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Mary Schaeffer
Mary Schaeffer

How Fraud-Ridden Is Your T&E Policy?

This nine-step plan ensures a strong policy and admonishes sticky fingers from getting into the T&E cookie jar.

November 3, 2011
by Mary Schaeffer

The loosey-goosey approach to travel and entertainment (T&E) spending while acceptable in some companies is fast becoming unacceptable. Although employees who have enjoyed and benefited from a relaxed policy, it has been bad for employee morale and the bottom line.

The first strike in the free-spending reimbursement policies was caused by the likes of Enron and WorldCom. Strike two came with the passage of the Sarbanes-Oxley Act, which prompted many organizations (both public and private) to take a second look and rein in their policy. The economy was responsible for the third strike. Many companies needed to conserve every last cent and wasteful entertainment expenditures had no place. Uncontrolled T&E spending struck out. But that does not mean that the current practices will die easily, should a company decide to rein in free-wheeling spending.

The Plan

Once the decision to tighten enforcement of the policy has been made, you need to take action. Below is a nine-step plan that your firm can use to change its T&E policy to a more stringent one:

  • Step 1: Update your T&E manual paying special attention to the details. Spell out what’s allowed and what’s not out. Don’t leave anything to common sense as employees may misconstrue your intentions.
  • Step 2: Share the manual with every employee who might need to have access to it. This includes the administrative staff who might fill out expense reports for your executives as well as the occasional traveler.
  • Step 3: Put a cover letter on your updated T&E manual and have the highest level executive sign the policy, such as the CEO or the CFO.
  • Step 4: Your policy should include strong zero-tolerance policy language, making it clear that the organization will not tolerate anything but complete adherence to the policy.
  • Step 5: Demand that approvers actually review what they approve. This can be done by holding them responsible for policy abuse or misuse. While in most cases it is not reasonable to expect the manager to be financially responsible, failure to review expense reports before approving them can and should be an issue during performance reviews.
  • Step 6: Enforce the policy uniformly so there can be no finger pointing and claims of unfairness. This includes high-level executives and sales people.
  • Step 7: Use a corporate travel or p-card (purchase cards) for all travel expenditures. Make it a requirement. This prevents those few employees who are tempted to make a few extra dollars on airfare from going down that route. Enterprising employees committing this fraud book two tickets. They get the receipt from the expensive ticket, use the receipt for reimbursement purposes and then return the more expensive ticket for reimbursement. They then use the ticket for the cheaper flight.
  • Step 8: Demand reimbursement from any employee who makes an unauthorized expenditure using the corporate card.
  • Step 9: Give processors the authority to question any item on any report. They should inquire about a certain number of items regularly, especially when you first go public with your new policy.

What Else?

There are a few other tactics financial firms with tight T&E policies use. For starters, no employee should be able to approve expenditures for any event in which he or she was one of the guests. This means that the highest level person should pick up the bill. If this is not possible the T&E report should be forwarded to the next highest level person for approval. While many companies already have language to this effect in their policies, others don’t. In fact, in some organizations it is a common tactic for the lower-level person to pick up the tab at questionable functions, such as regular Friday afternoon lunches with no real business purpose.

Additionally, some organizations are taking the step of having a second approver on all reports. This approach tends to make the first approver a little more conscientious. Many companies have now started to require a second approval on reports over a certain dollar level. The exact level will depend on the nature of your business. Some firms with heavy international travel have set this limit at $10,000, with airfare easily eating up half of that amount. Firms that adopt a second-signature-over-certain-dollar-amounts policy should expect to see a rise in the number of reports submitted as some employees attempt to avoid that second level of scrutiny by submitting multiple expense reports for lower amounts.

We haven’t discussed automation yet. There are numerous wonderful products on the market today that streamline the process of checking for policy compliance and automate the approval and reimbursement process. Some are available on a very reasonable pay-as-you-go basis. Where it is possible to include an automated review, policy compliance is likely to improve.

Conclusion

We’re in a whole new business world and T&E is no exception. Utilizing safeguards such as those discussed above will make your program more effective.

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Mary S. Schaeffer is the author of over a dozen business books including Controller & CFO’s Guide to Accounts Payable and Fraud in Accounts Payable: How to Prevent It. She writes a free weekly ezine, e-AP News and is a frequent speaker at accounts payable webinars, seminars and conferences and directs the organization’s consulting practice.