What Are Incurred Cost Submission Schedules?

Incurred Cost Submission Schedules are the schedules utilized in the Incurred Cost Proposal for government contractors. These schedules provide a detailed breakdown of labor, costs, and indirect rates to demonstrate compliance with FAR requirements and audit readiness for DCAA.

For contractors, these schedules are not just a reporting requirement—they are the foundation of audit readiness. When prepared correctly, they validate your financial data, support billed amounts, and reduce audit risk.

These schedules are defined under FAR 52.216-7 and are typically prepared using the DCAA Incurred Cost Electronically (ICE) Model, the standard framework used by contractors to ensure compliance.

Why Incurred Cost Submission Schedules Matter

Accurate incurred cost submission schedules directly impact your ability to:

• Pass DCAA audits
• Avoid questioned costs
• Maintain consistent cash flow
• Support contract billing

Errors or inconsistencies can lead to increased scrutiny, delayed approvals, or even financial penalties. That’s why these schedules must align perfectly with your accounting system, payroll, and contract records.

Key Components of Incurred Cost Submission Schedules

Incurred cost submission schedules are designed to provide a full financial picture of your contracts. They typically include detailed reporting across several key areas:

Direct Costs by Contract

One of the most important elements incurred in cost submission schedules is the breakdown of direct costs. This includes labor, materials, and other expenses tied directly to individual contracts.

This section ensures that every dollar reported can be traced back to a specific project, making it a focal point during audits.

Cumulative Costs and Billing Reconciliation

Another critical component compares total incurred costs against billed amounts. This ensures consistency between what has been invoiced and what has been spent.

Any discrepancies in this area can trigger deeper audit reviews, making accuracy essential.  Think of this schedule as your U.S. Government tax return – how much do I owe the government or how much does it owe me.

Labor and Payroll Reconciliation

Labor is often the largest expense for government contractors. Incurred cost submission schedules must clearly tie labor costs back to payroll records and timekeeping systems.

This includes:

• Employee-level labor tracking
• Timekeeping validation
• Payroll reconciliation

Strong alignment here reduces the likelihood of audit findings related to labor distribution.

Indirect Cost Rate Calculations

Indirect rates such as fringe, overhead, and G&A are the engine of incurred cost submission schedules.

These schedules calculate:

• Cost pools
• Allocation bases
• Final indirect rates

Errors in this area can significantly impact contract profitability and compliance, making precision critical.  The indirect cost rate schedules are lined to establish final claimed costs, which are ultimately compared to invoiced costs.

Identification of Unallowable Costs

A key requirement within incurred cost submission schedules is the proper identification and removal of unallowable costs pursuant to FAR Part 31.

Examples include:

• Entertainment expenses
• Alcohol
• Advertising
• Bad debt
• Certain lobbying or legal costs

Failing to exclude these costs is one of the most common compliance issues contractors faces.

Labor Distribution and Timekeeping Validation

Incurred cost submission schedules also validate how labor is distributed across contracts. This ensures:

• Time is recorded accurately
• Labor is allocated correctly
• Systems are compliant to satisfy DCAA audit interests

Timekeeping remains one of the most scrutinized areas during audits, so this portion of the schedules must be airtight.

Incurred Cost Submission Schedule H

Incurred Cost Submission Schedule H is one of the most heavily reviewed schedules during a DCAA audit.

What It Includes:

• Direct costs by contract
• Labor, materials, and other direct expenses
• Breakdown of costs per project

Why It Matters:

Schedule H ties your costs directly to government contracts. If this schedule doesn’t reconcile with your accounting records, it raises immediate red flags.

Best Practice:
Ensure your direct costs tie exactly to your project ledger and contract records. Regularly reconcile contract-level costs throughout the year to prevent discrepancies during submission.

Incurred Cost Submission Schedule I

Incurred Cost Submission Schedule I complements Schedule H by providing a cumulative view of costs.

What It Includes:

• Total billed costs
• Total costs incurred
• Comparison between billed and actual

Why It Matters:

This schedule ultimately shows the over/underbilling variance resulting from provisional billings to final, actual costs claimed.

Best Practice:
Perform routine reconciliations between billed amounts and incurred costs to catch variances early and avoid significant over/under billings that catch you and/or your customer off guard.

Incurred Cost Submission Schedule K

Incurred Cost Submission Schedule K is required for contractors performing work under Time & Materials (T&M) or Labor-Hour contracts. This schedule provides detailed visibility into how labor and associated costs are billed and applied at the contract level.

What It Includes:

• Labor categories defined within the contract
• Hours worked by labor category
• Billed labor rates and total labor costs
• Materials and Other Direct Costs (ODCs)
• Indirect expenses applied to these costs

Why It Matters:
Schedule K plays a critical role in validating that billed labor aligns with contract terms. Because T&M and Labor-Hour contracts are heavily scrutinized, this schedule is often a focal point during DCAA audits.

Any inconsistencies between labor categories, billed rates, or recorded hours can quickly raise red flags and lead to questioned costs.

Best Practice:
Ensure your timekeeping system, labor distribution, and billing records are fully aligned with contract requirements. Regular internal reviews of T&M and Labor-Hour data can help catch discrepancies early and maintain compliance.

Incurred Cost Submission Schedule L

Incurred Cost Submission Schedule L focuses on payroll reconciliation.

