01182011 Navigating the Travel Cost Principle

Navigating the Travel Cost Principle

Kristen R. Soles, CPAJason LeMaire

Proprietary and Confidential

Agenda

• FAR regulations – general• JTR / FTR / CONUS / OCUNUS – You are not allowed to

ask about crossing international date lines.• Lowest Cost Airfare Revisions• DCAA Audit Procedures and Guidance• Record Retention and Substantiation• Unallowable Travel Costs• Relocation• Other (Prime administration, risks, burden, etc.)• T&E

Proprietary & Confidential 2

FAR 31.205-46 Travel Costs

• Clause notes that travel costs can be based on actual, per diem, or a combination of both as long as the charge is “reasonable” and “reasonable” means less than per diem as set forth in the FTR (put out by GSA), JTR (DoD), or standardized regs (civilians in foreign areas).

• FTR http://www.gsa.gov/portal/ext/public/site/FTR/file/FTRTOC.html/category/21865/hostUri/portal

• JTR http://www.defensetravel.dod.mil/perdiem/jtr(ch1-7).pdf


FAR 31.205-46 Travel Costs, cont.

• Maximum per diem rates would not constitute a reasonable daily charge when (1) no lodging costs are incurred or (2) partial travel days. A downward adjustment must be calculated.


Partial Travel Days

Per diem rate at TDY destination is $70 (lodging) + $46 (M&IE) = $116 (total per diem).

Actual lodging cost at TDY location is $65 per night.

Date Travel Status Per Diem Computation Total

10 May

(travel day) Depart Residence Arrive

TDY Station $46 (M&IE) x 75%

=$34.50

$65 (lodging) + $34.50 =

$99.50

11 May TDY $46 (M&IE) + $65

(lodging) = 111.00

12 May TDY $46 (M&IE) + $65

(lodging) = 111.00

13 May

(travel day) Depart TDY Station Arrive

Residence $46 (M&IE) x 75% = +34.50

Total Per Diem Reimbursement = $356.00


Other Useful Links / Terminology

• CONUS and OCONUS rates are set October 1 of each year.

• FTR Per Diem Rates: www.gsa.gov/perdiem• JTR Per Diem Rates:

http://www.defensetravel.dod.mil/perdiem/pdrates.html


http://www.gsa.gov/perdiem



The Lowest Cost Airfare Revision


Revision to FAR 31.205-46(b) and (c)Limiting Airfare to the Lowest Airfare Available to the Contractor

• Purpose is to limit recovery based on agreements the contractor has negotiated with the airlines or with travel agencies.

• Revision results in increased cost of compliance and documentation and a nice grey area for DCAA to questions costs based on interpretation of the regulation.


Lowest Airfare Cont.DCAA Audit Policy 10-PAC-010(R)

• Auditors should question costs claimed in excess of the lowest airfare available.

• The contractors policies & procedures should provide for advance planning of travel to assure lowest price airfare is documented and utilized as the baseline for allowable airfare.

• The contractor must consider in its documentation, negotiation with airlines, travel agents, credit card companies, etc.


Lowest Airfare Cont.DCAA Audit Policy 10-PAC-010(R)

• Substantiating documentation must be maintained if you are taking one of the exceptions in FAR 31.205-46(b)

• Substantiating documentation should take the form of quotations from competing airlines or travel service providers.

• Instances where only one flight is available may be substantiated by only one quote. Multiple instances of single quotes should be questioned by the auditor to determine if policies and procedures result in possible unreasonable airfare costs.


Lowest Airfare Cont.

• The amended rule clearly requires the use of non-refundable airline tickets

• The GOOD News:– “Auditors should not question costs in excess of nonrefundable

tickets, the contractor’s data must show increased costs result in comparison to refundable tickets”

• The BAD News:– The contractor’s data MUST show, so documentation has to

include proof that refundable tickets were ultimately less expensive than nonrefundable tickets (a documented history of additional costs from change fees relating to a certain customer or contract.)


Lowest Airfare – Ambiguities

• The revised principle provides no guidance on how availability is to be determined.

• There is no guidance on what DCAA deems “adequate documentation”


Possible DCAA Audit Procedures

• Individual trips should be reviewed to determine if:– The contractor is complying with its travel policies

and procedures– The trip is for an allowable purpose, and– The incurred travel costs are documented in

accordance with FAR 31.205-46. (later)– The contractor’s accounting procedures have

adequate controls for segregating unallowable travel costs.


Audit Guidance

• Coverage of this area should include a determination that the contractor’s travel authorization procedures provide for documented justification and approval of the necessity, duration, and number of travelers for each trip.


Audit Guidance, Cont.

• The contractor’s procedures should provide for advance planning of travel to assure that:– Wherever feasible and economically practical,

required visits to locations in the same geographical area are combined into a single trip.

– Lowest cost airfare regulations are adhered to– Coordination between organizational elements is

effected to minimize the # of trips to the same location.


