May 15. Your fiscal year ended four and a half months ago. The incurred cost submission is due in six weeks.
An incurred cost submission (ICS) is required within six months of your fiscal year end under FAR 52.216-7(d)(2)(i) for contractors with flexibly-priced contracts. FAR 52.216-7(d)(2)(iii) requires 14 categories of data. The DCAA ICE Model formats these across 15 labeled schedules (A through O), documenting actual direct costs, indirect rates, and cost pool allocations. The Defense Contract Audit Agency (DCAA) uses the ICS to audit your claimed costs and determine final indirect billing rates. Late or inadequate submissions trigger payment withholding and prevent contract closeout.
Your year-end books are closed, but you have not opened the ICE Model. Schedule J is a blank page. Nobody in the office knows whether the payroll reconciliation ties to the 941 filings.
The deadline does not move.
A 25-person security contractor in San Antonio faced this exact situation last year. They started their ICS preparation on May 20, discovered a $94,000 misclassification between their overhead and G&A pools on May 29, and spent the next three weeks rebuilding Schedules B through E. The submission landed on DCAA’s desk July 8, eight days past the incurred cost submission deadline. The contracting officer withheld 20% of their next three progress payments while DCAA processed the late filing.
Six weeks is not enough time to build a clean incurred cost submission from scratch. Six months is.
The difference between contractors who file on time and contractors who scramble is not talent or resources. It is when they start.
The incurred cost submission deadline falls six months after a contractor’s fiscal year end [FAR 52.216-7(d)(2)(i)]. For calendar-year contractors, the deadline is June 30. Amerifusion Bookkeeping uses a month-by-month preparation checklist to move ICS work into the first five months of the year, so June becomes a final review, not a fire drill.
What Happens When You Miss the Incurred Cost Submission Deadline
Missing the June 30 deadline gives DCAA grounds to recommend, and the contracting officer discretion to apply, a decrement factor to your provisional billing rates, reducing your reimbursable indirect costs [see FAR 52.216-7(d)(2)(i) and DCAA administrative policy]. That reduction almost never works in your favor.
The contracting officer also has discretion to adjust billing rates or withhold payments until the submission is filed and determined adequate.
The billing rate hit is the immediate pain. The long-term damage is worse.
Delinquent ICS status prevents contract closeout. Every physically complete contract stays open, tying up bonding capacity and cluttering your contract portfolio.
Contracting officers reviewing your past performance for new awards see open contracts stretching back years. A delinquent ICS filing tells them your accounting system lacks the discipline to produce timely financial data.
Extensions require a written request from the contractor and written approval from the Contracting Officer [FAR 52.216-7(d)(2)(i)], and only for exceptional circumstances. In most DoD contracts, the Administrative Contracting Officer (ACO) holds contracting officer authority for this purpose. For civilian agency contracts, the Procuring Contracting Officer typically holds this authority. “We ran out of time” does not qualify. Request extensions in writing at least 30 days before the deadline, with a specific completion date and explanation.
The DCAA ICE Model: Your Free Preparation Tool
DCAA provides the ICE Model (Incurred Cost Electronically), a free Excel workbook available at dcaa.mil, pre-formatted with all required ICS schedules from A through O. DCAA also publishes the ICE Manual alongside the workbook, the primary-source documentation that explains the purpose of every schedule and how the cross-references are calculated. Read it once before opening the model so the schedule logic clicks faster. The ICE Model is not mandatory. FAR 52.216-7 does not prescribe a specific format. But submissions using the ICE Model pass DCAA’s adequacy review at higher rates than custom formats because the built-in structure prevents common formatting and omission errors.
The ICE Model forces you through every required schedule in sequence. Schedule A rolls up from Schedules B, C, D, and E automatically. Cross-references between schedules flag mismatches before you file.
If your total labor on Schedule G does not match your payroll on Schedule L, the workbook highlights the gap.
Download the ICE Model in January, not May. Populate it gradually as each month’s preparation work concludes. Contractors who open the ICE Model for the first time in the final month produce the most errors because they try to fill 15 schedules at once without verifying the underlying data.
