8
Schedule B General and Administrative Expenses Report expenses based on organizational structure Divisions Line of business Departments Use service allocation formulas from schedules Do not manually enter or hardcode values Neo Tip: Add Total G&A Expenses control amount to internal verification sheet Pull data from your accounting system 9
Schedule C Final Overhead Pool Expenses Report expenses based on organizational structure Divisions, Line of business, Departments, etc. Each OH pool needs its own schedule Neo Tip: Add Total OH Expenses control amount to internal verification sheet Pull data from your accounting system 10
Schedule D Intermediate Pool Expenses Report expenses based on organizational structure Divisions, Line of business, Departments, etc. Each intermediate pool needs its own schedule Examine unallocated service center expenses Neo Tip: Add Total Service Center Expenses control amount to internal verification sheet 11
Schedule Fringe Fringe Pool Expenses Report expenses based on organizational structure Divisions, Line of business, Departments, etc. Each fringe pool needs its own schedule Neo Tip: Include allocation of fringe to final pools Common reason for inadequacy letter 12
Neo Tip: Unallowable Worksheet Although not required, always include a worksheet for unallowables and breakdown: G&A Unallowables (e.g. Interest, Lobbying, Dividends Income, Holiday Parties) Non-G&A Unallowables (Unallowable Fringe, OH, or Direct Cost) Non-G&A Unallowables always included in G&A base 13
Schedule E Claimed Allocation Bases Each base description must reflect correct allocation base (Total Cost Input (TCI) vs. Value Added Cost Input) Including non-g&a Unallowables in G&A base Neo Tip: Final tie-out between TCI and Statement of Indirect Expenses 14
Schedule H Schedule of Direct Costs by Contract/Subcontract and Claimed Rates Additional information needed Customer Agency Classified or Unclassified contracts These are NOT in latest ICE model but are required Commonly overlooked Subcontracts ID 15
Schedule H Schedule of Direct Costs by Contract/Subcontract and Claimed Rates Reporting Level Decision Billing Level Contract Review Segregate different contract types Do not forget to perform a final tie-out against P&L 16
Schedule H (Sample) 17
Schedule H-1 Government Participation in Indirect Cost Pools List all pertinent pools with calculations Validate against Schedule H Neo Tip: Add a check into schedule 18
Schedule I Cumulative Direct & Indirect Costs Claimed and Billed Align contracts with Schedule H List Prime and Subcontract ID Don t forget Penalty Clause flag! Account for Contract Limitations Physically Complete Align with Sch. O Neo Tip: Develop process for analyzing over/under billing variance 19
Schedule J Subcontractor Information Make sure you have a Subcontract number and Prime Point of Contact Validate against Schedule H Neo Tip: Gather subcontract value and period of performance ahead of time 20
Schedule K Summary of Hours and Amounts on T&M Contracts Verification of hour totals Make sure to apply proper G&A to ODCs Do NOT change G&A rate to match billings Use Contract Limitations Schedule 21
Schedule L Reconciliation of Total Payroll to Total Labor Distributed Reconciles labor from G/L to IRS returns Direct links from other schedules Adjustments could include: Vacation/PTO accruals Bonus accruals Non-Labor Distribution transactions Pre-Tax Wages Neo Tip: +/- 1% variance is acceptable 22
Schedule M Listing of Decisions and Description of Accounting/Org. Changes Any decisions/approvals that impacts indirect rates Memos issued by CO Items such as: Severance payouts Pension plan changes Salary adjustments for management 23
Schedule N Indirect Cost Certification Complete form, scan, and submit Keep hard copy for auditors Make sure to use the right FY dates 24
Schedule O Contract Closing Information for Contracts Completed in this Fiscal Year Affects all Cost-type, T&M, Flexibly Priced, and LOE contracts Make sure to include Contracts that will be closed after this ICS audit Contracts not ready to close provide reasons Align Schedule I with Physically Complete flag 25
Supplemental A (1-4) Comparative Analysis Schedules (Optional) 1. Overhead Expenses 2. G&A Expenses 3. Intermediate Pool Expenses 4. Comparison of Direct Costs Take ICS from prior year and current year Automatically calculates % change Provide explanations for significant cost increases 26
Supplemental B Executive Compensation Information Not optional! Three most recent fiscal years Top five compensated executives Benchmarks and comparability factors Remember maximum allowable amounts 27
Supplemental C Prime Contracts: Contractor Performs as Subcontractor Not often required with original submission Should have it available! Supplemental O Contract Briefs Not optional! Keep up with modifications Can be system generated! 28
Reporting with Cognos Impromptu Some schedules pull data with copy & paste Others require additional input: Schedules A, B, C, and D Pull from Chart of Accounts file within accounting system Schedule I Cumulative billed and date cost billed available in AR Schedule O Available in accounting system with some manual work 29
Reporting from Deltek CER (Cognos 8/10) All major schedules are addressed Must have Costpoint structured properly G/L, Project Ledger, and Statement of Indirects reconciled Incurred Cost Submission Codes completed Pools properly identified Schedule J Must have Purchasing module Still need to run validation checks Reports may need modifications 30
How to Avoid Inadequacy Letters Schedule A Show all pools Schedule Fringe Allocations Schedule E Ensure base amounts include all unallowable (Non-G&A) amounts Schedule H Schedule H should include a column identifying proper Agencies, Classified, and Subcontract ID 31
How to Avoid Inadequacy Letters Schedule H-1 Ensure that government participation is calculated for all pools Schedule I Penalty provisions and physically complete flag Schedule J Include period of performance for the subcontracts Schedule L Ensure that the labor totals on Schedule L reconcile to labor claimed in other supporting schedules 32
Resources Direct Vs. Indirect Costs Webinar 4/8/2014 Training Courses Deltek First/GCS Premier Deltek Costpoint Cognos ICS Blog Post: http://www.neosystemscorp.com/insight_se ssion_ics.aspx DCAA www.dcaa.mil Office of Management and Budget http://www.whitehouse.gov/omb/procurement_index_exec_comp 33
Q&A Carlos M. Alvarado VP, FP & A calvarado@neosystemscorp.com 34