Demystifying Incurred Cost Submissions Q&A

In May, Aprio’s Donna Dominguez and Aisha Mian hosted “Demystifying DCAA Incurred Cost Submissions,” where they provided tips, guidance and best practices to help government contractors efficiently complete their Incurred Cost Submissions. As a follow up to this webinar, Donna and Aisha have prepared answers to a number of attendee questions.

How do you account for Cost Share portion of a contract on Schedule H and I?

Response: Typically, the cost share portion of a contract is shown as non-billable direct cost on Schedule H. On Schedule I, you would then back out the non-billable direct cost and applicable burdens on that non-billable cost.

What do you run out of Unanet to get “Job/Project Summary Reports” at the Billing level?

Response: This will depend on how you have set up the project in the system. If you have set up the project at lower contract line item levels and the project is billed at this level, then you will need to run the Job/Project Summary Report at the contract line item (CLIN) level.

What happens when DCAA comes back and says our rates are approved and we under-billed? How do we recover our costs? What’s the next process?

Response: The next step is to prepare final invoices using the indirect rates from the DCAA final rate letter. When you prepare the final invoices, you will calculate the amount under-billed for each project and then invoice the government for that cost.

If the 52.216-7 is present in our T&M contracts, are we required to do an Incurred Cost Submission even if we do not bill G&A on ODCs?

Response: If your T&M contract has FAR 52.216-7 in it, you are required to prepare an Incurred Cost Submission. However, if your T&M contract is a labor hour contract, you may make a request to the Contracting Officer to modify the contract and remove this clause from the contract. If your T&M contract does not allow you to bill G&A on your ODCs, you may ask the Contracting Officer to modify your contract and remove the clause.

Where does it say a company’s bonus policy must be written?

Response: Per FAR 31.205-6(f), bonuses are allowable provided that:

• Awards are paid or accrued under an agreement entered into in good faith between the contractor and the employees before the services are rendered or pursuant to an established plan or policy followed by the contractor so consistently as to imply, in effect, an agreement to make such payment; and
• Basis for the award is supported.

The language “pursuant to an established plan or policy” implies that the bonus policy must be an established written policy that can be handed to an auditor.

Our company only has NASA CPFF subcontracts and not contracts with the Department of Defense. Do we need to submit an Incurred Cost Submission to DCMA?

Response: You will need to submit your Incurred Cost Submission to your cognizant audit agency. This information should be included in your largest prime flexibly priced contract. If you cannot find this information, then you will need to submit it to the Contracting Officer of your largest prime flexibly priced contract.

Under unallowable costs, what do you mean by “GSA Fees?”

Response: The GSA fee that we refer to in the webinar is the GSA Industrial Funding Fee (IFF). The GSA IFF should be treated as a contra revenue account and should not be included in your indirect rate calculation. This is because you are collecting this fee on behalf of GSA on your invoices. This fee is then remitted to GSA on a quarterly basis. Therefore, it is neither your expense nor your revenue to claim.

On Schedule C, why is the overhead bonus not part of the total OH labor?

Response: We do not consider bonus dollars to be labor dollars because our model uses the subtotal labor dollars as the base of fringe. If bonus was included as labor, it would not result in a correct causal/beneficial relationship between the cost in the fringe pool and the base benefitting from that cost. If you were to include bonus in the base of fringe, the bonus dollars would have to be burdened with the fringe indirect rate. It is not common for contractors to apply fringe allocation on bonus dollars.

Where on section H should grants go?

Response: If the grants do NOT contain FAR 52.216-7 or if the grants you have been awarded do not state you must file an ICS, then you would include them with the commercial/GSA and FFP contract line item on Schedule H.

Do only contracts with the Allowable Cost & Payment clause go on this Schedule (H)?

Response: On Schedule H, contracts with the Allowable Cost & Payment clause are the only ones that need to be listed at the billing level. All other contracts can be put together in one line under the FFP/Commercial projects.

