The Defense Contract Audit Agency (DCAA) is noticing many government contractors are inaccurately recording lodging and subsistence travel costs and it’s become an area of “low hanging fruit” for DCAA auditors.
- FAR 31.205-46, Travel Costs, details allowed lodging, meals and incidental expenses: Costs of lodging, meals and incidental expenses incurred by contractor personnel on official company business are allowable subject to the limitations.
- Costs of lodging, meals and incidental expenses may be based on per diem, actual expenses, or a combination thereof provided the method used results in a reasonable charge.
- Costs incurred for lodging, meals and incidental expenses shall be considered reasonable and allowable only to the extent that they do not exceed on a daily basis the maximum per diem rates in effect at the time of travel.
Per Diem Allowable Expenses
Lodging – Includes expenses, except lodging taxes in the United States, for overnight sleeping facilities, baths, personal use of the room during daytime, telephone access fee, and service charges for fans, air conditioners, heaters, and fires furnished in the room when such charges are not included in the room rate.
Meals – Expenses for breakfast, lunch, dinner and related tips and taxes (specifically excluded are alcoholic beverage and entertainment expenses, and any expenses incurred for other persons).
Incidental Expenses – Fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.
The following per diem allowances are released by the General Services Administration for the contiguous United States (CONUS) and are established by geographic location and time period to determine allowed travel costs for government accounting. They are not the same as those issued by the Internal Revenue Service for tax purposes.
- CONUS
https://www.gsa.gov/travel/plan-book/per-diem-rates - Department of Defense for Alaska, Hawaii, U.S. Territories and Possessions (OCONUS) https://www.defensetravel.dod.mil/pdcgi/pd-rates/cpdratesx4.cgi
- Department of State for all foreign locations https://aoprals.state.gov/web920/per_diem.asp
DCAA’s preferred method of utilizing the applicable per diem rates and determining travel expense allowability is what is referred to as the “Lodgings-plus per diem system.” This method computes per diem allowances for official travel in which the per diem allowance for each travel day is established on the basis of the actual amount the traveler pays for lodging, plus an allowance for meals and incidental expenses (M&IE), the total of which does not exceed the applicable maximum per diem rate for the location concerned.
The following points should be considered when recording the subject subsistence expenses and determining the existence of any unallowable portion of these costs:
- Location of the work site should be used to determine the applicable per diem rates to be used, not the location of the lodging retained.
- Per diem rates are to be applied on a “daily” basis. Allowability of expenses incurred during a multiple day period is not to be determined by totaling the expenses incurred and matching the amount against the total per diem rates applicable for the same period of time.
- Lodging per diem rates applicable to CONUS and OCONUS locations do not include any applicable taxes. These taxes are allowable as applied to the allowable portion of the lodging expense.
- Lodging per diem rates applicable to foreign locations as provided by the Department of State (Standardized Rates) include all applicable taxes.
- Lodging receipts are required to (a) substantiate the actual lodging costs and to (b) verify the number of days of allowable meals and incidental expenses.
- Lodging reimbursements cannot exceed the actual expense incurred (i.e., lodging cannot be reimbursed at per diem if the actual expense incurred is less.).
- Meal expenses, if reimbursed at actual, must not include alcoholic beverages (FAR 31.205-51) and any meal expenses incurred for other persons.
The maximum lodging, meals and incidental expense referenced would generally not constitute a reasonable daily charge: (a) when no lodging costs are incurred; (b) on partial travel days (e.g., day of departure and return); and (c) when meals are included I the registration fee of seminars or similar events. Appropriate downward adjustments from the maximum per diem rates would be required to result in a reasonable charge. When the employee obtains lodging from friends or relatives (including the immediate family) with or without charge, no amount of the per diem allowance for lodging unless the host can substantiate additional cost actually incurred. Cost based on room rates for comparable conventional lodging in the area or flat “token” amounts are considered reasonable.
It should also be noted when calculating your indirect rates, if lodging, meals and incidental expenses are considered direct costs and are billed to your customer, any of the actual expense determined to be unallowable is to be left in the allocation base resulting in not only the loss of the unallowable expense but the subsequently applied indirect costs.