Travel Rewards – The government giveth and …

• They actually just giveth! Sec 1116 of the National Defense Authorization Act replaced the Federal Acquisition Streamlining Act of 1994 as the authority for travel rewards.

• Government travelers, including military personnel and federal employees, are now allowed to keep their points and use them for personal travel.

• Some rules apply such as– Can’t charge the fee for enrollment in any airline programs– Can’t charge fees incurred when points are redeemed– Can’t select an airline based solely on the prospect of earning

miles, etc. etc.


Ideas for Compliance Policies and Procedures

Disclaimer: Sample Policies and Procedures can not be guaranteed by Watkins Meegan as “adequate” in the eyes of DCAA depending on your auditors mood that particular day.


Other Items to Note

• Make sure you establish similar practices and policies for indirect travel.

• Don’t forget to read your contract, frequently contract language provides for more detailed information on that contract’s expectation of travel reimbursement. Look for:

– Mileage limits– Any references to policies and procedures– Special allowances off per diem– Generally gratuities to staff inside the lodging facility are

unallowable as they are considered included in per diem.– System requirements


Record Retention

• www.dcaa.mil / publications / information for contractors

• FAR Subpart 4.7 – 3 years after final paymentNothing in this section shall be construed to preclude a contractor from duplicating or storing original records in electronic form unless they contain significant information not shown on the record copy. Original records need not be maintained or produced in an audit if the contractor or subcontractor provides photographic or electronic images of the original records AND meets the following requirements:


http://www.dcaa.mil/

Record Retention Cont.

• The contractor or subcontractor has established procedures to ensure that the imaging process preserves accurate images of the original records, including signatures and other written or graphic images, and that the imaging process is reliable and secure.

• The contractor or subcontractor maintains an effective indexing system to permit timely access.

• The contractor or subcontractor retains original records for a minimum of one year after imaging to permit periodic validation of the imaging system.


FAR 31.205-46 Expense Substantiation

• Costs shall be allowable only to the extent that the following is documented:– Date and place of expense– Name of person and their title and relationship to

the contractor– Costs in excess of lowest cost airfare


Expense Substantiation Cont.

• Crossover between IRS and FAR recordkeeping requirements, as such:

• Incomplete records – – You can prove an ELEMENT of expense for

incomplete records with:• Your own written statement containing specific

information related to that element AND• Other supporting evidence that is sufficient to establish

the element.


Where do unallowable travel costs go?

• If Direct, then they go to an unallowable task on a direct contract NOT in your rates.

• If Indirect, then they go to unallowable costs and will fall in your rates depending on how you treat unallowables.

• If personal and for an owner, then distributions if Scorp / LLC etc.

• Side note: personal mileage of company owned auto’s needs to be comp’d out on the W2 as income and moved to unallowable.


Fuzzy Lines: Relocation and Travel

• 31.205-35 Relocation• Costs of travel of the employee and members

of the employee’s immediate family are allowable (cross reference here to 31.205-46)

• However, reimbursement may be on a lump sum basis, <$5k, when adequately supported by data on the individual elements (transportation, lodging, meals.)


How can I burden this burden?

• Generally not with OH but usually with G&A. • Travel costs are in the base of G&A so it makes

sense that it would receive its proportionate share of an allocation.

• We can definitely make a case that G&A is expended on these efforts (compliance alone.)

• No hard and fast rule. Some burden with a reduced G&A and we’ve seen some not burden at all.


What are the risks?

• Generally most of these amounts you would think would be immaterial.

• A possible system deficiency?


Prime Contractors

• Always pass 31.205-46 down to your sub. How much you monitor depends.– Likelihood of audit– Comfort level of the subs to comply: also considering

the new push for prime contractors to monitor subs compliance

– The amount of travel / materiality of the sub• You will always need your subs / consultants to at

least provide you with the documentation required to be submitted with your invoice.


Deltek Time and Expense

• Can help you retain receipts• Route multiple levels of approval• Monitor and cap expenses against per diem

(move them automatically to unallowable)• Audit trail is retained at all times


Receipt Storage

• Receipts are stored in PDF format by expense report

• Can be viewed directly from expense report• Since receipts are stored outside the

database, make sure you are backing them up!


Extensive Workflow

• Expense can be set up to route approvals for– Over Ceiling– Unallowable– Multiple levels within your organization– Options are limitless!


Per Diem

• Per diem rates are imported directly into Expense and attached to the expense report

• Overages will be automatically put to unallowable unless overage is approved

• CONUS and OCONUS rates can be combined or separate per expense report


Audit Trail

• Your Audit Trail will always remain intact regardless of the person changing the expense report

• Different roles can have different rights for changes

• Able to define when in the workflow changes can be made


01182011 Navigating the Travel Cost Principle

Documents

continental

lowest airfare

unallowable

lowest airfare

original records

incomplete

contractors

travel rewards