Know About Unallowable Cost Accounting & Incurred Cost Submissions

Posted by dcaaconsultant on March 18th, 2019

The year is over, the books are closed, the tax data has been sent to the CPA and you are ready to start a new year. This is when you receive the DCAA letter reminding you that the cost incurred is due in less than six months. What does the DCAA expect from your cost proposal, other than allowing you to decide, dice and reconcile your annual costs on more schedules than you’ve ever seen in your life?

When to submit your Incurred Cost Submission

You must submit your incurred cost submission within six months of the end of the fiscal year to which the bid applies. For an exercise ending December 31, for example, you must submit your application by June 30 of the next calendar year.

There may be exceptions to the six-month filing provision in the event of a merger or acquisition or in the event of a change of practice. However, in order for you to change the submission deadline, obtain the approval of your Administrative Contracting Officer as soon as possible.

In other words, the DCAA's mission is to ensure that the government buys services and goods at a fair price. When determining which companies to audit, they want value for money. Indirect costs should be broken down separately and should contain both the indirect pool and the pool to which the pool is allocated.

When you close your fiscal year, you must record your actual costs and make adjustments. If you overbill the government, you will have to pay back some of the incurred cost submissions; if you are under billed, you will receive a refund.

If you have trouble understanding the difference between “allowable” and “unallowable” costs related to your government contracts, you are not alone. Even the most experienced government entrepreneurs have difficulty identifying costs that can be charged directly, indirectly or not at all to a government contract.

FAR Subpart 31 (FAR 31) provides many examples of eligible and ineligible costs but does not cover all potential costs that may be incurred by a government contractor in the ordinary course of business or in the performance of a contract that might be outside of their normal course of business.

What happens to Unallowable Costs?

Costs that are expressly unallowable or mutually agreed upon to be unallowable, including mutually agreed to be unallowable directly associated costs, must be identified and excluded from any billing, claim or proposal applicable to a government contract. A directly associated unallowable cost accounting is any cost generated solely as a result of the assumption of another cost. When an ineligible cost is incurred, its directly associated costs are also ineligible.

For example, suppose a government subcontractor organizes a party for his employees. As part of the cost of the party, the company reimburses travel expenses and night. The holiday itself is not eligible, which means that travel and accommodation costs are not eligible because they are directly associated with the party.

Another good example is the purchase of alcohol as part of a business meal. The business meal is considered eligible. However, the cost of alcohol, an expressly unallowable cost and any sales tax or gratuity attributed to this cost must be recorded separately as non-eligible costs.

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