Dixon Hughes Goodman Thought Leadership | June 2013

Incurred Cost Submissions It Is That Time Again

Contractors that have calendar ending fiscal years are now in the final stages of preparing and reviewing
their Incurred Cost Submissions (ICS) for 2012 that is due to be submitted on or before June 30, 2013.
Dixon Hughes Goodman presented a webinar entitled Incurred Cost Submissions Its Not Too
Early! on March 28, 2013 to provide guidance on preparing adequate ICS. The purpose of this notice is
to provide some last minute pointers as companies complete the ICS for 2012.

We recommend that as companies review their 2012 ICS, they apply the DCAA Incurred Cost
Submission Adequacy Checklist to assess the adequacy of the ICS. The following are some examples
of common areas that drive ICS inadequacies:

All rates included in the disclosure statement, accounting system descriptions, and forward
pricing submissions have not been included in the ICS (especially intermediate pools) and direct
costs are not at the right level.
Appropriate Time-and-Materials (T&M)/Labor-Hour (LH) contracts have not been included on
Schedules H and J.
Overpayments/underpayments identified on Schedule I on billed and claimed costs have not
been identified, or explanations have not been provided for identified payment variances.
All auditable subcontracts (e.g., cost reimbursable, T&M/LH and FPI) have not been identified on
Schedule J and reconciled to purchasing department information.
Contract/subcontract briefs are not adequate (especially identification of contract billing
instructions).
On T&M/LH contracts, employees appear to be billed in labor categories where they do not have
the appropriate qualifications per the contract and explanations have not been provided (e.g.,
resumes have not been updated, CO provided a waiver, etc.).
Appropriate reconciliations of claimed direct and indirect costs to the general ledger have not
been performed, or if performed, differences have not been adequately explained.
Adequate reconciliations of total payroll per IRS submissions to labor cost distributions have not
been included in the ICS It is worth noting that in accordance with the DCAA Contract Audit
Manual 6.406.2(a)(6), Evaluation of Payroll Preparation and Payment:
This additional reconciliation should be requested as part of:
o A major contractor incurred cost audit when a contractor's labor system has been
determined to be inadequate due to deficiencies found in the contractor's payroll
preparation and payment control activities, or
o A nonmajor contractor incurred cost audit except when the auditors have performed a
labor system audit and determined the payroll preparation and payment control activities
to be adequate.
For identified unallowable costs, the ICS does not include any directly associated costs.
The Certificate of Final Indirect Rates has not been signed by a business segment VP or higher.

2013 Dixon Hughes Goodman LLP | dhgllp.com

Any tax advice contained in this communication (including any attachments) is not intended or written to
be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the Internal
Revenue Code or applicable state or local tax law or (ii) promoting, marketing, or recommending to
another party any transaction or matter addressed herein.
Dixon Hughes Goodman Thought Leadership | June 2013

If you have any questions regarding ICS, please contact your Dixon Hughes Advisor or David Eck at
david.eck@dhgllp.com or Todd Bishop at todd.bishop@dhgllp.com.

About the Authors

David Eck, Senior Manager, California

David is a Senior Manager with Dixon Hughes Goodman's Government Contractor Consulting
Services group. He supports our government contractors primarily related to cost accounting,
cost estimating, financial compliance, and DCAA audit expectations. Prior to joining Dixon
Hughes Goodman, David served in a number of capacities with DCAA and upon his retirement,
David was one of the top Regional Directors with DCAA.
Contact David: david.eck@dhgllp.com | 703.970.0480

Todd Bishop, Senior Manager, Tysons, VA

Todd has more than 20 years of experience helping companies identify and resolve issues
associated with cost accounting, financial management systems, requests for equitable
adjustments, and claims. He has an extensive background in the application and interpretation of
rules, regulations, and standards applicable to government contractors. With the recent significant
changes in federal contracting, Todd regularly participates with industry associations to stay
ahead of the power curve
Contact Todd: todd.bishop@dhgllp.com | 703.970.0504

About Dixon Hughes Goodman LLP: With more than 1,800 people in 11 states, Dixon Hughes
Goodman is the largest certified public accounting firm based in the Southern U.S. and the 15th largest in
the nation. Visit www.dhgllp.com for more information.

2013 Dixon Hughes Goodman LLP | dhgllp.com

Any tax advice contained in this communication (including any attachments) is not intended or written to
be used, and cannot be used, for the purpose of (i) avoiding penalties imposed under the Internal
Revenue Code or applicable state or local tax law or (ii) promoting, marketing, or recommending to
another party any transaction or matter addressed herein.