The Complexities Of Indirect Expense Pools
Are travel and attendance costs to conventions an allowable claim? Can your business include the expense of sponsoring a conference in its claimed indirect expense pool? It all depends on the nature and purpose of the event.
The cost principle at FAR 31.205-43, Trade, Business, Technical and Professional Activity Costs, addresses the general allowability of costs your organization incurs to disseminate trade, business, technical or professional information or to stimulate production or improve productivity. The cost principle at FAR 31.205-1, Public Relations and Advertising Costs, specifically disallows the costs of trade shows or other events that do not contain a significant effort to promote the export sales of products normally sold to the U.S. government. It also disallows the costs of sponsoring meetings, conventions, symposia, seminars, and other events where the principal purpose is not to disseminate technical information or stimulate production.
With that in mind, let’s look at some types of gatherings that occur around the country and elsewhere, every year:
- Antique car conventions.
- Arts and crafts fairs.
- Boat shows.
- Home and garden shows.
- Large-scale live events conventions.
- Literacy conventions.
- Pet owners’ conventions.
- Science fiction conventions.
On the face of it, the costs of attending any of these would seem to immediately fall into the category of disallowable expenses because they have nothing to do with trade or business that is related to work for the federal government. But let’s take a closer look.
What if an employee from your information technology web architecture group asks to attend the Inclusive Learning Technologies Conference — a literacy convention? The staff member explains that a large portion of the conference is dedicated to technologies that remove obstacles preventing disabled persons from accessing electronic information. The employee plans to identify technologies your company can deploy within its existing technological architecture that will enhance — or even provide — disabled employees access to company resources available through the intranet.
Armed with that additional information, it appears your business will be able to claim the expense of attending the conference because the principal purpose is to gather technical information that will improve the productivity of other employees.
Be certain you clearly document the purpose of attending or sponsoring such conventions — often the name of an event can lead auditors to misconstrue its true nature or purpose. Take, for example, Event Live Expo. The purpose of this annual event is to “connect owners, operators and promoters of the largest live events across North America and the rest of the world including those of major music festivals, public events, corporate product launches and one-off celebrations.” That doesn’t sound very much like an allowable expense.
Now consider how your organization will document the reason staff went to the trade show. The employees who attend are those responsible for the ship-launching ceremonies required in your company’s shipbuilding contracts with the U.S. Navy. Once again, your company may be able to claim costs related to an apparently disallowable event once it clearly documents principal purpose it sent specific employees.
Tip: The cost of attending a convention or sponsoring an exhibit at a convention is generally allowable when you can answer yes to at least one of these questions:
1. Is the primary purpose of the event to disseminate trade, business, technical or professional information?
2. Is the intent to stimulate production?
3. Is the primary reason to improve productivity?
Be particularly certain that the answer to at least one of those questions is yes when any of the following statements are true:
1. The primary purpose of the convention appears social.
2. The main attraction is fun rather than business.
3. The convention is about a business unrelated to your organization’s government contracting work.
Always document the primary purpose of the event and your attendance or sponsorship. And always evaluate a cost for reasonableness and allocability. When in doubt, check with your government contracts adviser.