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Keys to Submitting an Adequate         Incurred Cost ProposalPresented By:      Karen Williams, Senior Consultant, WJ Tech...
AgendaWho ‐    Needs to submit an ICP?What‐    Are attributes of an adequate ICP?What‐What     Are my chances of being aud...
What is AN Incurred Cost Proposal?What is AN Incurred Cost Proposal?• Statement of direct and indirect costs by           ...
Who Needs to Submit an ICP?Who Needs to Submit an ICP?• Requirement triggered by FAR 52.216‐7,     q            gg      y ...
Submission RequirementsSubmission Requirements• The contractor shall submit an adequate final indirect cost   The contract...
Inaccurate or Incomplete SubmissionInaccurate or Incomplete Submission• How does this happen?                  pp  – Lack ...
Consequences of Inaccurate SubmissionConsequences of Inaccurate Submission• Increased probability of future audits  Increa...
Filing Late or Not Filing At AllFiling Late or Not Filing At All• How does this happen?  How does this happen?   – Not rea...
Escalation ProcessEscalation Process• Failure to file can go undetected for years                      g                 y...
What is the ICE Model?What is the ICE Model?• ICE (Incurred Cost Electronic)      (                        )• Electronic f...
How Can We Succeed?How Can We Succeed?• Start as soon as possible after the close of the fiscal year                   p  ...
How Can We Succeed? (How Can We Succeed? (Continued)• Ensure that all schedules Tic and Tie• Final review / sanity check• ...
Required SchedulesRequired Schedules• Sch A ‐ Summary of Claimed Indirect Expense Rates                y                  ...
Required Schedules (continued)Required Schedules (continued)• Sch G – Reconciliation of Books of Account and Claimed Direc...
Required Schedules (continued)Required Schedules (continued)• Sch J – Subcontractor information• Sch K – Summary of Hours ...
Optional SchedulesOptional Schedules• Sch Q(1) to Q(4) – Comparative schedules       Q( ) Q( )           p• Sch R – Tax re...
Key SchedulesKey Schedules• Sch H – Direct and indirect costs by contract                                     y• Sch I – S...
Sch H – Direct and indirect costs by contract                                   y• Direct costs by major cost element by c...
Sch H Sch H – Sample                 Proprietary and Confidential             19
Sch H Sch H – Pitfalls• Not enough detail          g   – Not listing contracts by contract type   – Not providing cost by ...
Sch I  Summary of claimed and billedSch I – Summary of claimed and billed• Prior Years settled costs• Prior Year unsettled...
Sch I – Summary of claimed and billed (Continued)(C ti     d)• Yes/No – is contract physically complete?     /            ...
Sch I – Sample    I                  Proprietary and Confidential             23
Sch I Sch I – Pitfalls• Inadequate Review – Review, review, review        q                     ,       ,• Make sure links...
Sch J  Subcontractor infoSch J – Subcontractor info• Includes all subcontracts awarded on flexibly                        ...
Sch J – Sample    J                  Proprietary and Confidential             26
Sch K  T&M, ODCSch K – T&M, ODC• T&M labor hours by contract or contract task                      y• Show Labor Category,...
Sch K – Sample    K                  Proprietary and Confidential             28
Sch K Sch K – Pitfalls• Contracts/delivery orders not reported consistent            /         y             p  with Sched...
Sch A  D and Fringe Sch A – D and Fringe ‐ Pitfalls• Not using the adjustment column          g       j  – You can correct...
Sch E – Allocation Bases    E  Allocation Bases• Lists all indirect cost pools and bases and                           p  ...
Sch G – Reconciliation of Books    G  Reconciliation of Books• Reconciles the GL with claimed costs• Links to trial balanc...
Sch L  Payroll ReconciliationSch L – Payroll Reconciliation• Reconciles IRS Form 941’s to Total Labor   Distribution• List...
Sch M, N, O, Q, R, S, T Sch M, N, O, Q, R, S, T ‐ Pitfalls• Not explaining organizational changes ‐ Schedule M  Not explai...
DCAA and Executive CompensationDCAA and Executive Compensation• 2011 Statutory limit $763,029               y       $   ,•...
