The head of the Smithsonian Institution resigned recently under a cloak of suspicion related to inappropriate spending. In response, the Senate froze a proposed $17 million increase in funding for the organization citing the official’s compensation and excessive spending. Unfortunately, this is not an isolated case. It happens repeatedly.

This case is not considered to be fraud. In this instance, there was no cover up or attempt to divert attention away from the spending. Clearly, you don’t want this type of activity to happen while you’re in charge. Neither private organizations, nor public entities – which are subject to the strictures of Sarbanes Oxley — can afford the negative publicity that typically surrounds accounts of inappropriate spending when they become public. Here are a few guidelines to prevent such episodes from occurring at your organization:

Overall Prevention Guidelines

• Install strong internal controls across all accounts payable, purchasing, accounting, and finance processes.

• Have an updated policy manual so everyone knows his or her obligations. This will eliminate excuses such as: “I didn’t know that…” or, “You never told me we couldn’t …” or “At my old company we …” (This is especially important for Travel & Entertainment, where much of this type of abuse tends to occur).

• Disseminate your T&E policy to anyone who might need access to it. Best practice companies post it on the corporate Intranet site for easy reference and updating.

• Require strict compliance with the policy from everyone within the organization, regardless of their level. Make no exceptions.

• Update the policy regularly and have it issued under the signature of a very high level executive.

• Do not overlook appropriate segregation of duties issues when assigning work.

• Install a hot line or other mechanisms for truly anonymous reporting.

• Provide ethics training as a part of your management education.

Other Factors

Corporate culture starts at the top. When both the president and chairman view policy compliance as imperative, the odds of an employee trying to sidestep the rules diminishes significantly. However, if exceptions are made for high-level executives, resentful employees may feel justified in slipping through minor extravagances when given the opportunity. 

Finally, empower the employee responsible for reviewing T&E reimbursement requests (usually an associate in accounts payable) to reject expenditures that exceed the policy limits, unless authorization is provided by a very senior manager. If exceptions happen more than once or twice a year for each employee, it is a sign of a potential problem and should be further investigated.

While employing best practices in your travel and entertainment processes won’t guarantee your organization immunity to a Smithsonian-like debacle, it will definitely decrease your odds.

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Mary S. Schaeffer is a nationally recognized accounts payable expert. She is the author of a dozen business books including Accounts Payable & Sarbanes Oxley: Strengthening Your Internal Controls and several others on accounts payable, serves as the editorial director of Accounts Payable Now & Tomorrow, a newsletter for professionals interested in payment issues and leads that organizations consulting endeavors.