Can AI catch indirect rate variances before the incurred cost submission?

Every year, the same scene. The fiscal year ends, the incurred cost submission is due within six months under FAR 52.216-7(d), and somewhere in the schedules the controller finds that overhead ran two or three points away from the provisional rate billed all year. On cost-type work that is either money the firm under-recovered for twelve months (actual above provisional) or money it owes back at settlement (actual below). Either way, it was knowable a few months into the year.

The variance is already in Costpoint every month

Costpoint does not hide this. The Pool Rates subtask of Manage Cost Pools holds, for each pool, fiscal year and period, an actual rate, a target rate, a provisional rate and a cost of money rate, each in a period version and a year-to-date version. Deltek's help describes the provisional rates as the approved billing rates that Costpoint Billing uses to calculate billable indirect costs, depending on the burdening setting, and says actual rates "are usually system-calculated but can be user-maintained." The Compute/Print Pool Rates process calculates the actual rates, updates the allocation journal and produces the Statement of Indirect Expenses. The Print Cost Pool Rates Report prints actual, target, billing and cost of money rates by pool, including one pool's period and year-to-date rates across a range of periods.

So by the close of month 2, the actual year-to-date rate and the provisional rate sit side by side in the system. What Costpoint does not do on those screens is subtract one from the other against a tolerance, tell you which accounts moved the pool or the base, project where the rate lands at year end, or write the paragraph that explains it. That is a person's job, and it competes with labor distribution, billing and the project status reports in the same week. The comparison usually gets made; the explanation and the projection are what a busy close drops, and the submission is what forces them.

Sample figures. The year-to-date rate passed the provisional rate in month 3 and was flagged in month 5, the second month it ran more than a point over. On this trend the year ends about 2.8 points over the rate being billed, which is the number the submission would discover up to six months after year end. Flagged at month 5, it is a conversation about a billing rate revision with about seven months of the year still to bill.

Why it waits for the submission, and what waiting costs

The submission is built to surface this. FAR 52.216-7(d)(2)(iii) lists what an adequate final indirect cost rate proposal must contain, and one item is a "Schedule of cumulative direct and indirect costs claimed and billed by contract and subcontract." That is the line where a year of drift between provisional and actual rates becomes a dollar figure, contract by contract. The same list asks for a "Listing of decisions/agreements/approvals and description of accounting/organizational changes," which is where a mid-year billing rate agreement would be recorded, if there had been one.

There is no rule that says you must wait. FAR 42.704(c) says billing rates may be "prospectively or retroactively revised by mutual agreement" at either party's request "to prevent substantial overpayment or underpayment," and 42.704(b) says they should sit as close as possible to the final rates anticipated for the year. The mechanism for fixing a variance in month 4 exists. What is usually missing is a firm number in month 4 to bring to the contracting officer.

It is also a mistake to think of the eventual audit as the safety net. GAO reported in May 2025 that DCAA "largely eliminated its backlog of incurred cost audits by the end of fiscal year 2018" and credits a risk-based sampling approach that reduced the number of audits required. Under that approach not every submission is audited, so the audit is not where a firm should expect to learn about its own variances. If a cost that is expressly unallowable under FAR Part 31 makes it into the final rate proposal and is found, FAR 42.709 applies on contracts over $1 million (fixed-price contracts without cost incentives excepted): a penalty equal to the disallowed cost allocated to those contracts, plus interest on any part already paid, and twice the disallowed amount for a cost the government had determined unallowable before the proposal went in. The year-end process is a poor time to be discovering what landed in the pools.

What an assistant can catch at each close

The work is a comparison, run every month, with the explanation attached. An assistant that reads the Statement of Indirect Expenses, the pool rate screens and the provisional rate letter (Costpoint holds the provisional rate as a number; the letter or agreement that set it lives outside the system) can do four things at each close.

First, state each pool's year-to-date actual rate against its provisional rate and say whether the gap is past the tolerance the controller set. Second, name what moved it: whether the pool grew or the base shrank, and which accounts and which projects account for most of the change, so the reader sees "indirect labor in the overhead pool is up and direct labor on two projects is down" rather than a percentage. Third, separate timing from trend, because a rate that jumps in the month an annual insurance premium posts is a different conversation from a rate that has risen for four months running. Fourth, project the year-end rate on the current trend and translate it into the likely settlement figure, so leadership sees money, not points.