What does an adequate ICP mean?What does an adequate ICP mean?• DCAA adequacy checklist          q y   – Mandatory schedul...
DCAA s Revised PolicyDCAA’s Revised Policy• Effective July 6, 2012 – Modification of DCAA Process                 y ,  for...
ICP determination  Not AdequateICP determination – Not Adequate• ICP is determined to be NOT adequate and the   deficienci...
ICP determination ICP determination ‐ Adequate• In‐process assignments – continue as planned     p            g           ...
Low Risk Proposal CriteriaLow Risk Proposal Criteria• Must have prior incurred cost audit experience              p       ...
Low Risk Proposal Criteria(Significant Exception Dollar Table)Low‐Risk Adequate Proposals by Auditable    Amount of Previo...
Low Risk Proposal Criteria(Sampling Percentages)Low‐Risk Adequate Proposals by Auditable         Low‐Risk Sampling Percent...
Low Risk Proposal CriteriaLow Risk Proposal Criteria• If ICP not audited DCAA to issue a memorandum   for the CO, includin...
Key Changes to DCAA s Low Risk CriteriaKey Changes to DCAA’s Low Risk CriteriaRisk Factor                   Previous Crite...
GAO Report on DOD Audit BacklogGAO Report on DOD Audit Backlog• DCAA estimates they will be current by 2016  DCAA estimate...
Resources• ICE Manual • DCAA Information for Contractors ( pdated 6/26/12)  DCAA Information for Contractors (updated 6/26...
Questions?             Proprietary and Confidential             47
Contact UsContact Us•8000 Towers Crescent Drive           13665 Dulles Technology DriveTysons Corner, VA 22182            ...
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Keys to Submitting an Adequate Incurred Cost Proposal

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Karen Williams, Senior Consultant, WJ Technologies
Keith Romanowski, Senior Manager, Watkins Meegan

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Transcript of "Keys to Submitting an Adequate Incurred Cost Proposal"

  1. 1. Keys to Submitting an Adequate  Incurred Cost ProposalPresented By: Karen Williams, Senior Consultant, WJ Technologies Keith Romanowski, Senior Manager, Watkins Meegan March 20, 2013
  2. 2. AgendaWho ‐ Needs to submit an ICP?What‐ Are attributes of an adequate ICP?What‐What Are my chances of being audited? Are my chances of being audited?Why‐ Are adequate submissions important?Where‐ h Do I file an ICP?  fl ?When‐ Do I submit an ICP? Proprietary and Confidential           2
  3. 3. What is AN Incurred Cost Proposal?What is AN Incurred Cost Proposal?• Statement of direct and indirect costs by  y contract   and cost element f• The final avenue of reimbursement for both  direct and indirect costs• Used to review, audit, and approve direct  pp costs and final indirect rates for every year• Required for contract closeout• Required by the Federal Acquisition  Regulation Proprietary and Confidential           3
  4. 4. Who Needs to Submit an ICP?Who Needs to Submit an ICP?• Requirement triggered by FAR 52.216‐7,  q gg y , Allowable Cost and Payment Clause – All Cost‐type or T&M contracts – FP contracts with cost reimbursable clins – “Christian Doctrine” (even if clause not included) ( )• Required of Subs as well as Primes Proprietary and Confidential           4
  5. 5. Submission RequirementsSubmission Requirements• The contractor shall submit an adequate final indirect cost The contractor shall submit an adequate final indirect cost  rate proposal to the Contracting Officer (or cognizant  Federal agency official) and auditor within the 6‐month  period following the expiration of each of its fiscal years.• The Contractor shall support its proposal with adequate  supporting data. (See DCAA Information for Contractors) d ( f f )• Final annual indirect cost rates and appropriate bases shall  be established in accordance with Subpart 42.7 of the  b bli h d i d i hS b 42 7 f h Federal Acquisition Regulation (FAR) in effect for the period  covered by the indirect cost rate proposal covered by the indirect cost rate proposal. Proprietary and Confidential           5
