If you’re a government contractor, incurred cost submission (ICS) is a critical requirement that can’t be overlooked. Each year, contractors with cost-reimbursement contracts must prepare and file an ICS with the Defense Contract Audit Agency (DCAA).
In this guide, we’ll walk you through ICS preparation, explain what an incurred cost submission is, and provide a step-by-step framework to make the process less daunting.
What Is an Incurred Cost Submission?
At its core, an incurred cost submission is a detailed report of your over/under billings under your cost-type contracts with the U.S. Government. It achieves this by calculating your actual indirect cost rates and reconciling them to your provisional billings. Contractors submit this report to the DCAA so the agency can audit:
- Costs charged to contracts are allowable, allocable, and reasonable.
- Indirect cost rates (like overhead and G&A) are calculated correctly.
- Changes in cost accounting practices, when applicable
- Unallowable costs are properly excluded from claimed costs
Failing to file on time or filing incorrectly can lead to payment delays, disallowed costs, or even suspension of contracts.
Why ICS Preparation Matters
Timely and accurate ICS preparation is crucial because it:
- Is required
- Ensures accurate billings
- Timely identifies over/underbillings
- Avoids penalties – Incomplete submissions risk disallowances and increased audit scrutiny.
- Maintains compliance – A strong ICS builds trust with contracting officers.
- Supports future opportunities – Ongoing compliance is often a prerequisite for new awards.
Given the stakes, it’s no surprise that ICS is a top focus for contractors during the summer months leading up to the typical June 30 deadline.
Key Components of an ICS
The DCAA provides a standard Incurred Cost Electronically (ICE) Model, which outlines the required ICS schedules. While every contractor’s ICS will look slightly different, most include:
- Schedule A–E: Indirect cost pools and allocation bases.
- Schedule F–H: Contract costs by type and funding.
- Schedule I: Cumulative costs by contract.
- Schedule J: Subcontract information.
- Schedule L–N: Reconciliation of books and financials.
The detail required is extensive, which is why many contractors find value in an ICS guide or expert Incurred Cost Submission support.
Step-by-Step ICS Preparation Guide
Preparing your Incurred Cost Submission requires more than completing schedules, it demands accurate financial data, proper reconciliations, and alignment with DCAA requirements. A clear, step-by-step approach helps you minimize errors, strengthen compliance, and ensure your submission is accurate, supported, and audit-ready.
- Gather Financial Records Early
Collect general ledger data, payroll records, and subcontractor invoices well before the typical June 30 deadline. Accurate source data is the foundation of your submission.
- Review Cost Pools and Bases
Confirm that your overhead, fringe, and G&A cost pools are segregated correctly. Misclassifications here are one of the most common audit findings.
- Complete the ICE Model
Work through each schedule carefully. Double-check formulas, allocations, and supporting documentation.
- Reconcile to Your Financial Statements
Helps your ICS ties directly to your trial balance and financial reports. Reconciliation helps prevent audit flags.
- Conduct a Compliance Check
Compare your submission against the Incurred Cost Adequacy Checklist: DCAA > Customers > Checklists & Tools > Incurred Cost Submission Adequacy Checklist This step allows you to review your submission against the same requirements DCAA will review for upon submission.
- Submit and Retain Records
Submit the ICS electronically by the deadline and retain all supporting documentation for potential audit review.
Preparing Your ICS Submission?
Download the free ICS Filing Checklist to help identify missing documentation, reduce filing errors, and prepare for upcoming submission deadlines.
Common ICS Pitfalls to Avoid
For government contractors, your Incurred Cost Submission (ICS) is more than a compliance requirement—it’s a direct reflection of your accounting system’s integrity. When done correctly, it reinforces credibility with the DCAA and protects your ability to win and retain cost-reimbursable contracts. When done poorly, it can trigger audits, delays in indirect rate approvals, payment withholds, and unnecessary scrutiny.
Even experienced contractors stumble during incurred cost submission. Avoid these common ICS mistakes:
- Missing subcontractor details in Schedule J.
- Misallocating indirect costs.
- Failing to exclude expressly unallowable costs.
- Submitting late or without proper reconciliation.
How RKI Accounting Helps Contractors with ICS
Preparing your Incurred Cost Submission (ICS) doesn’t have to feel like a burden. With the right guidance, contractors can stay compliant, reduce audit risk, and protect their government contracts.
At RKI Accounting, we focus exclusively on supporting government contractors through their ICS prep. Our team helps you:
- Manage the full ICS process – from data collection through final submission.
- Conduct audit readiness reviews – making sure your submission is DCAA-ready.
- Optimize indirect rates – while keeping compliance front and center.
We understand the challenges contractors face and provide tailored solutions to help you file with confidence, on time, and without unnecessary stress.
