Incurred Cost Submission (ICS) — Annual Filing Reconciling Actual to Provisional Rates
Filing the annual Incurred Cost Submission with DCAA — reconciling actual indirect rates computed after year-end to provisional rates applied during the year, settling over-billed or under-billed amounts.
| Account Name | Type | Debit ($) | Credit ($) |
|---|---|---|---|
| Accounts Receivable — ICS Under-Billing Recovery (Actual Rate > Provisional) | Asset (+) | 8,500,000.00 | - |
| Revenue Adjustment — ICS Settlement (Prior Period Rate True-Up) | Revenue (+) | - | 8,500,000.00 |
💡 Accountant's Note
Every defense contractor that has cost-type or T&M contracts must file an Incurred Cost Submission (ICS) with DCAA within 6 months of fiscal year end. The ICS is a comprehensive accounting schedule that: (1) Shows actual costs by indirect pool for the year, (2) Computes actual indirect rates (actual pool / actual base), (3) Compares actual rates to the provisional rates applied to contracts during the year, (4) Computes the over/under-billing for each cost-type contract. If actual rates EXCEED provisional rates (more overhead was incurred than the provisional rate anticipated): the contractor is UNDER-BILLED and has a receivable from the government. If actual rates are LESS THAN provisional: the contractor OVER-BILLED and owes the government a refund. The ICS also identifies all unallowable costs for the year, which must be removed from the pools. DCAA audits the ICS — an audit that can take 2–5 years on large contractors, creating 'open years' of potential rate adjustments.
Practitioner & Systems Framework
💻 ERP Architecture
ICS preparation uses the ICE (Incurred Cost Electronically) model — a standardized Excel-based template provided by DCAA. The ICE model has 14 schedules covering: direct/indirect costs by pool, rate computations, unallowable cost schedule, executive compensation analysis, and B&P/IR&D analysis. Large contractors use automated tools to feed the ICE model from their cost accounting system. The ICS triggers DCAA auditing of the year's actual costs — auditors access the contractor's books and records (G/L, timesheets, expense reports, invoices) to verify the ICS. Open ICS years (not yet audited) represent contingent liabilities (potential government refund claims on disallowed costs).
⚠️ Audit Flags
The ICS filing creates the primary audit risk in defense contracting — it's the document that exposes ALL costs charged to government contracts in the year. DCAA tests: allowability of costs in each pool, proper exclusion of unallowable costs, mathematical accuracy of rate computations, and consistency with CAS. Significant DCAA findings on the ICS (questioned costs) create accounts payable to the government. Contractors who fail to file timely ICS (within 6 months) can be suspended from progress payment billings — a significant cash flow impact.
📄 Required Documentation
ICE model (Incurred Cost Electronically — all 14 schedules), supporting trial balance data by account, unallowable cost schedule (with FAR Part 31 citations), executive compensation analysis (vs. FAR cap), B&P/IR&D schedule, provisional vs. actual rate comparison, over/under-billing settlement schedule by contract, DCAA acknowledgment of ICS filing, and open years status.
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