When preparing expense reports, and ultimately claimed expenses on the annual incurred cost submission, it is important to understand how an auditor will be looking at your expenses, and what FAR rules and regulations they will measure those expenses against. Specifically, we aim to focus here on meals and meetings. DCAA is taking a very objective view at these items with an eye towards measuring claimed expenses against four (4) objective attributes for meal and meeting expenses. To help bring clarity to this area, below are the FAR guidelines for determining allowability of meals and meetings.
According to FAR 31.201(a), a cost is allowable only when the cost complies with all of the following requirements:
The cost is reasonable (see FAR 31.201-3)
- Allocability (see FAR 31.201-4)
- Standards promulgated by the CAS Board, if applicable, otherwise, generally accepted accounting principles and practices appropriate to the circumstances.
- Terms of the contract.
- Any limitations set forth in this subpart.
FAR 31.201 (d) further states, “A contractor is responsible for accounting for costs appropriately and for maintaining records, including supporting documentation, adequate to demonstrate that costs claimed have been incurred, are allocable to the contract, and comply with applicable cost principles in this subpart and agency supplements. The contracting officer may disallow all or part of a claimed cost that is inadequately supported.”
Lastly, when trying to determine if meetings and meals are allowable, use four (4) attributes for determining allowability IAW the Joint Travel Regulations and the FAR:
- Date, name of establishment, and location.
- Employee names and the names of all guests.
- Purpose of the meeting/meal
- Cost of meeting by item (including itemized meal receipts).
If any of the four attributes are missing, the auditor will have no choice but to disallow the entire expense. As seems to be a recurring theme in our blogs lately, DCAA is trying to catch up on incurred cost submissions. As a result, DCAA has taken a new focus on specific areas within the submission to include major focus in labor, subcontracts, and travel (including meals). As auditors catch up, they are looking systematically at reasonableness criteria as identified above. It is important to spend the extra little time on expense reports to ensure all appropriate information is included as part of the claimed expenses…because as we have seen lately, every disallowed expense, no matter how small, will add up very quickly, sometimes into the tens of thousands of dollars.