Tuesday, May 15, 2012

Are You High Risk or Low Risk?

DCAA has a method for determining whether contractors' annual incurred cost proposals (sometimes called ICE) are high risk or low risk.

Low risk proposals are grouped together and a few are selected for audit based on statistical sampling. Assuming no audit issues are disclosed, the proposals not sampled are simply closed with no further work. DCAA will send contractors a rate agreement letter for signature and the process is complete.

High risk proposals are subjected to a full audit.

Once a proposal has been determined to be "adequate", the Government will proceed to classify it as high risk or low. DCAA has a new checklist for determining whether a submission is adequate. We will discuss that in a subsequent post.

The criteria for determining whether an annual incurred cost proposal is low risk include the following:
  1. Is it less than than $ 15 million? In other words, did the contractor incur less than $15 million on Government flexibly priced contracts?
  2. Are there audit leads or other significant risk identified (e.g. any known business system deficiencies that would have a significant impact on the final indirect rate proposal for this fiscal year, significant risk identified by the contracting officer, etc.)?
  3. Is this a new “incurred costs” contractor? (i.e., a contractor where DCAA has no incurred cost audit experience).
  4. Were there significant questioned costs in the prior year’s audit? Significance is defined as $15 thousand for proposals under $1 million and $25 thousand for proposals under $15 million.
An answer of  "yes" to any one of the four questions sends the proposal to the high risk pool and subject to full audit.


  1. Paul,

    For a low risk determination, should not the answers to Q3, Q5 and likely Q4 be "No"?

    If so, the last line of the blog is misleading


  2. Thanks for pointing that out Dave. I clarified it.