If a contractor has received a contract containing the Allowable Cost and Payment clause (FAR 52.216-7), the clause requires preparation of an Indirect Cost Rate Proposal (ICRP). The clause is applicable to all cost-type contracts. The proposal also goes by the following industry names “Incurred Cost Proposal” (ICP) and “Incurred Cost Submission” (ICS). The proposal is prepared using the Defense Contract Audit Agency (DCAA) Incurred Cost Electronic (ICE) Model (DCAA > Customers > Checklists & Tools > ICE Model) and is due six months after the contractor’s fiscal year end.
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What is an Incurred Cost Submission?
An Incurred Cost Submission (ICS) is a required annual filing for government contractors who have cost-reimbursement contracts or contracts subject to the Federal Acquisition Regulation (FAR) 52.216-7, "Allowable Cost and Payment" clause. It serves as a comprehensive report that reconciles the indirect costs a contractor has billed throughout their fiscal year with the actual costs they’ve incurred.
In short, the ICS helps that only allowable, allocable, and reasonable costs are billed to and reimbursed by the U.S. government.
Why is an ICS Important?
The ICS is critical because:
It enables the Defense Contract Audit Agency (DCAA) or other cognizant audit agencies to review your claimed costs and gives compliance with government regulations.
It provides the government a basis for establishing your final indirect cost rates, which are used to settle your contracts.
Timely and accurate submissions help contractors avoid payment delays, penalties, and increased audit scrutiny.
Contractors must submit their ICS within six months of the end of their fiscal year, and it must meet strict adequacy standards defined by the DCAA.
What Does an ICS Include?
An Incurred Cost Submission is a comprehensive financial package that reconciles the costs billed under your government contracts with the actual costs incurred during your fiscal year. Its purpose is to provide transparency, demonstrate compliance with federal regulations, and support the government’s audit process. Preparing an adequate ICS requires attention to detail and a clear understanding of what must be included.
A typical ICS contains:
Indirect Rate Calculations: Detailed breakdowns of fringe, overhead, and general & administrative (G&A) rates.
Direct Costs by Contract: Schedules showing labor, materials, and other costs applied to specific contracts.
General Ledger Reconciliation: Documentation proving that claimed costs align with your accounting records.
Cumulative Cost Schedules: Totals for each contract, supporting contract closeouts and final rate determinations.
Certificate of Final Indirect Costs: A required certification that costs are accurate and compliant.
Subcontractor Details: Support for any subcontractor costs being claimed.
Labor Distribution: Clear records of labor hours worked by employees and labor category.
Incurred Cost Proposals
Under cost-type contracts, contractors utilize a provisional billing rate throughout the year. The intention of the Incurred Cost Proposal is to true-up a contractor’s provisional billing rate to actual under its cost-type contracts. The actual rate is compared to what was billed and the calculated over/underbill is either credited back to the government or invoiced, respectively.
The proposal includes a series of Schedules from Schedule A through O, including Supplemental Schedules. Some of the more impactful Schedules Include Schedule A Summary of Indirect Rates, Schedule H Summary of Direct Contract Costs, and Schedule I Cumulative Costs Claimed & Billed.
Upon completion, the Incurred Cost Proposal is submitted to DCAA and your Administrative Contracting Officer (ACO) for audit. DCAA uses an Incurred Cost Submission Adequacy Checklist (DCAA > Customers > Checklists & Tools > Incurred Cost Submission Adequacy Checklist) to determine if the submission is adequate for audit. Upon acceptance, DCAA may audit the submission for compliance including accuracy of rate calculations and applications. This is the most frequent audit performed by DCAA year over year. Their findings routinely center on unallowable costs pursuant to FAR 31 and exceptions to exceptions to cost accounting practices used by contractors.
Incurred Cost Audit
An Incurred Cost Audit is a formal review conducted by the Defense Contract Audit Agency (DCAA) or another government audit authority to evaluate the accuracy, allowability, and reasonableness of the costs a contractor has claimed in their Incurred Cost Submission (ICS). This audit helps the government determine final indirect cost rates and makes sure that taxpayer dollars are spent appropriately.
During the audit, the DCAA examines key records such as:
Indirect rate calculations
Labor records and timesheets
Direct and indirect cost allocations
Subcontractor invoices and support
General ledger reconciliations
A successful audit outcome depends on careful ICS preparation and complete documentation. Missing records, improper cost allocations, or inaccuracies can result in audit findings, delays in contract closeout, repayment demands, and potential harm to a contractor’s reputation and future government work.
At RKI we help contractors get audit-ready by reviewing their ICS for adequacy, overlooking if supporting records are in order, and guiding them through the audit process. Whether you are preparing for your first audit or need assistance responding to DCAA inquiries, we help reduce rishk and give you confidence that your submission meets all compliance requirements.
Indirect Cost Rate Preparation Made Easy
Accurate and compliant indirect cost rate preparation is essential for managing government contracts profitably and passing audits. At RKI, we help contractors calculate, document, and support their indirect rates so they can avoid audit findings, protect their margins, and comply with FAR requirements.
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