Friday, November 16, 2012

Travel Costs - Additional Documentation Requirements

Why do Government auditors always seem to include travel costs when reviewing contractor incurred costs audits? Even where travel costs are not significant, auditors often spend a disproportional amounts of time reviewing travel costs. There are several reasons and those reasons have a lot to do with the explicit documentation requirements of FAR 31.205-46, Travel Costs. This is one of those "low hanging fruit" areas that we've talked about before. Contractors, especially small contractors with limited internal control systems, do not do a very good job of complying with the documentation requirements of this standard. The auditors know this and they can come up with some easy audit findings and cost disallowance and have a fair chance at sustaining the findings.

Besides what you would normally expect to document the allowability of costs (e.g. authorization, invoice, payment), the travel cost principle requires the following: additional documentation:

  • Date and place (city, town, or other similar designation) of the expenses
  • Purpose of the trip
  • Name of person on trip and that person's title or relationship to the contractor

Additionally, this FAR cost principle requires that airfares be limited to the lowest priced airfare available to the contractor during normal business hours (with a few limited exceptions). Think about a contractor's difficulty in proving that it obtained the lowest priced airfare. Think about the added difficulty when the auditor begins the review several years after those costs were incurred and booked and the supporting data has been archived. Contractors need great internal control systems to ensure that they bought and claimed the lowest priced airfare as well as efficient documentation retention practices.

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