  6. 6. Inaccurate or Incomplete SubmissionInaccurate or Incomplete Submission• How does this happen? pp – Lack of adequate review – Inadequate version control – System reports are incorrect – Contract types are mixed – Data entry is sloppy or incomplete i l i l – Contract date base is not maintained – Schedule totals from schedule to schedule DO NOT  Schedule totals from schedule to schedule DO NOT MATCH – Started preparation Late Proprietary and Confidential               6
  7. 7. Consequences of Inaccurate SubmissionConsequences of Inaccurate Submission• Increased probability of future audits Increased probability of future audits• Administrative, Civil & Criminal Penalties• May be an indicator of an inadequate accounting system May be an indicator of an inadequate accounting system• Incorrect final indirect rates• Incorrect / inaccurate billings• Reduced revenue and profit and/or reversal of revenue and  profit already taken• Contract close out delays Proprietary and Confidential               7
  8. 8. Filing Late or Not Filing At AllFiling Late or Not Filing At All• How does this happen? How does this happen? – Not realizing you must file – No one clearly assigned the responsibility  – Si l Simply not getting to it t tti t it• What are the Consequences? – Filing in arrears is difficult; historical knowledge may be lost Filing in arrears is difficult; historical knowledge may be lost – ACO can unilaterally set indirect rates and close contracts (FAR  52.705‐1) – St t t f li it ti Statute of limitations extended t d d – Elevates your contractor risk factor • “Inadequate accounting system?” Proprietary and Confidential               8
  9. 9. Escalation ProcessEscalation Process• Failure to file can go undetected for years g y• Three month letter• If overdue 6 months letters begin to escalate If overdue 6 months, letters begin to escalate• After six months the DCAA will recommend a  unilateral rate determination unilateral rate determination• ACO can unilaterally set indirect rates and close  contracts Proprietary and Confidential               9
  10. 10. What is the ICE Model?What is the ICE Model?• ICE (Incurred Cost Electronic) ( )• Electronic form provided by the DCAA for  p completion of the Incurred Cost Submission• The ICE model schedules ARE required – FAC 2005‐52 effective June 11 2011 incorporated the FAC 2005 52, effective June 11, 2011 incorporated the  ICE Model schedules into the Allowable Cost and  Payment clause, FAR 52.216‐7 y• Template model in Excel Format (located at  www.dcaa.mil)  Proprietary and Confidential           10
  11. 11. How Can We Succeed?How Can We Succeed?• Start as soon as possible after the close of the fiscal year p y• Utilize the DCAA ICP adequacy checklist, “GUIDE FOR DETERMINING ADEQUACY  OF CONTRACTOR INCURRED COST PROPOSAL”, as a benchmark ,• Competent Preparer – Knows where to get the data – Won’t take data or things at face value – Understands the schedules – Doesn’t just fill in the boxes • Competent and thorough review• Tie GL to the IC submission Proprietary and Confidential               11
  12. 12. How Can We Succeed? (How Can We Succeed? (Continued)• Ensure that all schedules Tic and Tie• Final review / sanity check• Version Control Version Control – Save the reports you create! – Document what you did and how you did it for future reference / audits/  etc• Understand your contract types and how costs are accumulated (CPFF,  T&M, FP, etc) T&M, FP, etc)• Knowledge of how the contract is invoiced by task or as one line item – If by task, the cost has to be reported by task y p y Proprietary and Confidential               12
  13. 13. Required SchedulesRequired Schedules• Sch A ‐ Summary of Claimed Indirect Expense Rates y p• Sch B ‐ General and Administrative (G&A) Expenses (Final Indirect Cost Pool)• S hC ‐O h dE Sch C Overhead Expenses (Final Indirect Cost Pool) (Fi l I di t C t P l)• Sch D – Occupancy Expenses (Intermediate Indirect Cost Pool)• Fringe• Sch E ‐ Claimed Allocation Bases• Sch F ‐ Facility Capital Cost of Money Factors Computation• Sch F(1) ‐ Calculation of net book value ( ) Proprietary and Confidential               13
  14. 14. Required Schedules (continued)Required Schedules (continued)• Sch G – Reconciliation of Books of Account and Claimed Direct Costs• Sch G(1) – Reconciliation of G/L to JCL• S mmar Sch H Sched le of Direct Costs b Contract/S bcontract and Summary Sch H – Schedule of Direct Costs by Contract/Subcontract and  Indirect Expense Applied at Claimed Rates• Sch H Direct and indirect costs by contract H – Direct and indirect costs by contract• Sch H(1) – Government participation Percxentages• Sch I – Schedule of Cumulative Direct and Indirect Costs Claimed and  Billed Proprietary and Confidential               14
