Schedule M of the annual incurred cost submissions required of contractors holding flexibly priced contracts is a "Listing of decisions/agreements/approvals and description of accounting/organizational changes" See FAR 52.216-7(d)(2)(iii)(M).
DCAA's adequacy checklist for incurred cost proposals contains the following items relative to Schedule M.
- Ensure completion of this schedule.
- Negative responses are required.
Note here that DCAA has added the second bullet - negative responses are required. That is not a requirement of the referenced FAR and should not be a criteria for determining the adequacy of a submission. Nevertheless, if a contractor has not made any accounting or organizational changes during the year, it really takes no time to state that fact in a Schedule M. We recommend contractors do so and include negative responses, where appropriate, in submissions we prepare on behalf of clients.
The purpose of this requirement is to help identify changes in cost accounting practices that might affect how costs are accumulated and allocated to Government contracts. For example, moving a department from an overhead pool to a G&A pool will affect both rates. Adding a material handling rate where there was none previously, will most likely affect multiple rates. Certainly, acquiring another company or selling off part of an existing company will affect rates. The Government auditors need to know these things in order to effectively and efficiently conduct its audit. Its likely that such events will be identified during the audit anyway so its better that the information be provided up-front.
A number of years ago, we discussed the Minimum Annual Audit Requirements (MAARs) that contract auditors need to satisfy in each and every incurred cost audit that they perform. MAAR #7 requires that auditors evaluate any identified significant changes in practices for charging direct/indirect costs for consistency with generally accepted accounting principles, the applicable cost principles per contracts, and any applicable CAS requirements. The purpose of this requirement is to verify that changes in charging do not have the effect of improperly shifting costs among cost objectives, circumventing cost targets or ceilings of certain contracts, or other significant cost categories.
Schedule M from the annual incurred cost submission will help the auditor accomplish its MAAR #7 audit requirements.