What Do You Know… about Indirect Rates?
GovCon Job Cost Accounting requires segregation of direct costs (for one particular Job – which can be a project or a contract) from indirect expenses (which benefit the company as a whole). Both indirect expenses (the Pool) and their related bases (the divisor) proposal and contract Terms and Conditions include compliance with regulations. The burden of proof is on the contractor to show that claimed amounts are reasonable and comply with applicable Federal Acquisition Regulations (FAR) and FAR Supplements. Cost proposal, Actual Incurred Costs (AIC), and customer billings use the same methodology and match supporting documents. Stimulate your mental synopses with your knowledge of GovCon Indirect Rates; then verify your answers at the bottom of this article. What do you know?
1. The Director of Engineering travels to Huntsville, Alabama to discuss Contract ABC with the Contracting Offer. During the flight, she invests two hours writing a (required deliverable) status report for Contract EFG. How is her time charged for those two hours?
a. One hour on ABC and one hour on EFG
b. Two hours on EFG
c. Two hours on ABC, because she would have taken the trip regardless of how she spent time during the flight
d. Two hours on General and Administrative (G&A), because indirect charges benefit more than one Job (for a project or contract)
2. The Project Manager plans to travel to Washington, d.c. from her home, and return, in September of 2019. The proposed trip lasts five (5) days. Dinner will be provided on the first day of travel, included in the registration fee for the conference at the beginning of the trip. On the last day of the trip, breakfast will be included in Business Meetings (separately proposed from Travel), during a breakfast meeting with the customer’s Project Manager and Project Engineer. How much should be proposed for the meals per diem, for this trip?
3. If documented by the traveler, which of the following is not a valid reason to bill the cost of first/business class?
a. All other available flights are circuitous – requiring two or more stops/transfers
b. A letter from a doctor states, for medical reasons, the traveler requires the leg-room of first/business class
c. A (sorted by price) printout from a website, which pulls data from multiple sources, shows the first class seat happens to be the least-expensive, available
d. Support shows the seat to be the lowest-priced a non-stop flight
4. The Project Manager plans to stay at the home of a college friend, while in the d.c. Area. Although her friend does not charge for her visits, a thank-you gift costing $100 is always given. The store receipt is always attached to the Travel Form. For the four nights of lodging, how much should be proposed for the September trip?
5. Company policy requires a receipt for each item costing fifty dollars ($50.00) or more. A married couple, both employees of the same company, traveling to the same city for a valid business purpose stay in a hotel room costing ninety-eight dollars ($98.00). What lodging receipts, if any, are required?
a. No receipts, because each traveler’s share is less than fifty dollars ($50.00)
b. One (actual payment) ninety-eight dollar ($98.00) receipt for each traveler, with the explanation, that one-half ($49.00) applies to Travel Expenses for this traveler
c. One traveler must claim ninety-eight dollars ($98.00) and the other zero dollars, with a lodging receipt for the traveler claiming the cost
d. No receipts, because the travelers are officers of the company, who Accounting knows are married and always share lodging
6. Which of the following is not included in the “Incidentals” portion of Meals and Incidentals (M&IE) and may be charged as an allowable cost?
a. A bottle of water
b. A tip for Housekeeping
c. Laptop charger, after the one available breaks or expires
d. A midnight snack
7. When are the costs of a rental vehicle – larger than a compact car – not an allowable cost, even if the explanation is documented?
a. More than one traveler
b. Excess baggage, required for the business purpose and duration of the trip
c. Vehicle sufficiently large to transport a prototype, the reason for the travel
d. None of the above
8. Lodging per diem is one hundred dollars ($100.00). Actual lodging is one hundred twenty-five dollars ($125.00) plus taxes of thirty dollars ($30.00). How much of the taxes are allowable?
a. Twenty-four dollars ($24.00)
b. Thirty dollars ($30.00)
c. Fifty dollars ($50.00)
d. Zero dollars ($0.00)
9. Which of the following GovCon Travel costs, with supporting documentation, is allowable?
a. The full cost of a rental sports car
b. Lodging in excess of per diem, when no lodging within fifty (50) miles offers rates at or below per diem
c. Extra night’s lodging to save airfare, when the difference between planned-departure day and next-day airfare is less than the extra night’s lodging
d. Extra night’s lodging to visit a relative, while in town
10. Which of the following is adequate supporting documentation for allowable costs?
a. Airline receipt for two checked bags for a three-day trip
b. Receipt for two “mini-bar” bottles of wine
c. A credit card receipt for (not itemized) total hotel conference-room charges
d. Verifiable (including supplier address or phone number) receipts for taxicab charges to and from the hotel to applicable business-purpose location
Made you think! If you answered all ten correctly, you’re a GovCon Travel rock star! If you got at least eight answers correct (and for the right reasons), you’re an asset to future DCAA audits of your employer’s cost proposals, Accounting System, and customer billings. Train others! If your guesses did not measure up, consider asking an outsourced consultant for help implementing compliant Policies and Procedures on GovCon Travel. …And well before the next audit! The answers are below.
1. b. – Employees charge their time to the Job (for the contract) that benefits. The two hours have a direct benefit to Contract EFG, and were required for (the deliverable) report – regardless when or where she performed the work.
2. c. – Per diem for the first day and the last day is $57 ($57 x 2 = $114). Per diem for each of the three middle days is $76 ($76 x 3 = $228). A $34 dinner and an $18 breakfast were provided (- $52). Yes, the entire meal amount is subtracted, even though only 75% of the first and last days’ per diem is added. $114 + $228 – $52 = $290.
3. d. – DCAA considers one stop to be reasonable. Although regulations state that circuitous (two or more stops) exceeds reasonable and need not be considered, the difference between a non-stop (unless adequately supported as necessary) and one stop is unallowable.
4. a. – A receipt from an establishment that offers lodging for its normal course of business is required for reimbursement of lodging up to the per diem amount. A lodging receipt is always required, regardless of savings from an alternative.
5. b. – A receipt for lodging is always required (regardless amount). Customer Auditors and Reviewers require a receipt, to preclude allowing the lodging per diem rate for travelers’ stays with friends or colleagues. The receipt must be verifiable (i.e., show address or phone number) and from a source that provides lodging as routine business. Note that c. can be done, with adequate explanation (for an audit trail) on both Travel Expense reports; however, this option is not required or preferred.
6. c. – The new charger is an allowable cost, whether or not on travel. This is a normal business expense, unrelated to Travel Expenses. All other answers are included in M&IE and are not allowable as double-charged costs.
7. d. – None of the above. Each of the situations (a. through c.) are allowable, with adequate documentation to explain the excess-of-compact price.
8. a. – One hundred dollars ($100.00) of the one hundred twenty-five dollars ($125.00) lodging (or 80%) is allowable. Thirty-five dollars ($35.00) taxes times 80% equals twenty-four ($24.00) allowable.
9. b. – The Lodging per diem rates are based on reasonable ground-travel. DCAA and Reviewers use the fifty (50) mile, each way, distance as reasonable. Evidence that the excess rate is reasonable for the “within fifty (50) miles” shows competitive pricing.
10. c. – For a trip of one week or less, DCAA and Reviewers consider one carry-on and one checked bag reasonable. For a longer trip, more checked bags are reasonable. For documented circumstances (such as items that are the subject of a destination meeting), additional bags are considered for reasonableness. A totaled credit card receipt is never adequate (for anything). DCAA and Reviewers do not verify “that” the money is spent; they evaluate “on what” the money is spent. Detailed receipts show entertainment, alcohol, and other unallowable costs.