  15. 15. Required Schedules (continued)Required Schedules (continued)• Sch J – Subcontractor information• Sch K – Summary of Hours and Amounts on T&M/Labor Hour Contracts• Sch L Reconciliation of Total Pa roll to Total Labor Distrib tion L – Reconciliation of Total Payroll to Total Labor Distribution• Sch M – Decisions/Agreements/Changes• Sch N – Certificate of final indirect rates• Sch O – Contract Closing information for contracts completed during the  Fiscal Year• Sch P – Allowable IR&D/B&P Proprietary and Confidential               15
  16. 16. Optional SchedulesOptional Schedules• Sch Q(1) to Q(4) – Comparative schedules  Q( ) Q( ) p• Sch R – Tax return reconciliation• Sch S – Contract Briefs Sch S – Contract Briefs• Sch T – Executive Compensation Proprietary and Confidential               16
  17. 17. Key SchedulesKey Schedules• Sch H – Direct and indirect costs by contract y• Sch I – Summary of claimed and billed• Sch J Subcontractor info Sch J – Subcontractor info• Sch K – Hours and amounts on T&M contracts Proprietary and Confidential               17
  18. 18. Sch H – Direct and indirect costs by contract y• Direct costs by major cost element by contract or contract task y j y• Contracts are grouped by contract type, show job number and client, sub or prime – Hybrid contracts – Fixed price/commercial contracts summarized• Labor is entered by overhead pool (IMPORTANT)• Include unbillable cost• Direct costs are totaled and burdened with fringe, overhead, G&A, or other indirect cost  and totaled again• Good place to check against system generated direct cost reports Proprietary and Confidential               18
  19. 19. Sch H Sch H – Sample Proprietary and Confidential           19
  20. 20. Sch H Sch H – Pitfalls• Not enough detail g – Not listing contracts by contract type – Not providing cost by task if funded by task Not providing cost by task if funded by task – Labor not detailed correctly by overhead pool• Incorrect totals Incorrect totals – Totals do not tie to GL amounts – Formulas are wrong Formulas are wrong – Links are incorrect Proprietary and Confidential               20
  21. 21. Sch I  Summary of claimed and billedSch I – Summary of claimed and billed• Prior Years settled costs• Prior Year unsettled claimed costs – direct and indirect burdened at  claimed rates – by year yy• Current year claimed costs – direct and indirect burdened at claimed  rates• Cumulative Billed, Voucher number of last invoice, date billed through• Calculates over (under) billing Calculates over (under) billing• Yes / No – is the contract subject to the Penalty Clause (FAR 52.242‐3) Proprietary and Confidential               21
  22. 22. Sch I – Summary of claimed and billed (Continued)(C ti d)• Yes/No – is contract physically complete? / p y y p• Costs only/No Fee• CPFF claimed from Sch H CPFF claimed from Sch H• T&M Claimed from Sch K• Prior year settled costs l d Proprietary and Confidential               22
  23. 23. Sch I – Sample I  Proprietary and Confidential           23
  24. 24. Sch I Sch I – Pitfalls• Inadequate Review – Review, review, review q , ,• Make sure links to Schedule H are correct• Prior year data not correct Prior year data not correct Proprietary and Confidential               24
  25. 25. Sch J  Subcontractor infoSch J – Subcontractor info• Includes all subcontracts awarded on flexibly  y priced prime contracts and/or upper‐tier  subcontracts• Be sure to include all information • Identifies subcontractors to audit Proprietary and Confidential           25
  26. 26. Sch J – Sample J  Proprietary and Confidential           26
  27. 27. Sch K  T&M, ODCSch K – T&M, ODC• T&M labor hours by contract or contract task y• Show Labor Category, Hours, Hourly Rate, and  total• ALL Travel & ODC’s incurred at actual • Indirect costs applied at claimed rates Indirect costs applied at claimed rates• Ceilings identified on Sch I Proprietary and Confidential           27
