Many companies have resumed some level of business-related travel and entertainment (T&E) activities — or they plan to do so this fall. Unfortunately, these expense categories may be susceptible to incomplete recordkeeping and even fraud. So, it’s important for companies to implement formal T&E policies to ensure reporting is detailed and legitimate.
Substantiating expenses
Traditionally, executives, salespeople and other workers who travel or entertain customers for business must submit expense reports after each trip or by the end of each month. Once approved by supervisors, expense reports enable workers to get reimbursed for expenses they pay personally. Alternatively, some companies issue corporate credit cards to cover approved T&E expenses.
To comply with financial reporting and tax rules, the following information is usually required on expense reports:
- The amount of the expense,
- The time and place of the expense,
- The business purpose of the expense, and
- The business relationship to the taxpayer of any person fed or entertained (if the expense is for meals or entertainment).
Most companies require travelers to submit copies of original receipts, rather than credit card statements, with their expense reports for T&E items above a predetermined limit (usually $25 or $50). Examples of costs that may qualify for reimbursement are airfare, auto mileage, taxis and ride-sharing services, rental cars, gas and tolls, lodging, tips, business phone calls, wi-fi access charges and meals (with exceptions).
Entertainment expenses — such as football tickets, green fees and fishing excursions — are usually eligible for reimbursement, if permitted by the company’s T&E policy. Plus, they’re deductible for book purposes under U.S. Generally Accepted Accounting Principles (GAAP). But they’re not deductible under current tax law.
Expense accounts gone wild
Completing expense reports is often one of the most dreaded tasks for white-collar professionals. Though the temptation to procrastinate is strong, waiting until the end of the reporting period to submit expense reports can be problematic. It may be difficult to find receipts and remember the details about a business trip that happened weeks or months ago. This can result in errors and omissions when reporting expenses.
Expense account cheating is also common. For example, dishonest workers may overstate expenses, request multiple reimbursements, change numbers on a receipt and otherwise falsify their expense reports. One of the most common fraud methods is to mischaracterize expenses, using legitimate receipts for nonbusiness-related activities.
Getting a handle on spending
Now is a good time to review and possibly upgrade your T&E reporting practices. For example, remind workers what’s considered a “reimbursable” expense, and how often expense reports should be submitted. This prevents misunderstandings and makes punishing infractions, when they occur, easier.
Your company also might want to reinforce its T&E practices by investing in expense tracking software to help managers spot inconsistencies in reporting by subordinates. It’s also important to check for managers who override your company’s T&E policies. Everyone in an organization must be held to the same standards.
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We highly recommend you confer with your Miller Kaplan advisor to understand your specific situation and how this may impact you.
