View source for "Per Diem" vs. "Actual Cost Method" of Travel Reimbursement

==Per Diem Method of Travel Reimbursement==
The Per Diem method of travel reimbursement is reimbursing travelers for a specificied amount for lodging, and a specificed amount for Meals and Incidental Expense (MI&E).

===Pros of this Method===
*Employees prefer it.  They get some flexibility and do not have to worry about losing receipts
*Employers/Contractors prefer it.  Administratively it is easier, and managers and expense report processors do not have to worry about how to classify (allowable, unallowable) an expense where the receipt has been lost.
*Paperwork is kept to a minimum.
*There is not much to audit, DCAA does not have to dive deep into individual meal expenses.  Audits go quicker, with less dispute over allowability of costs.

===Cons of this Method===
* Higher Risk of Fraud.  For example, 
**Traveler A pockets per diem while Traveler B picks up the tab.  
**Meals provided at conferences are not deducted.

==Actual Cost Method of Travel Reimbursement==
This method reimburses the traveler for actual cost incurred.  It has a maximum reimbursement limitation tied to the Per Diem available at that location.  It also has the cost principle element associated with it.  The government does not reimburse for alcohol.  So, an actual reimbursement of $40 allowable costs (below a $50 limitation) can be further reduced by unallowable costs such as $10 for alcohol.  If the actual cost method was used, in this example the maximum allowable cost a contractor could see for reimbursement by the government would be $30.

===Pros of this Method===
A contract may be able to save money this way.  The Per Diem is the maximum that a contractor can reimburse.  Many travelers will never incur all of the allowable per diem.  For these travelers, the costs the contractor and government pay, will be reduced.

===Cons of this Method===
*Additional audit and oversight.  Auditors will test for allowability.
*Change of auditors challenging the allowability of costs,
*Contractor needs to support all costs, which includes administrative time, and making sure all documents have been properly saved.
*Administrative costs to contractor under this method

==Government Preference==
There are many opinions and discussions around what method the government prefers.  Many argue that the government and DCAA prefers the Per Diem method, as that is what they are used to.  Others argue, that the government prefers the actual method, as travelers will eat a McDonald's and pocket the rest of the money, or use it for alcohol and entertainment.  The opinions and discussions are academic.  The government does not have a preference, and if it did, it would be published.  Different individuals within the government, and within agencies may have a preference, but that preferance is with the individual.  Again, it is purely academic, it does not matter what the government prefers, as it allows both methods to be utilized in the reimbursement of costs.

Again, the government preferences are not a factor.  Make your decision on what method to utilize based on what is appropriate for your company.

==The Key to Reimbursing Travel Costs==
The key to travel reimbursement is:
===Establish a Company Policy (in writing) and Follow it Consistently, and===
===Limit the total claimed to the Per Diem of the Locality===
If the Per Diem method is used, reimburse the allowed Per Diem for the location.  If the actual method is used, reimburse actual costs up to, but not over the Per Diem local limit.  For instance, a MI&E per diem limit for a location may be $50.  A contractor can choose to provide a daily allowance to the traveler of $50, or may choose to reimburse on actual costs.  Cost reimbursed in excess of $50 must be disallowed.  

==What Do Most Companies Do?==
While there is no one "Best Practice", the "Lodgings Plus Method" or "Lodging Plus Per Diem is the most widely used method by contractors.  It reimburses travelers for actual lodging costs, and then reimburses MI&E on Per Diem method.  It is a hybrid of the two methods above.





[[Category:Travel]]