By Bernard Mustafa, PVBS Chief Executive Officer
Strategies for Reducing Incurred Cost Submission Stress.
Every government contractor that has flexibly-priced contracts must make an Incurred Cost Submission within six (6) months from the end of their fiscal year. Although this may seem like a reasonable amount of time to prepare, review and submit the incurred costs, it’s never too early to begin planning for the submission. In fact, every year PVBS hosts webinars on how to prepare for your incurred cost submissions, such as this webinar you can download.
The incurred cost submission establishes the final actual indirect rates used for costing and billing purposes. Many consultants and accountants that service government contractors will remind you about this deadline in the coming weeks in their own blogs. I’m going to take a different slant, though, and address some thoughts about the incurred cost submission process you might not have considered.
One reason why I’ve chosen to discuss this topic at this time is since PVBS introduced Microsoft Dynamics AX for Government Contractors to the market, we’ve been exposed to several commercial enterprises with large government contracting operations. What we’ve discovered is that many of them are using multiple divergent ERP software applications to manage the government contracting and commercial sides of the business. This means that the challenges of creating the actual submissions are probably (1) unknown to headquarters accounting team members and (2) burdensome to the government contracting operations. We have also noticed that many of these ERP systems are not set up adequately to capture information that is important in this process.
Even though the Defense Contract Audit Agency (DCAA) has produced a template to follow, we find that many companies struggle with getting their incurred cost submissions completed with a limited amount of trouble. This spreadsheet is really geared for the smallest of government contractors. Once you get above a reasonable size, you’re dependent upon your ERP solution playing a larger part in this process. There’s the rub.
First off, many of the hundreds of government contractors we’ve worked with over the years have said that preparing for incurred cost submissions is time consuming, challenging, and laborious. These are all important factors but the most important thing is that there’s no business value in this process! I’m not saying it’s not a necessary process. Of course it is, but I want to reiterate that there is absolutely no business value to this process yet government contractors are forced to go through it for months each year.
Although it’s a required action, spending all of this time on preparing for the submission is not the best use of your accounting team’s time. There is no financial return on the time you spend preparing and submitting your incurred costs. So you need to find ways that you can complete this task more easily and quicker and your ERP system should make it so.
The burden of incurred cost submission data gathering and accuracy confirmation frequently rises up as a particular challenge. Incurred cost submissions are standard fare for the government contracting division however the concepts and processes may be completely foreign to the headquarters’ accounting team. This may become even more of a challenge if the government contracting division came into the larger enterprise as part of an acquisition.
How long it takes to submit ICE schedules depends on how readily available the data is and how easy it can be retrieved from your ERP system. If you’re a small government contractor, you’re probably using Excel spreadsheets to manually fill in the data you’re downloading from your entry-level system, perhaps QuickBooks. Once you consolidate it, you’ll probably go through a few rounds of validations before ensuring the data is clean. For a big company, an enterprise, it could take four months, although you get six months to do it. This demands full time attention from a number of key staff members. In a small company with limited variables, it may only take a few weeks. For larger enterprises, where multiple ERP systems are in place and divisions may be hundreds of miles from each other, the task becomes arduous and fraught with potential errors.
We’ve seen government contractors waste a lot of time and energy preparing for incurred cost submissions. In our next two blogs, we’ll discuss how improvements to your ERP system can help ease some of the pain and make such an arduous task much more manageable.