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.

Incurred Cost Proposal Adequacy Checklist

We wouldn't want to let a week go by without telling you about another Government checklist. As we approach the due date for submitting incurred cost proposals (June 30th for calendar year contractors) it is important to remember that incurred cost proposal submissions passing DCAA Incurred Cost Adequacy Checklist, have reduced likelihoods of being audited. For proposals under $15 million, and assuming no history of "significant" questioned costs, that likelihood is only five percent. See our previous coverage on this topic. Now, that's incentive for getting it right the first time.

The latest version of the incurred cost adequacy checklist, Version 2.2 from April 2012 can be downloaded here.

The checklist steps through each of the required schedules, 'A through 'O and asks a series of questions for each schedule. These schedules correlate to the final incurred cost proposal requirements of FAR 52.216-7(d)(1)(iii). Many of the questions deal with internal consistencies within the proposal itself. For example,one of the questions pertaining to Schedule A is whether amounts shown on that Schedule can be traced to the corresponding amounts on Schedules B, C, D, F, and H.

We believe that this checklist should be part of each contractor's proposal preparation process. It has the potential for saving a lot of time in the long run.

If you're frustrated with the complexities of DCAA's ICE package (Incurred Cost Electronically), you might want to look into our significantly improved and fully compliant version of the model. We call it SPICE and its available for $250 which includes one hour of technical support. Call David Koeltzow ('Kelso') 866-849-4887 Ext. 5 for more information.