Thursday, July 21, 2011

Incurred Cost Proposal Adequacy

Contractors' annual incurred cost proposals are to be completed and sent to the contracting officer and cognizant audit agency (usually DCAA) within six months of the end of the fiscal year. When those proposals arrive, the audit agency conducts an adequacy review. DCAA has an "offical" checklist for performing adequacy reviews of incurred cost proposals. The latest version can be found here. The checklist is pretty straight forward and essentially verifies that the "mandatory" schedules (but not the optional schedules) have been included in contractor submissions.

We've noticed and certainly many of you have noticed that adequacy reviews have become much more extensive and detailed than the steps indicated on the checklist. These added steps vary by field office. Some offices are requiring contractors to send in specific data to support information in the various schedules. For example, it is common now for DCAA to request copies of the IRS Forms 941 used to prepare Schedule L, Reconciliation of Total Payroll to Total Payroll Distribution. Additionally, many offices are requesting copies of the trial balance, presumably to see if amounts in pools and bases trace back to the accounting system. By the way, we strongly recommend against providing trial balances since it includes information to which audit agencies have no statutory rights of access - like revenues.

If you feel you're being asked to provide more data than you should, or an auditors request seems unreasonable, pull out this checklist and ask the auditor to refer you to the specific adequacy step he/she is trying to accomplish.

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