A contractor’s Chart of Accounts must be set up to track unallowable costs separate from any direct or indirect cost pool per FAR 31.205. For direct unallowable/unbillable costs, contractors need to develop a coding system to identify allowable direct costs separate from unallowable direct costs (i.e. travel costs in excess of JTR limits).
For indirect unallowable costs, contractors should exclude them from any applicable indirect cost pool. However, if the cost pool they would otherwise belong to would also be in the base of another indirect cost pool, the unallowable cost should remain in the base of the other cost pool in order to receive its fair share of any indirect cost allocation it should have.
It is recommended that contractors:
- Develop a written policy regarding unallowable costs, the process by which all costs are to be measured against the FAR Part 31.205 Selected Cost clauses, the process by which they are to be identified, and what accounts they are to post against.
A list of typical unallowable cost groupings may include but are not limited to: gifts, souvenirs, alcoholic beverages, interest expense, entertainment, public relations/advertising costs, etc.
These unallowable costs are very specific and may be based on facts and circumstances of a particular situation. For a more comprehensive list, please visit www.dcaa.mil or http://www.dcaa.mil/mmr/14-PAC-021.pdf