Incurred Cost Submissions: Why April Planning Prevents June Panic

 

Every year, the same thing happens. A government contractor with cost-reimbursable contracts knows the incurred cost submission deadline is June 30. They know it in January,  in March, and then somehow it is the third week of June. Suddenly, they are scrambling to pull together schedules, reconcile indirect rates, track down documentation, and assemble a submission package under pressure that did not need to exist.

The submission gets filed, but it is rushed. Numbers do not tie out cleanly, supporting documentation is thin and schedules were built from memory instead of reconciled data. Now the contractor is sitting on a package that is technically submitted but practically indefensible if DCAA decides to audit it.

This is not a time management problem, but a planning problem. It is entirely preventable.

If you start your incurred cost proposal preparation in April, the June 30 deadline stops being a crisis and starts being a milestone. This article walks through what the submission requires, where contractors consistently stumble, and how to build a preparation timeline that keeps you compliant, audit-ready, and in control.

What an Incurred Cost Submission Actually Requires

Under FAR 52.216-7, contractors with flexibly priced contracts, cost-reimbursable, time and materials, or labor-hour, must submit an adequate incurred cost proposal within six months after the end of their fiscal year. For most contractors operating on a calendar year, that means June 30.

The incurred cost submission is not a single document. It is a comprehensive package that reconciles your actual costs for the fiscal year against your billing rates and contract charges. The purpose is to enable DCAA to determine your final indirect rates, settle any difference between provisional billing rates and actual rates, and verify that the costs you charged to government contracts were allowable, allocable, and reasonable.

The standard submission follows the DCAA ICE (Incurred Cost Electronically) model and includes a series of schedules. The core elements cover your claimed direct costs by contract, your indirect cost pool summaries for fringe, overhead, and G&A, your allocation bases, a reconciliation of total costs to your financial statements, a schedule of cumulative allowable costs, claimed contract costs broken out by cost element, and adjustments for any costs claimed as direct that should have been indirect, or vice versa.

There are typically fifteen or more individual schedules in a complete submission. Each one needs to be internally consistent and reconcilable to your general ledger, your financial statements, and your billing records.

Why Contractors Get Into Trouble

The incurred cost submission is not conceptually difficult. It is a reconciliation exercise. You are proving that your actual costs align with what you billed, that your indirect rates are supportable, and that your cost classifications are correct. The problem is that this reconciliation depends on clean, organized, accessible data, and most contractors do not maintain that level of readiness year-round.

The books are not fully closed. If your year-end close for the prior fiscal year is not complete by the time you start preparing your ICS, you are building schedules on shifting ground. Accruals that have not been finalized, reclassifications that have not been posted, reconciliations that have not been completed, all of these create discrepancies that ripple through every schedule in the submission.

Direct and indirect cost classifications are inconsistent. This is one of the most common audit findings. A cost that was classified as direct on one contract shows up as indirect in another period, or a cost that should be in the G&A pool was coded to overhead. These classification errors often go unnoticed during the year because nobody is reviewing them with the ICS in mind. By the time you are assembling the submission, the errors are baked into your general ledger and require significant rework to correct.

Unallowable costs were not segregated. FAR Part 31 identifies specific cost categories that are unallowable on government contracts, including entertainment, alcohol, certain lobbying costs, fines and penalties, and others. These costs must be identified and excluded from your indirect cost pools. If your chart of accounts does not have dedicated accounts for unallowable costs, or if nobody is reviewing expenses for allowability throughout the year, the segregation exercise during ICS preparation becomes a time-consuming manual process.

Supporting documentation is missing or incomplete. Every number in your incurred cost submission should be traceable to your accounting records. If your general ledger does not reconcile to your financial statements, or your billing records do not tie to your claimed contract costs, you have a documentation gap. DCAA auditors follow the numbers from your ICS schedules back to your source documents. If the trail breaks, you have a problem.

The submission does not use the current ICE model format. DCAA periodically updates the ICE model. Contractors who reuse last year’s template without checking for changes risk submitting an inadequate package. An inadequate submission can be rejected, which does not extend your deadline but does put you in a noncompliance position.

The April Start: A Practical Preparation Timeline

Starting your incurred cost submission preparation in April gives you roughly twelve weeks before the June 30 deadline. That is enough time to identify issues, correct them, and assemble a submission that is both compliant and defensible. Here is how to use that time.

April: Close the Books and Reconcile

The first priority is making sure your fiscal year-end close is complete and accurate. If it is not done by April, finishing it is step one. Every accrual should be posted. Every account should be reconciled. Your trial balance should tie to your financial statements without unexplained differences.

Once the books are closed, run a preliminary reconciliation of your indirect cost pools. Compare your actual indirect costs against your provisional billing rates. Identify any significant variances. If your actual overhead rate came in at 45% but you were billing at 38%, you need to understand why and prepare to explain the difference. If your G&A rate dropped because revenue increased faster than G&A spending, that is a different story than if it dropped because you reclassified costs. Both are defensible, but only if you can articulate the reason clearly.

