Policy handbook
Copy, edit and adopt. Adjust the limits to your own spend history before rollout.
1.0Purpose and scope
This policy governs travel and business expenses for all employees and consultants whose costs may be charged directly or indirectly to federal contracts. It is designed to meet FAR Part 31 cost principles, FTR and JTR per diem limits and IRS accountable plan rules at the same time. Costs that are reimbursable to employees but unallowable on government contracts must be identified and segregated as described below.
2.0Roles and approvals
Program managers approve travel charged to their contracts before the trip, using the travel authorization form that names the contract, charge number and purpose. The contracts manager confirms that travel is within the contract's scope and ceiling. Accounts Payable checks every expense against per diem and FAR limits, and the controller approves all unallowable cost codes. No one may approve their own travel.
4.0Lodging and per diem
Lodging is reimbursed at actual cost up to the FTR, JTR or State Department rate for the locality, plus taxes. Meals and incidentals are paid at the locality M&IE rate, at 75% on the first and last travel days, and reduced for meals provided by a conference or the government. Amounts above per diem are reimbursed only with controller approval and are booked as unallowable under FAR 31.205-46.
5.0Airfare
Employees must book the lowest customary standard, coach or equivalent airfare offered during normal business hours. Higher fares are allowable only for the exceptions FAR 31.205-46 recognizes, such as a documented medical need or when coach would require circuitous routing or excessively prolonged travel, and the exception must be documented in the trip file. Otherwise the difference is unallowable even if the company reimburses it.
6.0Alcohol and entertainment
Alcoholic beverages are unallowable under FAR 31.205-51, and entertainment, amusement and social activities are unallowable under FAR 31.205-14. The company will reimburse these costs only when a vice president approves them in advance for a legitimate business reason, and they must be coded to the unallowable account. They must never be charged to a contract, an indirect pool or a bid and proposal account.
7.0Ground transport and mileage
Employees should use taxis, ride-share, transit or compact rental cars at government or negotiated rates. Personal vehicle use is reimbursed at the GSA privately owned vehicle mileage rate, with each trip logged by date, origin, destination and charge number. Commuting miles are personal. Rental upgrades, prepaid fuel and collision coverage beyond what the company policy requires are unallowable and must be avoided.
8.0Gifts and dealings with federal employees
Gifts to customers and partners are limited to $25 per recipient per year and are booked as unallowable. Employees must not give meals, gifts or anything of value to federal employees without written approval from the Ethics Officer, because federal ethics rules restrict what government employees may accept. Logo items of nominal value at trade shows follow the marketing program and its own records.
9.0Personal and mixed expenses
Personal costs, including companion travel, upgrades, laundry on trips shorter than five nights and in-room entertainment, are not reimbursable. When an employee adds personal days to a trip, the company pays only the costs of the business itinerary, and the trip file must include a fare comparison showing the business-only cost. Personal days must never be charged to a contract labor or travel line.
10.0Receipts, records and timing
Employees must submit expenses within 60 days after they are paid or incurred, with amount, date, place, business purpose, contract and charge number for each line. Itemized receipts are required for every lodging night, every airfare and any other expense of $75 or more. Records are retained for the period the contract and FAR record retention rules require, because DCAA may sample trips years later.
11.0Corporate card, advances and returning excess
Corporate cards are for business expenses only, and personal charges must be flagged within 10 days and repaid. Travel advances are issued no more than 30 days before travel, and unspent advances must be returned within 120 days after the expense was paid or incurred. Amounts not substantiated or returned on time are reported as taxable wages and are never charged to a contract.
12.0Audit, pushback and unallowable segregation
Accounts Payable reviews every report, and every flag raised by audit software is reviewed by a person, including alcohol on a hotel folio, lodging above the locality rate and premium airfare. The software may draft clarification requests citing this policy, but finance approves each message before it is sent and decides the coding. Unallowable amounts are moved to the unallowable account before month end, following FAR 31.201-6.
13.0Exceptions and consequences
Exceptions require written controller approval before the trip, and any exception affecting contract charges also needs the contracts manager's sign-off. Approved exceptions do not make a cost allowable; they only allow reimbursement. Knowingly charging unallowable costs to a government contract can expose the company to penalties, so violations are escalated to the Compliance Officer and may lead to discipline up to termination.
