Business Issues: Stay Current With Your Incurred Cost Submissions By Michael Smigocki The Defense Contract Audit Agency has been getting much tougher on contractors who are delinquent in submitting an indirect cost rate proposal. FAR 52.216-7 (Allowable Cost and Payment) and FAR 52.216-13 (Allowable Cost and Payment Facilities), requires government contractors to submit their indirect cost rate proposal to their contract officer and cognizant audit office within the six-month period following the end of the company’s fiscal year. For companies that have inadequate internal resources or whose books and records are in less than perfect shape, meeting this deadline has been quite a challenge. These contractors generally either request an extension for preparing it or they allow the deadline to lapse and complete the submission when possible. Most DCAA office are initiating more aggressive means to obtain delinquent submissions. The following details the procedures that they will be following with regards to this effort: •Three months after the end of the contractor’s fiscal year, send the contractor a reminder letter. •Thirty days after the submission becomes overdue, send the contractor an overdue notice and reiterate the contractual requirements for timely submission. •Three months after the submission is overdue, they will request assistance from the contracting officer. In the cases where the auditor believes that receipt of the proposal is highly improbable, the auditor will recommend rates for the contracting officer to consider in rendering a unilateral decision. •Six months after the submission is overdue, the auditor will recommend a unilateral rate determination. The possibility of having a unilateral rate determined by DCAA and the contracting officer should be enough to push contractors to getting the submissions completed. This is especially true for those contractors whose actual indirect rates exceed their provisional rates and are working under cost reimbursable contracts. Preparation of timely incurred cost submissions is a necessary part of a company’s internal control structure. Benefits that can be derived include: •Preparation while the information is still fresh in one’s mind (this is especially critical if the company has been experiencing turnover). •The ability to improve cash flow with adjustment vouchers and contract close-out efforts after audit. •The elimination of uncertainty and possible contingent liabilities. Contractors should consider allocating the necessary resources internally, or if unavailable, seek outside help towards timely completion of the submissions. There is some very helpful information on DCAA’s website, www.dcaa.mil. The publication titled “Information for Contractors” contains useful tools and suggestions for preparing a complete and accurate incurred cost submission. In addition, the website contains software for electronic preparation of the submission. Preparation should begin now for timely completion of the submission. (Michael Smigocki, CPA, CVA, ABV, is the senior managing director of Federal Strategies Group, LLC. He provides government contract and management consulting, M&A advisory, forensic accounting and expert testimony services to the government contracting industry. He can be reached via email at MikeS@FedStrat.com.)