This is also the time to review your direct cost charges by contract. Look for any costs that may have been miscoded. Check for expenses that should have been allocated differently. The earlier you catch these issues, the easier they are to correct.

May: Build the Schedules and Identify Gaps

With clean, reconciled books, you can begin building the ICS schedules. Download the current DCAA ICE model from the DCAA website and work through it systematically.

Start with the schedules you can complete from your general ledger data: the indirect cost pool summaries, the allocation base calculations, and the claimed direct costs by contract. As you build each schedule, cross-reference the numbers to your trial balance and your financial statements. If something does not tie, stop and figure out why before moving on.

This is the phase where gaps surface. Maybe your subcontractor costs do not reconcile to your billing records oryour fringe rate calculation requires a payroll allocation that has not been completed. Maybe you realize that a consulting expense you classified as direct should have been indirect. Identifying these issues in May gives you time to resolve them. Identifying them on June 25 does not.

Build a punch list of open items and assign ownership and deadlines. Treat the ICS preparation like any other project with deliverables and accountability.

June: Review, Finalize, and Submit

By early June, your schedules should be substantially complete. The final two to three weeks are for quality review, not construction.

Review each schedule for internal consistency. Do the indirect rate calculations match across schedules? Do the claimed direct costs by contract sum to the total on the summary schedule? Does the total cost reconciliation tie to your audited or final financial statements?

Have someone other than the preparer review the package. A second set of eyes catches errors that the person who built the schedules will miss because they are too close to the numbers. If you work with a GovCon accounting advisor, this is where their review adds the most value. They know what DCAA looks for and can identify weaknesses before the auditor does.

File the submission before June 30. Not on June 30. Give yourself a buffer for any last-minute issues that surface during final review.

What Happens After You Submit

Filing the incurred cost submission does not close the loop. It opens a new one. DCAA may or may not audit your submission, and the timeline for audit is unpredictable. Some contractors wait years. Others get audited relatively quickly. Either way, the submission you filed is what they will examine.

During an incurred cost audit, DCAA will review your indirect rate calculations, test the allowability of costs in your indirect pools, verify that direct costs were properly allocated to contracts, and reconcile your submission to your financial records. They will look for consistency between your ICS, your billing records, your general ledger, and your financial statements.

If your submission was prepared carefully with clean data and thorough documentation, the audit is a manageable process. If it was thrown together under deadline pressure with unreconciled numbers and missing support, the audit becomes an expensive, time-consuming problem that can result in rate adjustments, questioned costs, and potential repayment obligations.

The quality of your submission is not just about compliance. It is about protecting your business from audit findings that could have been prevented.

Year-Round Practices That Make ICS Preparation Straightforward

The contractors who handle incurred cost submissions with the least stress are the ones who prepare for them all year, not just in the spring. A few ongoing practices make a significant difference.

Close your books monthly, not just at year-end. If your month-end close process includes reconciling all balance sheet accounts, reviewing indirect cost pools, and verifying cost classifications, your year-end data will be substantially cleaner when it is time to build the ICS.

Segregate unallowable costs in real time. Set up dedicated accounts in your chart of accounts for FAR Part 31 unallowable costs. Code expenses to those accounts as they occur, not retroactively. This eliminates one of the most tedious steps in ICS preparation.

Review your indirect rates quarterly. Compare your actual rates to your provisional billing rates every quarter. If they are diverging significantly, adjust your billing rates or prepare to explain the variance. Quarterly rate reviews also help you catch classification errors before they compound.

Maintain your documentation continuously. Keep your billing records, contract modifications, subcontractor invoices, and cost allocation documentation organized and accessible. If you would need it for an ICS schedule or a DCAA audit, it should not be living in someone’s email inbox.

Use the current ICE model. Check the DCAA website each year before you begin preparation. If the model has been updated, use the current version. Submitting on an outdated format is an avoidable error.

The Bottom Line

Your incurred cost submission is not a form you fill out. It is a financial reconciliation that demonstrates the integrity of your cost accounting for the entire fiscal year. Rushing it produces a package that creates more risk than it resolves.

Starting in April gives you the time to close your books properly, build accurate schedules, identify and resolve discrepancies, and submit a package you can defend if it gets audited. That is not conservative planning, butcompetent financial management.

June 30 does not have to be a panic. It just requires that you start before it feels urgent.

Need help preparing your incurred cost submission? Contact Eubanks Accounting & Advisory to get expert support before the deadline becomes a crisis.

Sources

1. DCAA Incurred Cost Submission Guide – dcaa.mil
2. DCAA ICE Model (Incurred Cost Electronically) – dcaa.mil
3. FAR 52.216-7: Allowable Cost and Payment – acquisition.gov
4. FAR Part 31: Contract Cost Principles – acquisition.gov
5. DCAA Contract Audit Manual – dcaa.mil