Month-by-Month ICS Preparation Checklist
This timeline applies to contractors with a December 31 fiscal year end and a June 30 incurred cost submission deadline. Adjust the months if your fiscal year ends on a different date. Each month builds on the previous month’s work, so skipping a month creates a compounding backlog.
| Month | Primary Tasks | Deliverable | Risk If Skipped |
|---|---|---|---|
| January | Close fiscal year books. Record all year-end adjusting entries. Finalize accruals, deferrals, and reclassifications. Confirm all December invoices and payroll are posted. | Final adjusted trial balance | Every ICS schedule builds on unstable numbers. Errors cascade through every schedule in the submission. |
| February | Reconcile general ledger to job cost ledger (Schedule G data). Complete W-2/941 payroll reconciliation (Schedule L data). Verify all labor distribution reports match payroll records. | Reconciled G/L and payroll tie-out | Schedule G and Schedule L fail adequacy review. DCAA questions accounting system reliability. |
| March | Calculate actual indirect rates for the completed fiscal year. Compare actual rates to provisional billing rates. Identify variances exceeding 5%. Flag any over/under-billings for adjustment. | Actual vs. provisional rate comparison | Rate variances surface in June with no time to research causes. Over-billings require refunds. |
| April | Populate ICE Model Schedules A through F (all indirect cost pools). Verify unallowable costs are segregated and excluded from pools. Complete FCCM calculation (Schedule F) if applicable. | Draft indirect pool schedules in ICE Model | Pool composition errors discovered in June force rebuild of multiple schedules. |
| May | Complete Schedules G through O (contract costs, subcontracts, payroll, certifications). Compile subcontract log for Schedule J. Run DCAA’s Adequacy Checklist against the full submission. | Complete draft ICS with all schedules populated | Inadequacy findings returned after filing restart the entire review clock. |
| June | Final QA review. Obtain officer certification signature on Schedule N (VP or above). Submit to ACO and cognizant DCAA office. Retain a complete copy with submission confirmation. | Filed ICS with confirmation receipt | Late filing triggers potential decrement factor on provisional billing rates and payment adjustments by the contracting officer. |
Contractors who follow this timeline spend roughly 15 to 20 hours per month (varies by complexity) on ICS preparation. Based on our client work, contractors who compress everything into May and June typically spend 80 to 100 hours in a final sprint and still produce higher error rates than those who spread the work across six months.
The 15 Schedules Inside Every ICS
FAR 52.216-7(d)(2)(iii) requires 14 categories of data. The DCAA ICE Model formats these across 15 labeled schedules (A through O), each serving a distinct audit function. DCAA’s adequacy review checks whether all 15 schedules are present, complete, and internally consistent. A single missing schedule triggers an inadequacy determination, returning the entire submission for correction. For a detailed walkthrough of each schedule, see the Amerifusion ICS guide.
| Schedule | Purpose | Preparation Month |
|---|---|---|
| A | Summary of all indirect expense rates | April (auto-calculates from B-E) |
| B | Fringe benefits pool detail | April |
| C | Overhead pool detail (one per pool) | April |
| D | Intermediate cost pool allocations | April |
| E | G&A expense pool and allocation base | April |
| F | Facilities Capital Cost of Money (FCCM) | April |
| G | Direct costs by cost element, reconciled to G/L | February (data), May (schedule) |
| H | Direct costs by contract with claimed rates | May |
| I | Cumulative allowable cost worksheet | May |
| J | Subcontract listing with consent status | May (from year-round log) |
| K | T&M contract detail (hours, rates, materials) | May |
| L | Payroll reconciliation to IRS Form 941 | February (data), May (schedule) |
| M | Accounting changes and CO approvals | May |
| N | Certification of final indirect costs (signed) | June |
| O | Contracts eligible for closeout | May |
Top 6 ICS Rejection Reasons and How to Prevent Them
DCAA runs every incurred cost submission through its adequacy checklist before assigning it to an auditor. Submissions failing this initial screen get returned as “inadequate,” and the delinquency clock keeps ticking. These six errors account for the majority of rejections we see across our client base.
1. Missing or Improperly Signed Schedule N
The certification must be signed by a corporate officer at the Vice President or Chief Financial Officer level (or above). A bookkeeper, controller, or project manager signature does not satisfy the requirement.
Schedule N certifies all claimed costs are allowable under FAR Part 31. DCAA returns submissions with missing or improperly signed certifications on the first day of review.
2. General Ledger Does Not Tie to Schedule G
Schedule G reports direct costs by cost element and must reconcile to your general ledger. A $500 rounding difference is fixable during the adequacy review.
