Travel expenses, while they may not be one of your largest costs, depending on your contractual requirements, could easily be one of the most scrutinized costs by the Defense Contract Audit Agency (DCAA). The key to its cost recovery is dependent upon the supporting documentation provided.
FAR vs. IRS:
One of the first things to remember is that the rules established by the Internal Revenue Service (IRS) for tax purposes are not those established by the Federal government procurement regulations as defined at the Federal Acquisition Regulations (FAR) at 48 CFR 31.205-46, Travel Costs.
Selected Recovery Tips (DOCUMENTATION RULES):
Here are a few pointers to assist in determining the allowability and recovery of travel expenses. Adequate documentation will not only assist you in identifying and segregating unallowable travel costs as required by FAR 31.205 but will facilitate the audit of these expenses and result in better audit findings.
- All travel should be documented with an expense report that identifies:
- Date and place (city, town or other similar designation) corresponding to the locations identified in the: FTRs (for travel within the continental United States – CONUS); JTRs (for travel in Alaska, Hawaii, the Commonwealth of Puerto Rico, and territories and possessions of the United States – OCONUS; or the Department of State Standardized Regulations for travel in foreign countries and areas.
- Purpose of the Travel (including whether the travel is required by a contract, business meeting, training, or other purpose initiated by the company).
- Name or names of the person’s expenses included on the expense report and their relationship to the company.
- Authorization for the travel by the appropriate management personnel.
- All amounts shown on the expense report must be supported by receipts.
- Receipts must be originals. Copies are not acceptable.
- Amount shown on the receipt must be in the same currency as will be billed to the government. Receipts applicable to expenses incurred in foreign countries and recorded in the applicable foreign currency must be converted to the currency value recorded in the company’s books and records for the expense and noted on the receipt.
- Credit card receipts that do not itemize the items being purchased are not acceptable. A supporting register receipt must be provided so that the allowability of the items purchased can be determined.
- Credit card billing documents (generally received monthly and including all expenses charged during the billing period) are also not acceptable since they do not provide enough documentation to determine individually cost allowability.
- Air travel costs recorded should indicate the “from and to” destinations and any stopover destinations covered by the requested airfare amount. Documentation must include:
- Name of the air carrier for each leg of the flight allowing verification of Fly America Act on international travel. Note: Travel on a foreign carrier resulting from a U.S. carrier code-share agreement is allowable.
- Identification of the class of service to allow determination of the use of “the lowest customary standard, coach or equivalent airfare”.
- Time of scheduled air travel.
- Supporting rationale for any air travel in excess of “the lowest customary standard, coach or equivalent airfare”.
- Necessary to meet the business purpose of the travel.
- Use would result in circuitous routing resulting in additional lodging and meal expenses.
- Not adequate for the physical needs of the traveler.
- Per Diem Rates can be utilized to reimburse the employee for lodging, meal and incidental expenses. If per diem rates are used no receipts are required.
- If actuals are reimbursed for lodging and meals and incidentals are reimbursed at per diem lodging receipts are required.
- Recovery is limited to the total actual lodging expense (per receipts provided) plus the applicable per diem amount not to exceed the per diem total for lodging, meals and incidental expenses.
- Per Diem rates are applied on a day-to-day basis not on a combined basis for the travel period. Lodging, meals and incidental expenses under the per diem limits in one day cannot be off-set against expense overages in other days.
- When partial days of travel occur, when meals are included in the cost of an event, or when lodging is not required the applicable per diem rates must be adjusted to a reasonable amount.
- When using the CONUS or OCONUS per diem rates lodging taxes are not included.
- These lodging taxes are an allowable expense.
- If the actual lodging expense exceeds the per diem amount the taxes applicable to the excess lodging expense which is unallowable are also unallowable.
- Lodging taxes are included when using the Department of State Standardized Regulation per diem rates.