Preparing an incurred cost submission can test even the most disciplined accounting teams. The Defense Contract Audit Agency’s (DCAA) ICE model brings structure to the process; yet accuracy, timeliness, and documentation remain the contractor’s responsibility.
Each schedule, checklist, and certification step contributes to proving compliance with Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS) requirements.
Leaders overseeing government contracts need confidence that every indirect rate, cost pool, and adjustment aligns with DCAA expectations. A methodical approach, guided by expertise and supported by proven accounting systems, turns what can seem to be an audit obstacle into an organized, predictable task that keeps projects and cash flow on track.
The Purpose & Requirements Of An Incurred Cost Submission
Under the Allowable Cost and Payment clause, contractors must provide an incurred cost submission outlining their final indirect cost rate proposal. Contracts containing FAR 52.216-7 obligate submission of an adequate package within six months after the fiscal year ends, supported by actual cost data rather than projections.
The DCAA offers a standardized spreadsheet known as the ICE Model, designed to organize the information in a way auditors can easily review. The template provides structure; yet accuracy and completeness remain the contractor’s responsibility.
Submissions that follow this format help establish transparency, reduce back-and-forth with auditors, and create a clear record of costs and allocations.
Building The Foundation With The Standard ICE Schedules
The DCAA ICE Manual lists the core schedules, A through O, forming a complete incurred cost proposal. Each schedule has a distinct purpose.
Schedule A summarizes claimed indirect rates, while Schedule E presents allocation bases that support those rates. Schedule H details direct costs by contract or subcontract and identifies how indirect expenses were applied.
Schedule I provides cumulative cost information, reconciling what has been claimed and billed. Schedule L connects total payroll to the labor distribution, an area that frequently draws audit attention. Schedule N includes the Certificate of Final Indirect Costs, and Schedule O covers contract closing details for projects completed during the fiscal year.
The specific schedules required vary by business, depending on the accounting approach and cost allocation methods in place. Before assembling the package, it is recommended to download the current ICE Model directly from the DCAA’s website.
Passing The Adequacy Test Before An Audit Begins
The DCAA uses an Incurred Cost Submission Adequacy Checklist to determine whether a proposal is complete enough to proceed to audit.
The review is binary: either the submission is adequate or it is not. An inadequate submission is returned for correction, delaying rate settlements and potentially affecting cash flow.
Contractors benefit from applying the same checklist internally before filing. This internal adequacy review functions as a pre-flight inspection, confirming that all required schedules, reconciliations, and certifications are properly included.
Submissions that pass on the first attempt shorten the time before an audit begins and demonstrate readiness to contracting officers.
Managing Cost Allowability & Avoiding Common Pitfalls
All claimed costs must meet the standards of FAR Part 31, which defines what expenses may be charged to the government. Each cost must be reasonable, allocable, and allowable within the contract terms.
Some cost categories frequently lead to disputes during incurred cost audits. Entertainment expenses, for example, are explicitly unallowable, as are any directly associated costs such as travel or meals tied to those events.
Establishing accounting procedures that automatically tag or exclude unallowable items helps prevent their inclusion in cost pools and allocation bases. Attention to these details demonstrates sound internal controls and reduces the likelihood of questioned costs during audit review.
Certification & The Importance Of Accuracy In Reporting
No final indirect rates can be negotiated until the contractor certifies the submission. FAR 42.703-2 and FAR 52.242-4 outline the required certification language and signature level.
Submitting a proposal without a valid certificate may lead the contracting officer to unilaterally determine final rates, which can result in unfavorable adjustments. Beyond the administrative requirement, certification carries legal significance.
FAR 42.709 establishes penalties for expressly unallowable costs, while FAR 52.242-3 authorizes interest and fines when such costs are included. Treating the certification process as a formal attestation, supported by documented cost screening and internal review, reinforces the credibility of the submission and mitigates penalty exposure.
Turning Compliance Requirements Into Opportunities For Growth
Preparing an incurred cost submission need not be an exhausting, uncertain process. With sound accounting practices, disciplined documentation, and professional oversight, contractors can move through DCAA review cycles with clarity and confidence.
At Diener & Associates, our team applies decades of government contracting experience to help organizations strengthen compliance, streamline audits, and focus on growth.
For guidance that combines personal attention with proven technical expertise, schedule a consultation online or contact our office at (703) 386-7864 to connect with the professional CPAs at Diener & Associates.