Expense report compliance as a government contractor

Reconciling expenses incurred in support of Government contracts can be a complex process. This is especially true when it comes to travel expense reports. Mistakes made in preparing expense reports may cause reimbursement delays, denials from your contracting officer, or result in unallowable costs during an incurred cost submission audit. To help minimize mistakes, we’ve compiled some tips for you when preparing and reviewing expense reports.

For each expense report, contractors should include a brief justification for the expenses shown, which are requirement of FAR 31.205-46(a)(7), Travel Costs, and the IRS (see Publication 463, Table 5-1 for more information). The description should be detailed so that reviewers, approving managers, and auditors can determine if the expenses were reasonable, allowable, and allocable.

Use location-specific per diem rates that comply with the allowable rates prescribed:

• For travel within the continental United States (CONUS):
  https://www.gsa.gov
• For non-foreign travel outside of the continental United States (OCONUS):
  http://www.defensetravel.dod.mil/site/perdiemCalc.cfm
• For foreign travel outside of the continental United States:
  https://aoprals.state.gov/web920/per_diem.asp

If your selected hotel is unable or unwilling to offer rates that comply with the allowable rates discussed above, you should initially try to find a hotel that offers a Federally-compliant per diem lodging rate. If necessary, you may request a letter from your Government customer validating your status as a Government contractor and requesting that the hotel offer you lodging at the allowable per diem rate.

Alternatively, your prime contract may require that you first obtain approval from the contracting officer. If this is not specifically addressed in your prime contract, discuss the issue with your contracting officer at contract start-up. Recognize that FAR 31.205-46(3)(iii), Travel Costs, requires advance contracting officer approval of ongoing travel costs that exceed allowable per diem limits.

If you don’t have prior Government approval or documentation explaining why the per diem amount was unavailable, contractors may allow their employees to incur lodging costs that exceed allowable per diem limits. The amount that is over the maximum rate should be classified as an unallowable cost and treated accordingly. Otherwise, the contractor may incur penalties as per diems exceeding the limit would be viewed as expressly unallowable costs. Note that prescribed allowable lodging rates for CONUS locations do not include the taxes associated with the hotel stay.

A credit card statement generally does not have enough detailed information to support claimed expenses. Detailed receipts that display specific information for an expense (i.e., store/restaurant name, date, itemized list of purchases, total price paid, etc.) must be provided to enable reviewers to verify and determine the reasonableness and necessity of incurred costs.

It is a common misconception that unallowable costs should only be excluded for direct travel. Since Government contracts receive an allocation of contractor indirect rates, you must ensure that no unallowable costs are claimed in the Overhead or G&A pools. Contractors are expected to travel in economy class unless a detailed, written explanation is made as to why the lowest ticket price was not obtainable. Parking and meal expenses should be reviewed for reasonableness; and any expenses for alcohol or entertainment must not be charged to the Government. For instance, Consider business development meetings, particularly those with commercial clients/prospects, and how those are charged and ultimately allocated to government contracts.

Please contact Kiran Pinto, CPA and Senior Manager (Kiran.Pinto@CohnReznick.com or 703.847.4458) or Kristen Soles, Partner (kristen.soles@cohnreznick.com or 703.847.4411).