Thursday, August 2, 2012

Other Business Expenses

When we see a caption like "other business expense", we think of a catch-all category for costs that do not fit into some other pre-defined category. Its kind of like "miscellaneous costs" - if you don't know what else to do with an expense item, charge it "miscellaneous costs" (By the way, auditors love to analyze charges to "miscellaneous costs"). The FAR cost principles has a category called "other business expenses". It is found in FAR 31.205-28.

Contrary to what one might think based on nomenclature however, FAR's "other business expenses" is anything but a catch-all account. It is brief and covers costs related to seven different activities:

  1. Registry and transfer charges resulting from changes in ownership of securities issued by the contractor
  2. Cost of shareholders' meetings
  3. Normal proxy solicitations.
  4. Preparing and publishing reports to shareholders.
  5. Preparing and submitting required reports and forms to taxing and other regulatory bodies
  6. Incidental costs of directors' and committee meetings, and
  7. Other similar costs

All of the foregoing activities are allowable under Government contracts.

The Government will sometimes try to classify these types of activities as "organization costs" which are generally unallowable (see FAR 31.205-27). Such a position is easily refuted if one knows about this cost principle.

An old ASBCA case illustrates one of the distinctions between allowable "other business expense" and unallowable organization costs. In ASBCA No. 14370, the board held that fees incurred by Boeing in connection with the conversion of its convertible debentures into common stock and a stock split to make its securities more marketable were allowable as other business expenses because the transaction did not raise any new capital and there was no change in Boeing's corporate structure.

No comments:

Post a Comment