Incurred Cost Submission
An incurred cost submission demonstrates that flexibly priced contracts with the Department of Defense and, often, other U.S. Government agencies are not over-billed. Contracts (encompassing prime contracts, subcontracts, and grants) that are flexibly priced include all cost-type, Fixed Price Incentive Fee, and Time and Material (T&M) awards. Because changes from the proposed cost occur during contract performance, actual incurred cost (AIC) is submitted for the organization as a whole, on a multi-schedule proposal. This proposal of AIC is an incurred cost submission. The certified proposal is submitted after the end of the contractor’s fiscal year, when AIC is known. The preferred method of submission is electronic. This proposal is audited, typically by the Defense Contract Audit Agency (DCAA).
DCAA compares the incurred cost submission to supporting documentation, including:
- Contract brief for every auditable contract
- Payroll hours that support T&M and Labor Hour contracts
- Pension and insurance costs accounted for properly
- Unallowable, such as excess executive compensation, costs excluded
- Closed contracts (with assist audits for subcontracts, lower-tier awards, and intra-company orders, as required) during the year
- Contractor reconciliation between booked and billed costs
- Adjusting entries to the general ledger, accounting exception reports, plus changes from the previous year
Possibly the most important audit focus of an incurred cost submission is consistency in recording costs incurred for the same purpose. For example, if postage and shipping is recorded and invoiced as Other Direct Cost on one contract, all postage and shipping related to every job or contract must also be recorded (if not an internal job) invoiced as Other Direct Cost. Postage and shipping may not be recorded in a General and Administrative (G&A) account, in like circumstances, on other contracts. Logically, doing so would result in the direct-charged contract being invoiced 100% of its postage and shipping plus a portion (through application of the G&A rate) of postage and shipping on other contracts.