Very few medium-to-large government contractors use a “fat” general ledger. The source of contract data is a job cost or project cost ledger that provides summary journals to the general ledger.

December 12, 2018

No matter how much we try to streamline and automate the incurred cost submission preparation process, it’s a hard-and-cold fact that it always presents unique challenges for contractors. It is rare for contractors to be able to take the Defense Contract Audit Agency (DCAA) Incurred Cost Electronically (ICE) model, enter their setup information, import their general ledger data and…poof, the submission is complete.

Since DCAA’s May 2008 release of the electronic ICE model, the preparation process for a large majority of contractors is certainly streamlined. At a minimum, most contractors can enter their structure into the setup and use the model to produce the framework for the large majority of schedules. From this point, most contractors will need to make modifications to the model to accommodate their specific cost allocation structure. Even contractors that use a basis of allocating overhead pools other than labor dollars can adapt the schedules with relative ease.

Basically, the model can serve as a checklist and guide for submission preparation. This includes contractors that have:

  • An existing, agreed-to incurred cost template in use.
  • A cost structure with elements that are difficult, at best, to adapt, such as standard cost.
  • A significant volume of data that makes Excel an inadequate tool.

The most predominant adaptation is likely to be Schedule H, Contract Direct Costs by Contract/Subcontract and Indirect Expense Applied at Claimed Rates. Here are some important factors:

First, very few medium-to-large government contractors use a “fat” general ledger. The source of contract direct cost is a job cost or project cost ledger that provides summary journals to the general ledger. This means the links in the ICE model that retrieve “general ledger” source data from Schedule H must be modified. The optional, and highly recommended, Schedule G-1 which displays a reconciliation of the job or project cost data to the general ledger can be modified to reflect the Schedule H data currently shown in the GL column to be shown in the Job Cost column. Schedule G, which displays the general ledger data summarized, needs to be imported from the general ledger trial balance and the formulas retrieving the data from Schedule H need to be removed.

Second, contract detail requires cost detail at the lowest level of required tracking. That is, if a contract requires you to invoice at the sub-task level, you must report costs on Schedule H at the sub-task level for that contract. Each contract’s reporting level is determined by the contract. The model does not provide for a multitiered contract or project numbering system. However, it is a simple matter of inserting columns to accommodate the number of levels required by your company. In any case, the data then needs to be sorted and subtotaled by contract and by DOD versus non-DOD contracts within each category of contracts.

Third, on Schedule H, contract detail requires display of unallowable direct costs at the contract reportable level. For example, a contract with a ceiling on travel would display (using the Format provided in the DCAA ICE model) the excess travel cost on a separate line indicating it is unallowable. The same separate line display would apply to unallowable group meals/entertainment that are incurred for that contract.

Three Tips to Help with the Process

  1. Use the DCAA ICE model as the starting point for creating a company template. This will:
    • Provide data in a format that the auditors expect and are familiar with.
    • Avoid miscommunications from different terminology use.
    • Help ensure an adequate submission.
    • Serve as a checklist for completing the submission.
  2. Create an automated feed from the job cost or project cost ledger to the contract direct cost schedule, Schedule H. This will:
    • Require an update of links to the summary schedule.
    • Streamline the remaining submission preparation process.
    • Keep the integrity of the tie-ins to the other incurred cost schedules.
  3. Create a shell feed sheet from the general ledger that spreads account amounts by cost element. This will:
    • Illustrate accounting data that supports the financial statements.
    • Show job cost data under general ledger control.
    • Provide a central source for schedules requiring general ledger feeds in the ICE.

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