A $50,000 unexplained variance between your job cost ledger and your G/L tells the auditor your accounting system produces unreliable data. Monthly G/L-to-job-cost reconciliation (the February task in the checklist above) eliminates this problem.
3. Incomplete Subcontract Disclosure on Schedule J
Every subcontract and qualifying purchase order awarded during the fiscal year must appear on Schedule J. Contractors routinely omit staffing agency placements, consulting engagements, and purchase orders exceeding the simplified acquisition threshold ($350,000). A $200,000 purchase order to a staffing firm is a subcontract under FAR 44.101. Maintain a subcontract log throughout the year to prevent omissions.
4. Unallowable Costs Left in Indirect Pools
Entertainment [FAR 31.205-14], alcohol [FAR 31.205-51], and lobbying [FAR 31.205-22] are always unallowable. These costs must be segregated and excluded from every indirect pool.
Leaving them in your G&A pool and including them in your final indirect cost rate proposal triggers FAR 52.242-3 penalties on contracts exceeding $1,000,000 [FAR 42.709-7]. For previously identified unallowable costs, the penalty is two times the disallowed cost allocated to the contract [FAR 42.709-1]. Waiver conditions exist under FAR 42.709-6 (including for amounts under $10,000 or inadvertent errors with documented controls). Scrub unallowable costs monthly during your regular close process, not once a year during ICS preparation.
5. Payroll Does Not Reconcile to 941 Filings
Schedule L requires total compensation to match IRS Form 941 quarterly filings. Differences between your payroll system, your general ledger, and your tax filings signal data integrity problems.
Reconcile quarterly 941 filings against your books as each quarter closes. By February of the following year, Schedule L becomes a ten-minute verification step instead of a multi-day forensic exercise.
6. Schedule I Does Not Reconcile to Cumulative Billed Amounts
Schedule I, the cumulative allowable cost worksheet, lists claimed direct costs by contract and Contract Line Item Number (CLIN) from contract inception through the end of the fiscal year. Auditors compare those cumulative claimed costs to the cumulative billed amounts in the contractor’s billing system. When the two do not tie, DCAA cannot determine whether the contractor has been overbilling or underbilling the government across the life of the contract, the question Schedule I exists to answer. The fix is procedural, not analytical: pull the billing register for every flexibly-priced contract, reconcile it to Schedule I before filing, and document every variance (fee withholdings, billings in transit, modifications in process) in the workpapers.
Reconciling Your Books Before Filing
Book reconciliation is the foundation of a clean ICS. Every schedule in the incurred cost submission traces back to your general ledger. If the ledger is wrong, every schedule built from it is wrong. The GovCon year-end close process feeds directly into ICS preparation. Contractors who treat the year-end close and ICS as one continuous workflow produce the fewest adequacy findings.
Three reconciliations matter most:
- General ledger to job cost ledger. Total direct costs on your G/L must match the sum of all contract-level charges in your job cost system. Discrepancies indicate unposted transactions, misclassified costs, or timing differences from year-end accruals. Complete this in February.
- Payroll to 941 tax filings. Total wages, employer taxes, and withholdings on your G/L must tie to the four quarterly 941 returns filed with the IRS. This reconciliation also validates the labor numbers feeding Schedules B (fringe) and G (direct labor). Complete this in February.
- Provisional rates to actual rates. Calculate your actual fringe, overhead, and G&A rates from the completed fiscal year data and compare them to the provisional rates you used for billing. Variances exceeding 5-10% require explanation. Use the indirect rate calculator to model your actual rates against current billing rates. Complete this in March.
Filing the ICS vs. Passing the Incurred Cost Audit
Filing a timely, adequate incurred cost submission is step one. The DCAA incurred cost audit is step two, and it arrives 12 to 36 months after filing. GAO-17-738 found DCAA averaged approximately 885 days (roughly 29 months) from adequate ICS submission to audit completion. For the phase-by-phase walkthrough of adequacy review, audit selection, fieldwork, and final rate agreement, see what DCAA does after your incurred cost submission.
Adequacy and audit readiness are different standards. Adequacy means all 15 schedules are present, complete, and internally consistent. The audit examines whether your claimed costs are actually allowable, allocable, and reasonable under FAR Part 31.
