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.