Board Rules Several Costs are Unallowable and Subject to Penalties
The following case addresses allowable employee morale and welfare costs (FAR 31.205-13) versus unallowable entertainment costs (FAR 31.205-14), rental expenses and whether penalties should apply. DCAA and DCMA questioned costs related to a club that provided clay shooting and fishing trips to five of Thomas’ executives where Thomas asserted these costs were allowable under the employee morale cost principle for contributing to morale, fitness and team building. DCAA and DCMA also questioned other costs such as a jazz ensemble playing at an otherwise allowable corporate event, flowers for employees’ special occasions (births, illness, death, weddings), rent paid by the company for property owned by the owner at less than market rates and a Christmas party that also served as a banquet to recognize employees were also unallowable (they ruled only two of the 26 hours of activities related to corporate activities). The appeals board ruled all the costs were unallowable and subject to FAR 42.709 penalties for being expressly unallowable where it rejected Thomas’ assertion that the penalties should be waived since it was a novice contractor (Thomas Associates Inc., ASBCA No. 57797).