DCAA’s adequacy review is a practitioner estimate of 30 to 60 days. The auditor checks schedule completeness, internal cross-references, and the Schedule N certification.
An adequate submission gets assigned to the audit queue. An inadequate submission comes back with specific deficiencies to correct.
The incurred cost audit itself tests three areas with the heaviest scrutiny:
- Labor costs. The auditor compares labor distribution reports to timesheets, payroll records, and 941 reconciliations. Any gap between hours recorded and hours compensated triggers deeper examination.
- Expressly unallowable costs. DCAA runs your general ledger expense detail against FAR 31.205 cost-principle categories (entertainment [31.205-14], alcohol [31.205-51], lobbying [31.205-22], and other expressly unallowable items). Any unallowable cost in an indirect pool that appears in your final rate proposal triggers a rate adjustment and potential FAR 52.242-3 penalties.
- Indirect rate consistency. The auditor tests your allocation methodology against prior years and your CAS Disclosure Statement (if applicable). For CAS-covered contractors, changing your allocation base without contracting officer approval is a CAS 402 consistency violation. For non-CAS-covered contractors, FAR 31.203(c) governs consistency.
The contractors who pass incurred cost audits quickly are not the ones with perfect books. They are the ones with organized supporting documentation: timesheets, expense receipts, subcontract files, and rate computation workpapers all indexed to the specific ICS schedule they support.
Frequently Asked Questions
When is the incurred cost submission deadline?
The incurred cost submission deadline falls six months after a contractor’s fiscal year end, per FAR 52.216-7(d)(2)(i). Calendar-year contractors face a June 30 deadline. Extensions require a written request and written Contracting Officer approval, and only for exceptional circumstances. In most DoD contracts, the ACO handles this; in civilian agency contracts, the PCO typically holds this authority.
What is the penalty for a late incurred cost submission?
DCAA may recommend a decrement factor applied to provisional billing rates, reducing the contractor’s reimbursable indirect costs. The contracting officer also has discretion to adjust billing rates or withhold payments until the submission is filed and determined adequate. Delinquent status prevents closeout of physically complete contracts.
What is the DCAA ICE Model?
The ICE Model (Incurred Cost Electronically) is a free Excel workbook from DCAA, pre-formatted with all required ICS Schedules A through O. It auto-calculates cross-schedule references and flags internal inconsistencies. Submissions in this format pass adequacy review at higher rates than custom formats.
What does “adequacy” mean for an incurred cost submission?
DCAA’s adequacy review checks whether all required schedules (A through O) are present, complete, and internally consistent. Adequacy does not mean the costs are allowable. Inadequate submissions get returned for correction before entering the audit queue.
How long does the incurred cost audit take after filing?
Most DCAA incurred cost audits take 12 to 36 months after filing to complete (varies by DCAA workload and audit complexity). GAO-17-738 found DCAA averaged approximately 885 days from adequate submission to completion. Adequate submissions with clean reconciliations and organized supporting documentation receive faster processing. Contractors requesting prioritized audits for contract closeout purposes should coordinate the request through their ACO, not directly with DCAA.
Key Takeaways
- Start in January, file in June. The month-by-month checklist spreads ICS preparation across six months at 15-20 hours per month. Compressing the work into May and June increases hours and error rates.
- Download the ICE Model early. DCAA’s free workbook prevents formatting and omission errors. Populate it incrementally as each month’s reconciliation work concludes.
- Reconcile three things before touching the ICE Model: G/L to job cost ledger, payroll to 941 filings, and provisional rates to actual rates. Every ICS schedule traces back to these three data sources.
- Run DCAA’s Adequacy Checklist before filing. The checklist is free at dcaa.mil. It tests the same criteria DCAA uses during their adequacy review. Catching a deficiency before submission saves 60-90 days of back-and-forth.
- Schedule N needs the right signature. A VP or higher must sign the certification. Wrong signature returns the entire submission on day one. Get this on the calendar for early June.
The incurred cost submission deadline is a fixed target. Your preparation timeline is the variable you control. Building ICS readiness into your monthly close process converts a high-stakes annual event into a routine administrative filing.
Not sure whether your books produce the data these schedules require? Take the Compliance Readiness Check to identify gaps before the June 30 deadline. If you need help building an ICS-ready accounting process, review our DCAA compliance services or book a discovery call with our team.