Recommended limits
| Category | Limit | Note |
|---|---|---|
| Domestic hotel (per night) | Lower of the FTR or JTR locality lodging rate or actual cost | Taxes are reimbursed in addition to the lodging rate. Excess is unallowable unless an actual expense authorization exists. |
| International hotel (per night) | State Department locality lodging rate | Check the rate for the exact city and travel month before booking. |
| Daily meals (traveling) | M&IE at the locality per diem rate; 75% on the first and last day | Meals provided at a conference or by the government reduce M&IE by the published meal deduction. |
| Domestic airfare | Lowest customary standard, coach or equivalent fare (FAR 31.205-46) | Any higher fare needs a documented exception or the difference is unallowable. |
| International airfare | Coach; Fly America compliant carrier when the contract requires it | Keep the fare comparison in the trip file for DCAA. |
| Personal vehicle mileage | GSA privately owned vehicle mileage rate | The FTR rate governs allowability on government contracts. |
| Ground transport | Taxi, ride-share or compact rental; government rental rates where available | Upgrades and prepaid fuel are unallowable. |
| Alcohol | Reimbursed only with approval and booked as unallowable (FAR 31.205-51) | Never charged to a contract or indirect pool. |
| Entertainment | Reimbursed only with approval and booked as unallowable (FAR 31.205-14) | Includes tickets, recreation and social activities. |
| Business gifts | $25 per recipient per year (IRC § 274(b)); booked as unallowable | Nothing of value to federal employees without Ethics approval. |
| Receipt required at | $75 (IRS threshold); every lodging night and airfare at any amount | DCAA expects lodging and airfare receipts for every trip charged to a contract. |
IRS Accountable Plan clauses
Keep these in the handbook so reimbursements stay excluded from wages under IRC § 62(c) and Treas. Reg. § 1.62-2.
- A1The company reimburses only expenses with a business connection to services performed for the company, whether or not they are allowable on a government contract, as Treas. Reg. § 1.62-2 requires.
- A2Lodging and M&IE paid at or below federal per diem rates are deemed substantiated as to amount when the employee documents time, place and business purpose, consistent with Rev. Proc. 2019-48.
- A3All other expenses must be substantiated with amount, time, place and business purpose within 60 days after they are paid or incurred, meeting the fixed-date safe harbor in Treas. Reg. § 1.62-2(g)(2).
- A4Itemized receipts are required for every lodging expense and any other expenditure of $75 or more, as Treas. Reg. § 1.274-5(c)(2)(iii) provides, and the company keeps them with the trip file.
- A5Advances exceeding substantiated costs must be returned within 120 days after the expense is paid or incurred, and unreturned amounts are included in W-2 wages subject to withholding and FICA.
Common pitfalls in government contractors (far & dcaa)
- Assuming reimbursable means allowable. The company can pay an employee for a $287 hotel night, but the amount above the locality rate is unallowable on a contract without an actual expense authorization.
- Leaving alcohol inside a hotel folio or a group dinner bill. DCAA samples receipts, and alcohol charged to an indirect pool is an unallowable cost finding.
- Booking refundable business-class fares without a documented FAR exception. The difference over the lowest customary coach fare must come out of the charge.
- Forgetting the meal deduction when a conference provides lunch. M&IE should drop by the published amount, and full per diem looks like an overcharge in audit.
- Moving unallowable costs at year end instead of month end. Late segregation makes incurred cost submissions harder to reconcile and invites a wider audit sample.
Questions
Yes, the company may reimburse actual cost with controller approval, but the amount above the locality rate is unallowable unless the FTR or JTR actual expense provisions apply and are documented. For example, a $284.16 night against a $198 lodging rate leaves $86.16 per night that must be coded unallowable. Keep the approval and the reason in the trip file.
Business development travel can be allowable as an indirect cost when it is reasonable, follows per diem limits and is properly recorded in the right pool. Alcohol, entertainment and gifts during that travel remain unallowable. Business development trips must not be charged to a contract's direct travel line, so the travel authorization should name the indirect charge number from the start.
No. M&IE paid at the locality rate does not require meal receipts, but the employee must document the dates, places and business purpose of travel. Receipts are still required for lodging, airfare and any other expense of $75 or more. When a conference or the government provides a meal, the M&IE must be reduced by the published meal deduction.
Treat flags as a review queue, not a decision. AP reviews each one, such as wine on a team dinner or a hotel above the locality rate, and records how it was resolved and which account the cost landed in. That trail shows auditors the company identifies unallowable costs consistently each month, which is far stronger than a year-end sweep.