The Documentation You'll Need for a DCAA Incurred Cost Submission (ICS) Audit

Submitting information to the federal government for an audit may seem intimidating, but it doesn't have to be. It can represent a perfect opportunity for a government contractor to prove its trustworthiness, organization, and accountability.

The key is providing the documents they need when needed – especially regarding a Defense Contract Audit Agency (DCAA) Incurred Cost Submission audit. Successfully navigating this audit is paramount to maintaining contract eligibility and avoiding penalties. 

In this post, we'll guide you through the information you'll want to have ready to submit for the DCAA ICS audit, why it's critical to have that documentation available, and what tools you can use to keep your documents well organized.  

What is an Incurred Cost Submission Audit? 

An Incurred Cost Submission (ICS) audit is a comprehensive examination conducted by the DCAA to assess the reasonableness and allowability of claimed costs incurred under government contracts.  

It's aimed at ensuring that the costs charged to government contracts are:  

• Accurate 
• Supported by appropriate documentation 
• Compliant with Federal Acquisition Regulation (FAR) and Cost Accounting Standards (CAS) 

During an ICS audit, the DCAA scrutinizes direct and indirect costs, including labor, materials, subcontracting, overhead, and general and administrative expenses.  

The government will then determine if these costs were incurred following the terms of the government contracts and if they are allowable and reasonable. 

Who Needs to Submit? 

GovCon companies that hold flexibly priced contracts with FAR 52.216-7 in their contract must submit. However, all GovCon companies must know their contract requirements and maintain diligent records, as they may still be subject to a DCAA audit.  

Taking the initiative to be prepared can help GovCon companies navigate the audit process more effectively and avoid potential complications.  

To do this, have your necessary documentation prepared ahead of time.  

What Documentation is Needed for the ICS Audit? 

Preparing for a DCAA audit requires compiling and organizing a comprehensive set of documentation to support any claimed costs.  

Below is a list of specific documents you'll want to have ready to go in the event of an audit:   

• General Ledger (GL) Detail Statement of Indirect Expenses. A detailed record of all financial transactions, including debits and credits, provides a complete overview of the company's financial activities. 
• Statement of Indirect Expenses. Documents supporting the allocation of indirect expenses, such as rent, utilities, insurance, and other overhead costs.  
• Trial Balance. A summary of all accounts and their respective balances, typically categorized by cost elements, such as direct labor, materials, subcontracting, and indirect costs. 
• Payroll Reconciliation. Verification for all supplied payroll figures.  

• Job Cost Reports. Documentation explaining the company's cost allocation methodologies for distributing indirect costs to government contracts. 
• Revenue by Contract Type. This includes dollar amounts for the distinct types of contracts you oversee.  
• List of Applicable Contracts. Copies of applicable government contracts, including modifications, task orders, and other relevant contractual agreements. 
• Tax Returns. Tax documentation is another valuable data point in confirming your financial records are accurate.  
• Policies and Procedures. Written policies and procedures governing the company's financial and accounting practices, ensuring compliance with relevant regulations and contract requirements. 
• Last Invoice for Applicable Contracts. This gives the government a recent record of financial activity for your relevant contracts.  

• Contract Briefs. Contract briefs include a synopsis of all pertinent contract provisions.  

While this list gives you a solid foundation, it isn't exhaustive. Other supporting documentation you may want to submit includes organizational charts, financial statements, and audit plans. Remember: the more information and data you can provide, the better.  

Why Documentation So Important for a DCAA Incurred Cost Submission Audit 

Preparing your documents before your audit helps demonstrate transparency, accuracy, and compliance with the DCAA's requirements. It also leaves you more likely to receive a favorable result.  

Without supporting documentation, you leave yourself open to additional questioning from the DCAA. By having the correct documentation prepared and submitted ahead of time, you leave no doubts.  

Responding to an audit is the last time you should be scrambling to assemble documents. Having an orderly accounting system, with comprehensive data and documentation at your fingertips, will make the entire process much more manageable. 

Being proactive, organized, and diligent in maintaining compliance will simplify the audit process. It builds credibility and trust with the government.  

How Unanet Helps You Organize Your ICS Audit Documents and ICE Formats 

Having the right tools in place eases the audit process and enhances your compliance efforts. To effectively respond to the audit's requirements, consider implementing an Enterprise Resource Planning (ERP) solution tailored to the unique needs of government contractors.  

Unanet ERP GovCon solution is explicitly designed to help streamline financial processes, maintain accurate records, generate audit-ready reports, help produce ICE schedules and ensure compliance with regulatory standards.   

By leveraging Unanet ERP GovCon, you can confidently navigate the ICS audit and focus on growing your business while meeting the government's stringent requirements.  

First, equip yourself with information to prepare for an ICS audit. Download the Unanet white paper "The Basics of Incurred Cost Audits" today.