The Three Rs Of Managing Travel & Entertainment Expenses: Reports, Receipts, Review

(Published May 19, 2008)

Reprinted from PERSONNEL LEGAL ALERT, a widely read employment law newsletter that keeps HR executives up-to-date on the latest court cases, legal trends, government regulations, and federal legislation that affect the policies you write and procedures you administer.  Click here to view a sample issue, get more information, or sign up for a risk-free subscription.

According to a recent report from the Government Accountability Office, roughly 41% of the $14 billion charged by federal employees to government credit cards wasn't properly authorized or didn't meet payment standards.  Highlights from the report should send shivers up any HR manager's spine. 

Charge: Internet dating services for 15 months.  Cost: over $1,100.

Charge: high-end apparel.  Cost: $77,700. 

Charge: dinner for 81 conference attendees.  Cost: $13,500. 

Firm control over expense account policies can ensure that your company's travel and entertainment (T&E) dollars don't end up in employees' pockets.

REPORTS + RECEIPTS = ADEQUATE ACCOUNTING

Employees who use company credit or debit cards, and employees who use their own credit cards who expect to be reimbursed, must always account to the company for their business expenses.  While you have great latitude in creating a T&E policy and the forms — paper or electronic — to go with it, the IRS requires that every policy must hit these salient points.

• Employees must document how much they spent on the company's behalf within 60 days.  Documents: receipts, canceled checks, or bills.
• Employees must also document the time, place, and business purpose of their expenses within 60 days.  Documents: a detailed, itemized statement of expenses, account book, diary, or similar record of where they incurred each expense, at or near the time they incurred it.  
• Employees must return unused advances within 120 days after paying or incurring an expense. 

SET LIMITS ON CREDIT CARDS

Controlling company credit cards starts with setting limits.  You can require employees to submit receipts for every expense they charge.  Or you can loosen the reins.  Under an IRS rule, employees may incur up to $75 in expenses without the need for them to submit receipts.  You can set a lower floor, say $20, to keep the potential for abuse in check.  Even with this de minimis rule, employees must still submit proof regarding the business purpose of the expense, when the expense was incurred, and where it was incurred.

You can also set a ceiling on spending.

• Have the credit card issuer set low limits on the cards.  Limits can vary by employee.  
• Specify dollar limits for expenses — a certain amount for lunch, dinner, etc. 
• Have the card issuer block high-risk category codes (e.g., department store charges).  
• Establish categories of expenses the company will not cover.  For example:
    — No alcohol or clubs, unless employees are entertaining clients.
    — No clothes, except in cases of emergencies (e.g., an airline loses an employee's luggage).
    — No spouses, unless there's a business reason for a spouse to attend. 
• Define what constitutes an inactive card (e.g., a card that hasn't been used for six months or one year), and reduce the limit on inactive cards to $1.

Employees who go over the line can be held responsible for their unauthorized charges and may also be subject to discipline.

PROACTIVE REVIEW A MUST

All that paperwork employees submit won't do a bit of good if their expenses are just given a green light.  To stop expense account abuse in its tracks, carefully scrutinizing charges is the rule, not the exception.  Be sure to review documents for double reimbursement and review ATM cash withdrawals for reasonableness and association with business expenses.

Another problem: delinquencies, if company cards are issued in employees' names and they don't pay their monthly bills.  Idea: Hold employees' managers responsible by providing them with monthly reports on delinquencies and questionable charges.

PERSONAL PAUSE

Separate the responsibilities for authorizing transactions, processing and recording them, reviewing the transactions, and handling related assets.  In order to reduce the risk of error or fraud, no one individual should control all key aspects of a transaction or event. 

Related Topic(s): Payroll Management/Travel Time 

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