DCAA Relations, Incurred Cost Proposals

Survivors of the 2008 DCAA Crisis are Now Supervisors…..

A DCAA auditor recently contacted a client with a concern about their incurred cost submission for 2014, The auditor asked the following (contract information redacted):

1) In comparing on Schedule I to Schedule H, Schedule I, cell G30 ($38,287) and Schedule H, cell P36 ($34,579) are both values for FYE 2014 Costs, Subcontract XXXXXXXXXX. What accounts for the difference between these two numbers?”

If you could not guess, this was the T&M section of the Schedule I. This section of the Schedule I records the government’s costs while the section referred to in the Schedule H records the contractor’s costs. Under any reasonable circumstances they should not tie. A careful reading of DCAA’s own adequacy checklist confirms this (link to Schedule K not H).

Answering this type of question is a conversation I try to have over the telephone or in person. I avoid putting our response in writing due to the fear of focusing the adequacy discussion on the government and not the contractor.

I telephoned the auditor and she immediately agreed with my response but insisted that I reply in writing to provide a record of the response. This is when I guessed that the question originated with her supervisor and not herself. Apparently, a supervisor who survived the DCAA Internal 2008 Adequacy Crisis and is now a supervisor.

DCAA Relations, Incurred Cost Proposals

Schedule I Final Thoughts: “DCAA auditors are awarded professional judgement by an Act of Congress”


“DCAA auditors are awarded professional judgement by an Act of Congress”

Surviving a DCAA Audit


Of course on a practical level, my opinions mean very little. Contractors and consultants try to accommodate DCAA and their inadequacy as much as possible. I personally construct incurred cost submissions that, on the surface, appear to look like the Model ICE. I send the submissions in Microsoft Excel but I remove all of the links and formulas (This last step I finally took a couple of years ago after a DCAA Supervisor kept screwing up the links and demanding that we resubmit them ‘correctly’).

The Schedule I has always been the weak link in this approach because of the extensive design flaws and implementation issues I outlined in the previous articles.  These flaws make this form, DCAA’s Models Schedule I, difficult for both DCAA and contractors to work with. There are the GAAP problems, the omission problems, and the certification problems that just run across the entire form.

I sit here and look at the Model Schedule I and ponder what lines, both literally and figuratively, I should draw in an effort to move this forward. The figurative line means it is perhaps time to complain to the DOD OIG about this matter, about violations of the Paperwork Reduction Act, and exceeding their regulatory authority.

The literal line is the following implementation of a revised Schedule I:

  1. I agree with DCAA’s restriction of the form to only those contracts with government participation. This means only those T&M contracts with variable indirect rates are included on the Schedule K and carried to the Schedule I.
  2. Only contracts with current year activity will be reported.
  3. The regulation specifically rejected the need for the contractor to submit at any level greater than contract level. Failure of the contractor to report more extensive detail beyond the contract level is a matter of audit not adequacy. The government is free to request this information as part of their audit.
  4. The disjointed and flawed division of the Schedule I into four parts is now formalized and defined:
    1. Part One – Cost Type Costs (entity Contractor)
    2. Part Two – Time and Material (T&M) contracts at bill rate and contractor’s variable costs
    3. Part Three– Government Costs as billed (to include Fee and any relevant taxes)
    4. Part Four – Reconciliation of cost to billing. A reconciliation of billing and costs is inferred in the regulation and thus poorly thought out by both DCAA and regulators. I discussed the reason in previous articles, but this illusionary reconciliation is the heart of the schedule. Inclusion of this meaningless data is an imposition on contractors, but there are a lot of those.
  5. As to specific format:
    1. “Unsettled/Claimed Direct And Indirect Costs Using Claimed: Prior Year Costs FYE” is simplified to “Remaining Prior Year Costs”.
    2. “Less Contract Limitations Rebates/Credits” is simplified to “Cost in Excess of Contracted Amounts”
    3. A Column for Fee is added under Government Costs
    4. Optional Columns are placed under Government Costs to include: “State or Local Tax Assessed on Contract”, “Contractor Costs Associated with Cost Sharing”.

I consider these minor changes but I am sure there will be too many DCAA auditors who will argue otherwise?

What are your thoughts?

DCAA Relations, Incurred Cost Proposals

Schedule I:“The Truth and Nothing but the Truth, at Least How I See it”

Let’s step back for a moment and look the DCAA Model ICE as a whole. First let us look at a couple of facts, absolute facts.

  1. DCAA created the Model ICE in the 90’s to provide an example to contractors on what DCAA thought a good incurred cost submission would look like.
  2. There is no requirement to use DCAA’s Model ICE, if there was, it would be an approved government form subject to GSA and OMB standards, to include the Paperwork Reduction Act.
  3. There is no requirement to submit an incurred cost proposal in Microsoft Excel. There is no requirement to submit an incurred cost proposal electronically.
  4. The government finally adopted a regulation that paralleled the general description of the ICE — FAR 52.216-7(d) – Allowable Cost and Payment. The final regulation did not adopt the requirements found in the DCAA Model ICE even though the Model preceded the regulation.
  5. The government can only reject a cost proposal based on adequacy.

Given these facts, I will draw the following opinions:

  1. The government had the chance to adopt regulations closer to DCAA’s Model ICE and chose not to. One can argue that the final regulations are a refutation of the Model ICE in favor of a more flexible simpler standard.
  2. The government (DCAA in practice) cannot base adequacy on anything other than the regulation.
  3. a. Bringing the Schedule I back into our discussion as an example, DCAA cannot reject a Schedule I for not following the Model ICE’s Schedule I as long as the contractor provides the information required by the regulation.
    1. DCAA cannot reject an incurred cost proposal for the contractor’s failure to meet the ‘standards’ espoused by DCAA’s ”CHECKLIST FOR DETERMINING ADEQUACY OF CONTRACTOR INCURRED COST PROPOSAL” when the checklist exceeds the regulatory requirements.
  4. There is a poor understanding by DCAA of the line between adequacy and audit. I recently fought with an auditor who believed that the Schedule H failed to report all of the client’s activity. Naturally she failed to check the Schedule H to the Schedule G or even the included Trial balance to see if her assumption was valid. Even if it was, I argued, the issue was a subject for audit not adequacy (this could be another article on its own given the current audit environment and DCAA’s attempt to address its backlog).
  5. I am very thankful for the fact that the majority of DCAA auditors appear to understand the problems associated with the Model Schedule I and ignore the Schedule during determinations of both adequacy and during audit. It is the few, but still too many, who seem to blindly defend the Model ICE that present the difficulties we are discussing.
  6. Given the inadequate levels of knowledge, support, and training provided to DCAA auditors, the Model ICE often functions as a crutch, an obsession build around the very inadequacy they are trying to prevent.


I will conclude this series on the Schedule I with final article: “I Realize My Opinion Might Not Matter, but I am Going to Provide One Anyway”.