In September 2022, a major aerospace contractor faced $47.2 million in penalties when DCAA auditors discovered the company had failed to submit required incurred cost submissions for three consecutive years. The contractor’s inadequate year-end preparation and failure to maintain compliant documentation under FAR 52.216-7 resulted in contract suspension just as the new fiscal year began. This case demonstrates why September represents the most critical compliance month for government contractors preparing for fiscal year-end obligations.

Legal Foundation: September’s Regulatory Imperatives

Government contractors face converging compliance deadlines as the federal fiscal year concludes on September 30th. Three regulatory frameworks create mandatory September obligations. First, FAR 52.216-7 requires contractors on cost-reimbursement contracts to submit annual incurred cost submissions within six months of fiscal year-end. Second, CAS 413 mandates adjustment and allocation of pension costs by fiscal year-end. Third, 10 U.S.C. § 3321 requires contractors to certify cost and pricing data accuracy before contract modifications exceeding $2 million.

The confluence of these requirements means September violations trigger cascading penalties. Under FAR 42.709-6, late incurred cost submissions result in automatic interest charges at Treasury rates plus additional penalties. The False Claims Act imposes treble damages for inaccurate cost certifications, with civil penalties reaching $27,018 per false claim under 31 U.S.C. § 3729.

Critical September Deadlines: Where Contractors Stumble

September presents five critical compliance deadlines that consistently trap unprepared contractors. Incurred cost submissions represent the most complex requirement, due March 31st following fiscal year-end but requiring September preparation. A 2023 DCAA analysis revealed that 67% of contractors miss initial submission deadlines due to inadequate timekeeping documentation and poor record maintenance.

Pension cost adjustments under CAS 413 must be calculated and allocated by September 30th. Contractors frequently underestimate the complexity of pension cost calculations, leading to $340 million in questioned costs annually according to Department of Justice enforcement data.

Forward pricing rate agreements (FPRAs) expire on fiscal year-end, requiring contractors to negotiate new rates before October 1st. Failure to establish current rates triggers automatic application of provisional billing rates, often 10-15% below actual costs, creating significant cash flow impacts.

Indirect cost rate proposals must reflect final fiscal year costs and require submission within six months of year-end. Contractors lacking proper cost accounting systems struggle to compile accurate indirect rate calculations, resulting in delayed submissions and interest penalties.

Finally, contract close-out procedures under FAR Part 4 require contractors to submit final invoices and complete administrative actions within prescribed timeframes. Late submissions trigger contracting officer reviews and potential penalty assessments.

Step-by-Step September Compliance Strategy

Step 1: Complete Timekeeping System Audit Conduct comprehensive review of labor accounting systems to ensure compliance with CAS 418 requirements. Verify that all labor hours are properly recorded by cost objective, maintain contemporaneous records, and provide complete audit trails linking timesheets to contract performance. Document any system deficiencies and implement corrective actions before fiscal year-end per FAR 31.201-4.

Step 2: Reconcile Indirect Cost Pools Finalize indirect cost pool allocations ensuring compliance with CAS 402 consistency requirements. Verify that all costs are properly classified as direct or indirect, allocation bases accurately reflect cost relationships, and cost accounting practices remain consistent with prior periods. Identify and segregate unallowable costs per FAR 31.201-6.

Step 3: Prepare Incurred Cost Submission Documentation Compile comprehensive documentation supporting annual incurred cost submissions under FAR 52.216-7. Organize supporting records including payroll registers, vendor invoices, accounting system reports, and indirect cost calculations. Ensure documentation demonstrates cost allowability, allocability, and reasonableness per FAR 31.201-2.

Step 4: Calculate Pension and Benefit Adjustments Complete pension cost calculations and adjustments required under CAS 413. Determine actuarial gains and losses, adjust for actual versus estimated costs, and allocate adjustments to appropriate cost objectives. Maintain detailed supporting documentation for all pension cost determinations and allocation methodologies.

Step 5: Establish Forward Pricing Rates Negotiate forward pricing rate agreements for the upcoming fiscal year based on projected costs and historical performance. Prepare detailed cost estimates supporting proposed indirect rates, escalation factors, and billing rates. Ensure rate structures comply with CAS 410 allocation requirements and maintain consistency with established cost accounting practices.

Financial Impact: September Preparation vs. Penalty Costs

September compliance preparation requires significant investment but generates substantial returns through penalty avoidance. Contractors implementing comprehensive year-end compliance systems typically invest $200,000 to $500,000 in system upgrades, documentation preparation, and professional services during September.

However, non-compliance costs dwarf preparation investments. Late incurred cost submissions trigger automatic interest penalties averaging $150,000 annually for mid-size contractors, based on Treasury rate calculations over submission delays. Inaccurate cost certifications result in average False Claims Act settlements of $12.7 million per contractor, according to Department of Justice data from 2020-2024.

Contract suspension penalties create the most severe financial impacts. Suspended contractors lose an average of $45 million in new contract opportunities annually while remedying compliance deficiencies. When combined with legal defense costs averaging $3.2 million per major compliance case, total non-compliance costs frequently exceed $60 million per violation instance.

The cost-benefit analysis strongly favors September preparation investment. Contractors spending $400,000 annually on comprehensive compliance monitoring reduce their violation risk by approximately 92%, according to DCAA audit result analysis across similar contractor populations.

Multi-Contract Coordination Requirements

September compliance complexity increases exponentially for contractors managing multiple government contracts across different agencies. Each contract may have unique reporting requirements, indirect rate structures, and compliance obligations that must be coordinated to ensure consistent treatment under CAS 402.

Contractors operating under both FAR and agency-specific regulations must satisfy the most restrictive requirements across all contracts. Defense contractors subject to DFARS face additional cybersecurity and supply chain requirements that must be integrated with traditional cost accounting compliance.

The coordination challenge extends to subcontractor management, where prime contractors must ensure consistent accounting treatment across the entire supply chain. Subcontractor incurred cost submissions must align with prime contractor indirect rate proposals and cost allocation methodologies to prevent cascading compliance violations.

Technology Integration: September’s Digital Imperative

Modern compliance requires integrated technology solutions capable of managing complex multi-contract requirements during September’s critical period. Timekeeping systems must interface seamlessly with accounting platforms, project management tools, and regulatory reporting systems to ensure accurate cost capture and allocation.

Cloud-based compliance platforms enable real-time monitoring of cost accumulation, indirect rate calculations, and regulatory deadline tracking. Automated alert systems notify contractors of approaching deadlines and compliance deficiencies before they trigger penalty assessments.

Data analytics capabilities become essential for identifying cost trends, allocation anomalies, and potential compliance risks before they impact year-end submissions. Contractors utilizing integrated technology platforms report 75% faster incurred cost submission preparation and 85% fewer DCAA audit findings related to documentation deficiencies.

Conclusion: September Success Through Strategic Preparation

September represents government contracting’s most critical compliance month, where annual obligations converge with fiscal year-end deadlines. Contractors who treat September as a routine month rather than a strategic compliance period consistently face penalties, suspensions, and market access restrictions that can devastate their federal contracting capabilities.

The regulatory framework underlying September requirements provides no tolerance for late submissions or inaccurate documentation. DCAA auditors intensify their review activities during this period, knowing that year-end pressures often lead to compliance shortcuts and documentation deficiencies.

Successful contractors implement comprehensive September preparation strategies beginning in July, allowing sufficient time to address system deficiencies, compile documentation, and coordinate multi-contract requirements. The choice between proactive compliance investment and reactive penalty management is clear: September preparation costs significantly less than violation consequences while preserving contractor access to the federal marketplace’s $700 billion annual volume.

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