  28. 28. Sch K – Sample K  Proprietary and Confidential           28
  29. 29. Sch K Sch K – Pitfalls• Contracts/delivery orders not reported consistent  / y p with Schedule H • Cost detail not consistent with billing detail g• Contract ceiling is not correct• ODC claimed for each contract/D O does not tie ODC claimed for each contract/D.O. does not tie  to ODC claimed in schedule H Proprietary and Confidential           29
  30. 30. Sch A  D and Fringe Sch A – D and Fringe ‐ Pitfalls• Not using the adjustment column g j – You can correct known mistakes in the GL here – If you know you charged unallowable as allowable, If you know you charged unallowable as allowable,  change it here, take it out before the audit finds it!• Not reviewing rates with system generated ones Not reviewing rates with system generated ones• Not checking pool totals with system generated  totals• Unallowable costs not identified Proprietary and Confidential               30
  31. 31. Sch E – Allocation Bases E  Allocation Bases• Lists all indirect cost pools and bases and  p calculates rates• Pulls base and pool information from individual  p schedules Proprietary and Confidential           31
  32. 32. Sch G – Reconciliation of Books G  Reconciliation of Books• Reconciles the GL with claimed costs• Links to trial balance cost accounts and Schedule  H totals – DL, Travel, ODC, material, etc , , , ,• Any discrepancies are explained in notes Proprietary and Confidential           32
  33. 33. Sch L  Payroll ReconciliationSch L – Payroll Reconciliation• Reconciles IRS Form 941’s to Total Labor  Distribution• Lists ALL employee labor cost by type and account p y y yp – Direct Labor – Indirect Labor Indirect Labor – Vacation, Sick, PTO – Holiday – Bonus, etc Proprietary and Confidential               33
  34. 34. Sch M, N, O, Q, R, S, T Sch M, N, O, Q, R, S, T ‐ Pitfalls• Not explaining organizational changes ‐ Schedule M Not explaining organizational changes  Schedule M• Certifying without reviewing ‐ Schedule N• Not knowing if your contract is ready to close Schedule O Not knowing if your contract is ready to close ‐ Schedule O• Not reconciling or explaining delta between Schedule R & L• Not having contract briefs ‐ Schedule S• Not providing ALL executive compensation ‐ Schedule T Proprietary and Confidential               34
  35. 35. DCAA and Executive CompensationDCAA and Executive Compensation• 2011 Statutory limit $763,029 y $ ,• FAR 31.205‐6 Compensation for personal services – Compensation must be reasonable for work Compensation must  be reasonable for work  performed • DCAM 5‐803‐1 Audit of executive compensation DCAM 5 803 1 Audit of executive compensation  – More than 110% of reasonable compensation  may be  justified by clearly superior performance… justified by clearly superior performance• DCAA policy is to use 10% range of  reasonableness Proprietary and Confidential               35
  36. 36. What does an adequate ICP mean?What does an adequate ICP mean?• DCAA adequacy checklist q y – Mandatory schedules are there – Schedules tie to one another Schedules tie to one another – Claimed costs on schedules B, C & D tie to schedule A – Certified• Statute of limitations clock starts• Rate adjustment invoice Rate adjustment invoice• ICP ready for audit Proprietary and Confidential               36
  37. 37. DCAA s Revised PolicyDCAA’s Revised Policy• Effective July 6, 2012 – Modification of DCAA Process  y , for Sampling Low‐Risk Incurred Cost Proposals• Effective September 6, 2012 – Audit Guidance on  p , Revised Policy and Procedures for Sampling Low‐Risk  Incurred Cost Proposals• All ICP’s will be evaluated upon receipt for adequacy – IAW FAR 52.216‐7 – Using the DCAA Incurred Cost Proposal Adequacy checklist Proprietary and Confidential               37
  38. 38. ICP determination  Not AdequateICP determination – Not Adequate• ICP is determined to be NOT adequate and the  deficiencies cannot be remedied with minor effort – ICP will be returned to the contractor with written  instructions on required corrective actions, IAW CAM  q Chapter 6 Proprietary and Confidential           38
