J-5 Allowable Travel Costs.pdf

Allowable Travel Costs Guidance

Travel Costs

Authoritative Sources

FAR 31.205-46 Travel Costs

FAR Subpart 47.4 Air Transportation by U.S.-Flag Carriers

This section covers basic guidance, including the applicable FAR provisions, in reviewing employee travel costs and travel costs related to airfare.

This attachment addresses the following:

1 Travel Costs

1.1 General

Audits of travel costs (see FAR 31.205-46) should include appropriate examination of the contractor's travel policies and procedures as well as the selective review of individual trips made by contractor personnel. Coverage of this area should thus include a determination that the contractor's travel authorization procedures provide for documented justification and approval of the official necessity of each trip, its duration, and the number of travelers involved. The contractor's procedures should provide for advance planning of travel to assure that:

a. wherever feasible and economically practical, required visits to locations in the same geographical area are combined into a single trip,

b. maximum use is made of the lowest customary standard, coach, or equivalent airfare accommodations available during normal business hours, and

c. coordination between organizational elements is effected to minimize the number of trips to the same location. Individual trips should be reviewed to determine if

(1) the contractor is complying with its travel policies and procedures,

(2) the trip is for an allowable purpose, and

(3) the incurred travel costs are documented and allowable in accordance with FAR 31.205-46. In addition, the auditor should review the contractor's accounting procedures to determine whether or not they provide adequate controls for segregating unallowable travel costs.

1-1.2 Documentation Required

FAR 31.205-46(a)(7) states that costs are allowable only if the contractor maintains specific documentation to support claimed travel costs. The documentation requirements are similar to the long-standing requirements imposed by Section 274 of the Internal Revenue Code (IRC). For claimed costs to be allowable, the following information must be documented:

a. date and place (city, town, or other similar designation) of the expenses,

b. purpose of the trip; and

c. name of person on trip and that person’s title or relationship to the contractor.

This information must be maintained in a book, diary, account book, or similar records.

Documentation such as cancelled checks, credit card receipts, and hotel bills are to be maintained as corroboration for expenses, but without the diary or similar records, they may not be sufficient support for deductibility.

1-1.3 Allowability of Per Diem Costs Under FAR 31.205-46

FAR 31.205-46(a) states that costs for lodging, meals, and incidental expenses may be based on (i) per diem, (ii) actual expenses, or (iii) a combination of a fixed amount and actual expenses. However, except for special or unusual situations, allowable costs are limited on a daily basis to the "maximum per diem" rates in effect at the time of travel set forth in the Government travel regulations as follows:

(1) Federal Travel Regulations, for travel in the conterminous 48 United States. These rates are available on the GSA web site www.gsa.gov under Policy.

(2) Joint Travel Regulations, for travel in Alaska, Hawaii, the Commonwealth of Puerto Rico, and territories and possessions of the United States.

(3) Department of State Standardized Regulations, Section 925, Maximum Travel Per Diem Allowances for Foreign Areas, for travel to foreign countries.

The Federal Travel Regulations, Joint Travel Regulations and Department of State Standardized Regulations treat certain costs related to the maximum per diem rates differently.

The maximum per diem rate consists of lodging and M&IE (meals and incidental expense) rates. The schedule below shows these costs and how each regulation treats them:

Cost Element Federal Travel

Regulations Joint Travel Regulations

Department of State Standardized Regulations

Lodging Taxes Separate allowable expense

Separate allowable expense

Included in lodging rate

Laundry/Dry Cleaning

Separate allowable expense

Included in M&IE rate

Included in M&IE rate

FAR 31.205-46 does not incorporate the Government travel regulations in their entirety.

The requirements and provisions of the Government travel regulations are to be applied to contractors only in the following three specific areas:

(1) Definitions of lodging, meals, and incidental expenses. Incidental expenses include fees and tips to waiters and porters; transportation between places of lodging or business and places where meals are taken, if suitable meals cannot be obtained at the TDY site; and mailing costs associated with filing travel vouchers and payment of Government-sponsored charge card billings. For travel outside the Continental United States incidental expenses also include the cost of laundry and cleaning and pressing of clothes.

(2) Maximum per diem rates. Maximum per diem rates are a combination of lodging plus meals and incidental expenses. The Government travel regulations provide for two ceiling amounts: one for lodging and one for meals and incidental expenses. However, contractors are subject to only one ceiling, a total of lodging plus meals and incidental expenses.