Why does Schedule H need to be prepared at the billing level vs level 1?

Response: Schedule H needs to be prepared at the billing level because you will need the cost broken out at the billing level in order to prepare Schedule I. The purpose of Schedule I is to calculate the amounts that are over- or under-billed by project. You will need to include the cumulative billed amount on Schedule I and compare it to the cost incurred, which comes from Schedule H at the same billing level.

DCAA has asked us to add a line for unallowable cost on Schedule H so that the fringe and overhead costs reconcile to the GL amount before adjustments and the G&A base and allocated costs reconcile to the Schedule B and E. How would you handle this?

Response: We would not recommend putting unallowable cost on Schedule H. If you have non-billable directs, then yes, we would recommend showing them on Schedule H in a separate column. The unallowable cost should tie back via a check sum compared to Schedule E. We would suggest walking the auditor through the check sum if they cannot figure it out.

For the total for G&A, where does unallowable cost go on Schedule H in order to reconcile?

Response: Unallowable cost should not be shown on Schedule H or included in the G&A pool. On Schedule H, you should only show non-billable direct cost, which will be in the base of G&A. Our model includes a separate section for unallowable costs on Schedule B at the bottom, but this cost is not included in the indirect rate calculation. It is there to show the auditor that all unallowable costs have been successfully excluded from the indirect rate calculation. The only unallowable cost that should be shown, is unallowable cost that is subject to G&A. This cost should be shown in the base of G&A on Schedule E. For example, employee morale is many times included in the fringe pool but includes unallowable cost. This account would be considered unallowable cost subject to G&A because it was originally considered a fringe pool cost that would have been burdened with G&A.

If a contract has no cost/activity in the current year, but is not closed, is it included on Schedule I?

Response: Yes, you will still need to include this contract’s cost on Schedule I and show prior year cost even if there was no current year cost.

What constitutes non-billable vs unallowable? Why the naming difference?

Response: Non-billable cost is considered a direct cost that is not billable. For example, you may have direct travel that is in excess of per diem, which would be considered a non-billable direct cost. Unallowable cost is considered an indirect cost that is not allowable such as lobbying, gifts and charitable donations. These costs are G&A costs but they are unallowable G&A costs.

Do we remove a contract on Schedule I when indirect rates are finalized or we receive the official closeout letter?

Response: If the contract has ended and indirect rates have been finalized for all years of the contract, then you can remove the contract from Schedule I.

For overbilled amounts on Schedule I, when and how do we pay back the government?

Response: At the end of your fiscal year, if you have over-billed the government, you can request that the funds be put back on your contract if the contract has not ended, or you can write a check to the government if the contract(s) that you over-billed on have ended. Our recommendation is to monitor your provisional rates to your actual rates on a monthly basis to see how close you are. At the end of the year, if you have still over-billed, you can request to have the funds you owe put back on your contract if it is still active. In this case, you will benefit from the funds being put back on your contract rather than waiting until many years down the line when rates are finalized. At that point, you will just have to write a check back to the government.

If a contract (Option Year extension) has more than one price for the same labor category within the same year, do we need to list the labor category once for each price?

Response: On Schedule K, you would need to list the labor category at the different rates if it had a different rate for the base year and a different rate for the option year. You would need to put the hours incurred at each of the rates multiplied by the rate on Schedule K.

What is your rule of thumb for records retention – when must the DCAA audit before the expiration of records retention requirements?

Response: The statute of limitations is six years from the date that you sign Schedule N of the Incurred Cost Submission. This means that the DCAA has six years from that specific date to audit your submission. During that time, they can request any supporting documentation for an Incurred Cost Submission audit.

Does executive compensation apply to all employees or only executives?

Response: The executive compensation limit is set at $487K as of June 24, 2014. Compensation includes base salary plus bonus. This limit is for all employees and is not just for executives.

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