  39. 39. ICP determination ICP determination ‐ Adequate• In‐process assignments – continue as planned p g p• All high risk proposals will be audited• All proposals >$250million auditable dollar value All proposals >$250million auditable dollar value  (ADV) will be audited• Low risk proposals <$250million auditable dollar Low risk proposals <$250million auditable dollar  value (ADV) sampled Proprietary and Confidential               39
  40. 40. Low Risk Proposal CriteriaLow Risk Proposal Criteria• Must have prior incurred cost audit experience p p• No significant audit risks or leads – Known system deficiencies Known system deficiencies – Concern of Contracting Officer – Significant changes in organization or operations Significant changes in organization or operations – Risks identified by audit team – No significant total exception dollars No significant total exception dollars Proprietary and Confidential               40
  41. 41. Low Risk Proposal Criteria(Significant Exception Dollar Table)Low‐Risk Adequate Proposals by Auditable  Amount of Previous Exception Dollars Dollar Value(ADV) (Including Corporate, Intermediate Home  Office, etc) Classified as Significant$1M or Less $15,000$1M to $15Million $25,000$15M to $50 Million $55,000$50 Million to $250 Million $100,000 , Proprietary and Confidential           41
  42. 42. Low Risk Proposal Criteria(Sampling Percentages)Low‐Risk Adequate Proposals by Auditable  Low‐Risk Sampling PercentagesDollar Value (ADV)$1M or Less 1%$1M to $50Million 5%$50M to $100 Million 10%$100 Million to $250 Million * 20%Greater than $250 MillionGreater than $250 Million 100% * If not selected for audit for two consecutive years, third year will be selected for audit. Proprietary and Confidential           42
  43. 43. Low Risk Proposal CriteriaLow Risk Proposal Criteria• If ICP not audited DCAA to issue a memorandum  for the CO, including the key steps performed  from the adequacy checklist• If Contractor has multiple low risk audits open and  one year sampled, – All years will be kept open until audit is complete – If significant questioned costs are found, all year will  be audited. Proprietary and Confidential               43
  44. 44. Key Changes to DCAA s Low Risk CriteriaKey Changes to DCAA’s Low Risk CriteriaRisk Factor Previous Criteria(applied to  Revised Criteria (applied to  proposals under $15M ADV) proposals under $250M  ADV)History of incurred cost  At least one incurred costs  At least one incurred cost audits dit audit every 3 years dit 3 audit* dit*Previous questioned costs Below $10,000 Below thresholds ranging  from $15,000 to $100,000  based on ADV based on ADVAudit leads or other  No relevant risk factors No changessignificant risks * Proposals with ADV of greater than $100 M to $250 M must have at least one audit  every three years.  Proprietary and Confidential           44
  45. 45. GAO Report on DOD Audit BacklogGAO Report on DOD Audit Backlog• DCAA estimates they will be current by 2016 DCAA estimates they will be current by 2016 – High risk proposals are 250% of anticipated • Initiative appears promising, but… pp p g, – DCAA has not fully developed measures to reduce backlog and  protests taxpayers’ interests• DOD i i i i f DOD is missing information on contracts to close ti t t t l – DCMA contract closeout metrics established and monitored  – Army goal to close 475,000 contract by 9/2014 – yg , y / • Missing info and no implementation plan – Navy & Air Force – performance metrics not established for  closeout Proprietary and Confidential               45
  46. 46. Resources• ICE Manual • DCAA Information for Contractors ( pdated 6/26/12) DCAA Information for Contractors (updated 6/26/12)• DCAAM (Chapter 6)• ICP audits – Incurred Cost Audit Program – download from www.dcaa.mil• Excel version of ICS – down load from www.dcaa.mil• FAR Cost Principal Guide • Consultants Proprietary and Confidential               46
  47. 47. Questions? Proprietary and Confidential           47
  48. 48. Contact UsContact Us•8000 Towers Crescent Drive 13665 Dulles Technology DriveTysons Corner, VA 22182  Herndon, VA 20171www.WatkinsMeegan.com k www.WJTechnologies.comKeith Romanowski, Senior Manager Karen Williams, Senior Consultant(703) 847 4429 (703) 847‐4429 (703) 885 8157 (703) 885‐8157Keith.Romanowski@WatkinsMeegan.com Karen.Williams@wjtechnologies.com
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