New Incurred Cost Adequacy Checklist

Last week, we highlighted DCAA's (Defense Contract Audit Agency) latest revisions to its checklist for determining whether contractors' incurred cost proposals were adequate and ready for audit. (See DCAA Revises its Incurred Cost Proposal Adequacy Checklist). We will have to wait and see whether it improves the auditor's adequacy determination process until the Agency has used it for awhile. Meanwhile, there is one aspect of the checklist that didn't change, except for the way the wording is structured. The checklist is roughly organized to correspond to the submission requirements of FAR 52.216-7(b)(iii). FAR Schedules B, C, and D which correspond to checklist items B, C, and D, related to schedules showing the make-up of the General and Administrative Pool (G&A), Overhead pools, and Occupancy pools (or Intermediate Indirect Cost pools), respectively.

In the previous checklist, each of these sections included the following:

Verify the contractor included explanatory notes for any adjustments from expenses booked per G/L to claimed costs.

Under the newly revised checklist, the checklist item is rephrased as a question:

Did the contractor include explanatory notes for any amounts contained in an adjustment column or amounts omitted from the claim?

Either way, the intent is clear. DCAA expects contractors to describe any adjustments made to booked costs. Now we could point out that FAR does not require such explanations and a few contractors have steadfastly refused to provide such explanations as part of their incurred cost submissions because there is no specific requirement. However, such information is usually necessary during an eventual audit so contractors are going to be compelled to provide it sooner or later. In our opinion, it is more efficient to provide it as part of the incurred cost proposal while the details are fresh and/or the people preparing the proposal are still around.

The real concern we have with this checklist item is the auditors' expectations as to the amount of detail to be included in the explanatory notes. Frankly, auditors are all over the place in their expectations. Some are satisfied with simple explanations like "Represents amounts unallowable per FAR 31.205-xx" while other auditors expect contractors to write tomes about the adjustments or the excluded costs. It can be very frustrating to contractors because rarely is there continuity in the auditor completing the checklist from one year to the next and each one brings a different set of experiences and skills to the exercise.

Contractors truly want to satisfy their contractual requirements but on the other hand, there is a cost associated with contract compliance and anything seen as extra-contractual, simply increases cost to the contractor. Unreasonable demands should be elevated to the auditors' supervisor or the contracting officer.