(3) Special or unusual situations. The applicable travel regulations provide for special or unusual situations where reimbursement of a higher amount (e.g., up to 300 percent of the applicable maximum per diem rate for domestic travel) is authorized based on actual expenses incurred. Examples of such situations include when: (a) the employee must stay at a prearranged hotel where he or she attends a conference or training session; and

(b) the travel is to an area where subsistence costs have escalated for short periods of time during special functions or events such as sports events, world fairs, or conventions. For costs in excess of the maximum per diem rates to be allowable, FAR 31.205-46(a)(3) requires a written justification for use of the higher amounts, signed by an officer (or designee) of the contractor. Additionally, if the higher rate is used repetitively, the contractor must obtain advance approval from the contracting officer.

The contractor may adopt policies for reimbursing employees for travel expenses based on actual expenses, fixed amount, or a combination of actual expenses (e.g., for lodging) and a fixed amount (e.g., for meals and incidental expenses). In any event, allowable costs to Government contracts may not exceed the maximum per diem rates specified in the Government travel regulations. If a contractor's policy is to reimburse its employees a fixed amount (per diem) for subsistence within the prescribed maximum daily per diem rates, there is a presumption that the costs are reasonable and allowable and detailed receipts or other documentation are not required to support claims by employees. On the other hand, if a contractor's policy is to reimburse its employees actual expenses incurred, all unallowable costs (such as, alcoholic beverages and entertainment) must be separately identified and excluded from billings, claims, and proposals to the Government in accordance with FAR 31.201-6 and CAS 405.

The maximum Federal per diem rates reflect allowance for lodging, meals, and incidentals for a 24-hour period. Use of those rates when travel does not require a full day or does not require lodging expense would be inconsistent with the rate structure. While the cost principle does not prescribe a specific reduction formula for contractor use to account for partial days, it does state that use of the maximum rates in such situations would generally be unreasonable. Contractors must provide for a reasonable reduction from the maximum rates when lodging, meals, or incidentals are not required.

1-1.4 Use of Statistical Sampling to Segregate Unallowable Costs

When employee reimbursement for travel expense is based on actual costs incurred, FAR 31.201-6 and CAS 405 require contractors to demonstrate that all unallowable costs are separately accounted for and excluded from all billings, claims, and proposals to the Government. The use of a statistical sampling analysis to segregate unallowable costs would not generally meet the requirements of the CAS and the FAR. CAS 405.50(a) and (b) and FAR 31.201-6(c) require contractors to establish and maintain sufficient detail and depth of records of identified unallowable costs so as to permit audit verification of the accounting treatment for the unallowable costs. The use of a projection or estimate of unallowable costs in lieu of specific identification of such costs, even though based on a valid statistical sampling analysis, normally would not be compliant with the requirements of CAS 405.50(a) and (b) and FAR 31.201-6(c).

In circumstances where costs involved are not material, CAS 405.50(c) provides that the Government and the contractor may reach an agreement on an alternate method in lieu of specifically identifying unallowable costs. In evaluating the contractor's submission for the use of an alternate method of identifying unallowable costs, consider such factors as materiality of unallowable portions of per diem costs and additional administrative costs required to specifically identify such unallowable cost. Consider, for example, a situation such as a corporate home office of a contractor whose Government work represents only a minimal portion of its total business. The requirement to specifically identify and segregate all unallowable per diem costs could cost significantly more than the cost of the unallowable items. If the contracting officer agrees that an alternate procedure would be advantageous to the Government, the contractor may use statistical sampling or other appropriate methods to estimate the unallowable costs. If a circumstance warrants the use of statistical sampling analysis to estimate the unallowable travel costs, auditors must ensure that proper sampling techniques are used.

1-1.5 Allowability of Airfare Costs

Allowable airfare costs are limited to the lowest customary standard, coach, or equivalent airfare offered during normal business hours, except for special circumstances set forth in FAR 31.205-46(b). Because airlines use many different fare codes to indicate the class of service, determining the lowest fare class regularly offered during normal business hours may be difficult. However, an explanation of the fare codes may generally be obtained from the contractor's travel agency and/or the applicable airline.