What It Includes:

• Labor costs tied to payroll records
• Reconciliation of labor expenses to financial statements

Why It Matters:

Labor is one of the largest cost drivers for most contractors. Schedule L validates that your labor costs are accurate and fully supported by payroll data.

Best Practice:

Reconcile payroll to your labor distribution system routinely, not just annually, to ensure all labor costs are accurate, complete, and fully supported.

Incurred Cost Submission Schedule O

Incurred Cost Submission Schedule O focuses on contracts that were physically completed during the contractor’s fiscal year. This schedule provides key details needed to support contract closeout and final cost verification.

What It Includes:

• Contracts physically completed during the fiscal year
• Final incurred costs associated with each contract
• Contract status and relevant closeout information

Why It Matters:
Schedule O ensures that completed contracts are properly identified and that all associated costs have been accurately recorded and finalized. This is essential for supporting the contract closeout process and maintaining compliance with FAR requirements.

Incomplete or inaccurate information in this schedule can delay closeouts, trigger additional audit scrutiny, and create reconciliation issues between reported and final costs.

Best Practice:
Maintain a clear record of contract completion status throughout the year and regularly reconcile final costs. This ensures your Schedule O is accurate, complete, and audit-ready when it’s time to submit your ICS.

Handling Unallowable Costs

Properly identifying and excluding unallowable costs is a critical requirement in any incurred cost submission. Under FAR Part 31 cost principles, certain expenses cannot be billed to the government and must be removed before calculating indirect rates.

Common unallowable costs include:

• Entertainment and alcohol
• Fines and penalties
• Certain legal and lobbying expenses
• Advertising

Why It Matters:
 Failing to segregate unallowable costs is one of the most common reasons for audit findings. If these costs are included in your indirect cost pools, it can overstate your rates and lead to questioned costs or penalties.

Best Practice:
Track unallowable costs throughout the year, not just at year-end. Use separate accounts in your general ledger to ensure they are clearly identified, excluded from rate calculations, and fully documented.

Timekeeping & Labor Validation

Labor is often the largest cost for government contractors, making timekeeping accuracy a major focus during DCAA audits. Your incurred cost submission must demonstrate that labor costs are properly recorded, allocated, and supported.

Key components include:

• Accurate daily time entry by employees
• Clear distinction between direct and indirect labor
• Consistent labor distribution across contracts
• Reconciliation between timekeeping records and payroll

Why It Matters:
 Weak timekeeping practices can lead to significant audit issues, including questioned labor costs and system deficiencies. Since labor drives both direct costs and indirect rate calculations, errors here can impact your entire submission.

Best Practice:
 Implement a compliant timekeeping system with:

• Daily time entry requirements
• Supervisor approvals
• Audit trails for changes

Strong labor validation ensures your incurred cost submission is defensible, accurate, and aligned with DCAA audit expectations.

Common Issues with Incurred Cost Submission Schedules

Even well-run organizations encounter issues when preparing incurred cost submission schedules. The most common include:

• Mismatch between general ledger and schedules
• Payroll data not aligning with labor reports
• Incorrect indirect rate calculations
• Failure to remove unallowable costs
• Incomplete or inconsistent documentation

These issues often lead to delays, additional audit requests, and increased compliance risk.

Best Practices for Preparing Incurred Cost Submission Schedules

To ensure your incurred cost submission schedules are accurate and audit-ready, focus on these priorities:

Start Early

Begin preparing shortly after your fiscal year ends to avoid last-minute errors.  Contractors have six (6) months after their fiscal year.  Commencing with preparation of the incurred cost proposal as soon as your financial accounting records are closed and audited (if applicable), allows for efficient and timely preparation and submission.

Reconcile Financial Data

Ensure your general ledger, payroll, and billing systems are fully aligned.

Maintain Accurate Timekeeping

Strong labor tracking supports multiple areas of your submission.

Segregate Unallowable Costs Throughout the Year

Don’t wait until year-end to identify these expenses.

Validate Indirect Rates

Double-check calculations, formulas, and allocation methods.

Conduct a Full Review Before Submission

Every section of your incurred cost submission schedules should tie together seamlessly.

Take a Big Picture Look at the Outcome

Ultimately the incurred cost submission will result in an over/underbilling that primarily is the result of a difference between your provisional and actual indirect cost rates.  Once complete, be sure that the over/underbilling calculation makes sense given that disparity.  It is a simple “gut check” to challenge if the calculation may have errors.

Prepare a DCAA Incurred Cost Submission Adequacy Checklist

DCAA makes it easy to now what they look for before deeming your submission adequate for audit. While not required, contractors are encouraged to prepare the checklist to ensure they identify any incomplete or inaccurate data consistent with the way DCAA will.

Link:  DCAA > Customers > Checklists & Tools > Incurred Cost Submission Adequacy Checklist

Preparing Your ICS Submission?

Download the free ICS Filing Checklist to help identify missing documentation, reduce filing errors, and prepare for upcoming submission deadlines.

Get Expert Help with Your Incurred Cost Submission Schedules

Incurred Cost Submission Schedules are more than a compliance requirement, they directly impact audit outcomes, cash flow, and contract profitability.

When these schedules are done right, they:

• Reduce audit risk
• Prevent questioned costs
• Improve confidence in your financial reporting

When they’re wrong, they create delays, scrutiny, and potential financial exposure.

If you're unsure your schedules will hold up under audit, now is the time to fix it—not after submission.

Schedule a consultation today to review your incurred cost submission and identify gaps before they become problems.