Every figure in that output should carry its source: which report, which period, which filters, when it was pulled. Our principle for this is plain: "Every answer shows where it came from. No black boxes." It is also what makes the output usable later. When the firm takes a billing rate revision request to the contracting officer, or writes the year-end explanation, the analysis behind it should be the same analysis the controller checked in month 5.

What it must not do

Nothing here posts. DFARS 252.242-7006 describes an acceptable accounting system through 18 criteria, including "accumulation of costs under general ledger control" and "approval and documentation of adjusting entries." An assistant that reads the pool rates and writes a memo touches neither. One that reclassifies an account out of a pool, or adjusts a rate, does. Keep the first version strictly read-only; the rate stays whatever Compute/Print Pool Rates calculated, and any reclassification goes through the people and the approvals that already exist.

Allowability is a judgment, not a lookup. An assistant can flag that an account with an unusual name or an unusual balance landed in a pool this month. Deciding whether the cost is allowable under FAR Part 31 is a person's decision, and it should be recorded as one. The same goes for the billing rate revision itself: the assistant produces the number and the explanation; the controller decides whether to ask, and the contracting officer decides whether to agree.

Keep the analysis. FAR 52.215-2 defines records as including "other data, regardless of type" and "in the form of computer data." A monthly rate analysis that supported a billing rate request or a year-end explanation is plausibly one of those records, so retain it the way you would retain a workpaper.

Check what Deltek ships before you build

Deltek is building anomaly detection into Costpoint. The Costpoint 2026.4 release notes describe an Indirect Rate Anomaly Analysis summary card on the Agentic Financial Close tab for pool journal anomalies detected by Dela. If you run Costpoint outside GCCM with Dela enabled, look at that card first; an in-system flag on a pool journal is exactly the kind of work the vendor should own. The notes do not say whether the card is available in GovCon Cloud Moderate, and as of early October 2026 Deltek's Dela FAQ stated that Dela "currently is not available in Deltek's GCCM Cloud offering." Deltek's August 2025 Dela overview says the opposite; both are quoted in Is Deltek's Dela available in GovCon Cloud Moderate, and what are GCCM customers' options for AI?. We walked through what that means for GCCM customers in What should a government contractor automate with AI first?

What stays outside the product either way is the part that needs documents Costpoint does not hold and a narrative a person will sign: the provisional rate letter, the forecast the CFO gave the board, the explanation for the contracting officer, and the projection of what the settlement will look like. That is where an independent assistant earns its place, and it does so without touching the books.

What month one should look like

Pick the pool that worries the controller most and set a tolerance in points. At the first close, have the assistant produce the comparison, the drivers, the timing-versus-trend call and the year-end projection, with sources under every figure, and have the controller check it against the Statement of Indirect Expenses by hand. Repeat for three closes. If by the third close the controller trusts it enough to stop rebuilding the comparison in a spreadsheet, extend it to fringe and G&A. If not, the problem is the data or the tolerance, and it is cheap to find out which. The whole point is to have in month 3 the number the submission would otherwise hand you about a year later.

Common questions

Isn't this just a Costpoint report we are not running?

Partly. Costpoint's Print Cost Pool Rates Report prints actual, target, billing and cost of money rates by pool and period, so the two numbers are available. What the report does not do is compare them against a tolerance, name the accounts that moved the pool, project the year-end rate or write the explanation. That is the monthly work a busy close drops, and it is what an assistant can do at every close.

Does flagging rate variances with AI change what DCAA sees?

No, if the assistant only reads. As of October 2026, DFARS 252.242-7006 and the FAR records clauses do not mention AI. The books, the Statement of Indirect Expenses and the submission are unchanged. Keep the analysis that supported any mid-year billing rate request or year-end explanation, since FAR 52.215-2 defines records broadly enough that it can be one.

Can AI prepare the incurred cost submission itself?

It can draft the parts that are explanation and reconciliation: the narrative of what changed during the year, the first pass at tying claimed indirect costs to the ledger and to what was billed by contract, and the list of accounting changes the proposal must disclose. The schedules themselves, the allowability decisions and the certificate of final indirect costs stay with your people. A person signs the certificate.

How early is early enough to act on a rate variance?

Early enough that a billing rate revision is still worth asking for. FAR 42.704(c) lets billing rates be revised prospectively or retroactively by mutual agreement to prevent substantial overpayment or underpayment. A variance that is clear by month 3 or 4 of the fiscal year leaves most of the year to bill at a rate close to actual. One that is discovered up to six months after year end leaves only the settlement.