A "business class" accommodation that is offered at a price slightly lower than the first-class fare does not meet the FAR criteria for reasonableness and allowability. Conversely, use of special discount, excursion, or night rates, as a matter of common practice, should not be required when use of such fares is impractical for business travel purposes, results in circuitous routing, or causes travel accommodations not reasonably adequate for the physical needs of the traveler.

Whenever the contractor is able to obtain special fares (Ultra Savers, Ultimate Super Savers, etc.) in lieu of full economy fares, the resulting cost savings should be reflected in any billing, claim, or proposal submitted by the contractor. Travel agencies often prepare and provide to their customers airline cost savings reports designed to attract and retain customers.

In connection with forward pricing, the auditor should review any recent savings reports to make sure that the proposed airfare costs reflect appropriate savings. Alternatively, at contractor locations where travel costs are significant, the auditor should recommend that the contractor develop a decrement factor to be applied when basic cost estimates are based on full economy fares, rather than achievable, lower special fares.

Increased competition among airlines has resulted in certain airline companies offering various promotional benefits, including cash, merchandise, gifts, prizes, bonus flights, reduced-fare coupons, upgrade of service, membership in clubs, check-cashing privileges, and free vacations. Contractors are not required to collect airline promotional benefits from their employees. It is up to each contractor to establish its own policy addressing the treatment of these promotional benefits. However, if a contractor has a policy that results in its employees turning in the frequent flyer bonus credits for company use, then the auditor should ensure that the Government receives its applicable share of any credits actually received by the contractor.

In those instances where contractors have executed agreements with individual airlines for discounts and bonuses, auditors should determine that appropriate credits or cost reductions are being reflected in forward pricing and actual cost submissions, and that appropriate use of the agreement is being made.

1-1.6 Fly America Act – International Air Travel

FAR 47.4, Air Transportation by U.S.-Flag Carriers, implements the Fly America Act.

The Fly America Act requires that U.S. Government-financed international air travel be provided by a U.S.-flag carrier, if available. The requirement applies to all international air travel by Federal employees and their dependents, consultants, contractors, grantees, and others, including their personal effects, when paid for by U.S. Government funds. Guidelines for Implementation of the Fly America Act (Case No.

B138942), issued by the Comptroller General of the United States on March 31, 1981, are incorporated at FAR 47.403.

FAR 47.403-1, Availability and unavailability of U.S.-flag air carrier service, provides detailed requirements for determining the availability of U.S.-flag carrier service, as well as guidelines that must be followed to ensure that U.S.-flag carriers are used to the greatest extent possible. Contractors are required to use U.S.-flag carriers when they are available, even though a foreign carrier may offer lower fares for the same flight or flight segment. Contractors that frequently travel abroad should have processes and procedures in place to ensure compliance with the Fly America Act.

Although FAR 47.403 provides detailed implementation requirements of the Fly America Act, the regulations do not address code share carrier agreements. Code share carrier agreements are commonplace in the air transportation industry and involve arrangements between carriers where one carrier will book and provide air travel transportation services aboard another carrier’s aircraft. The Comptroller General’s Decision, B-240956, dated September 25, 1991, views code share arrangements between a U.S.-flag carrier and a foreign carrier as simply a lease of the seats and its crew aboard the aircraft, and as such, the U.S.

carrier is responsible for the transportation service for passengers in the leased seats. Based on the Comptroller General’s decision, contractors are required under the Fly America Act to use U.S.-flag carriers, or foreign carriers under a code share arrangement with the U.S.-flag carrier, whenever available, unless the contractor can provide adequate justification and supporting documentation, as required by FAR 47.403-1.

To the extent that a U.S.-flag carrier, including code share flights booked through the U.S.-flag carrier, is not used for international air travel funded by the U.S. Government, FAR 47.403-3(a) provides that Agencies shall disallow the costs associated with the air transportation on the foreign air carrier unless adequate justification is attached to the voucher, which notes that a U.S.-flag carrier was unavailable. Requirements of the Fly America Act are to be incorporated into all contracts where international travel is anticipated through the contract clause at FAR 52.247-63, Preference for U.S.-Flag Air Carriers. When the travel is by indirect route or the traveler otherwise fails to use available U.S.-flag air carrier service, the amount to be disallowed is based on the loss of revenues suffered by U.S.-flag air carriers, determined by the formula provided in FAR 47.403-1. However, based on the Comptroller General’s decision, 56 Comp. Gen. 209, dated January 3, 1977, the disallowed amount shall not exceed the fare of the segment improperly traveled.