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Do you reimburse expenses when people paid cash and do not have a receipt? What documentation do you require?

Accounting For Rembursable Expenses Without ReceiptsWe have a policy of attaching receipts to all expense reports but we get the occasional "I lost it, can I use my credit card statement?"  We allow this documentation in certain circumstances.  Very rarely, we get someone that has some client entertaining event, like a concert, and does not have any documentation.  Any advice? 

Answers

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

We have a policy that we will for items under $25 - but not for any item above that amount. The company must be able to access receipts for expenses that are material in the event of request for support in an audit.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Exceptions happen. A policy that requires senior manager sign off tends to reduce the exceptions. The 25 dollar policy is good, but I recommend you add another layer or two based on exception amount, I.e any expense up to 50 without a receipt requires Sr Manager approval; while greater than 100 dollars requires Exec Manager approval. This example changes based on the company structure but the logic is accurate.

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

Proformative offers 400+ business courses with free CPE, many on expense management.

Scott Auer
Title: CFO and Controller
Company: Praeses, LLC
(CFO and Controller, Praeses, LLC) |

If someone does not have a receipt, we have a document the employee must complete, sign and have a line of business manager sign off on the expense or one of the owners sign off on the expense before reimbursement will take place. the form contains spaces for all of the details of the transaction. It seems to work pretty well for us but most of the time it is done for small things like tolls or tips that way we have some sort of documentation. Fortunately, there have not been many instances of large purchases without a receipt. Some of what you would want would be to do what Regis recommends but it all depends on size of company and structure of the company.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I agree with the above and just to add - a friend of mine ran into this and ended up determining her driver was pumping gas into his personal vehicles. What was once a "I lost it" and they agreed to pay it; turned into several thousand dollars worth. He actually was turning in some of the receipts and saying it was for the company trucks but after scrutinizing it they started to realize some of the fill ups were taking place on weekends or even same days as a truck fill. They could tell dollar amounts too; obviously the company truck took more than some of the smaller amounts being purchased. Make your policy solid and have proper checks and balances in place and you will safeguard from abuse.

David Ziska
Title: CEO
Company: Council Business Solutions
(CEO, Council Business Solutions) |

We use a "replacement receipt" form that the EE must complete and sign. Compliance seems to be cyclical. Occasional reminders are helpful. Also use a $75 ceiling for this. If compliance becomes an issue, we involve the supervisor and possibly HR.

Vik Agrawal
Title: President & Co-Founder
Company: ExpensePath, Inc.
(President & Co-Founder, ExpensePath, Inc.) |

This is what we see from our customer base (we automate the expense reporting process for SMBs and a missing receipt can be configured to show as a violation):
- Most companies require a receipt above $25 because they don't want to deal with receipts for bottles of water, etc. But I would say about 10% of companies want every receipt.
- Just about all will reimburse for the occasional missing receipt. If it becomes a habit with an employee, a discussion/warning takes place.
- A minority (I would say 20%) have a formal approval/escalation process for a missing receipt. Most of these are just an acknowledgement by the employee's manager in our system that it is OK to reimburse. Very few have a written document but some will ask for a manager-signed doc to be attached as a replacement.
- What I do see/hear a fair amount is when an original receipt is missing and finance will accept the employee's credit card statement as a replacement. This does not meet IRS requirements but companies will accept it occasionally for proof to reimburse.

Basically, it is up to you (Finance) who runs the process to decide how you want to set the rules and how strictly you want to enforce them. Especially if you have a process that is not too painful for employees, you will get support from managers and compliance from employees. Hope that helps.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

I've been thinking the advice and experience in this thread over since I read through it yesterday. It is far from my own.

First, I've never worked anywhere that reimbursed a business expense without a receipt being provided. And, as a CFO, I would insist on a policy that required receipts. It protects the entity, the employees and the shareholders from any hint of fraudulent activity. It's simply good business practice.

Would you approve a payroll where all the time worked was not accounted for?

But most of all, for those who advocate alternatives or thresholds, how do you deal with auditors; internal, external and tax?

Because I've had a lot of tax audit experience, I can tell you that, in a tax audit, if there are business expenses that lack receipts in the selected audit sample, the usual remedy is to disallow a percentage of all expenses for income tax purposes that is equivalent to the ratio found in the audit sample. This results in back taxes, penalties and interest on the previously deducted expenses.

Have none of you ever experienced this?

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

"the usual remedy is to disallow a percentage of all expenses for income tax purposes that is equivalent to the ratio found in the audit sample. This results in back taxes, penalties and interest on the previously deducted expenses."

EXACTLY!!!!

This is the explanation I use every time some non-finance manager argues with me about what they see as a "small" issue that I'm being too conservative about. "It's only $25. Who's going to care?".

Errors found in sampling spread over the entire audit period can be devastating. One company I worked for ending up paying $2M in back sales & use taxes this way.

Not good! But, it finally made the sales VP stop trying to get me fired for railing about this and to work on the lack of sales tax collections by our "customers" as a sales issue and not an overbearing finance department.

Besides, if they lack a receipt how do they know how much they spent?

It's just good business to be hardnosed on this.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Anonymous brings up some very interesting points.

As a CFO I like all expenses either to be on a charge card OR with a cash receipt. But, there are exceptions like train fare, bottles of water (as mentioned previously) etc.

If one has a reasonable policy (with exceptions clearly delineated), with checks and balances, both the auditors and the tax man really shouldn't have an issue.

But that assumes (a dangerous presumption) that the policies are followed...to the letter.

Jen Wightman
Title: Expense Mgmt
Company: Concur
(Expense Mgmt, Concur) |

It appears that various higher education institutions and some government agencies use a signed affidavit as an 'official replacement' for the missing receipt (Googling lost or missing receipt affidavit). I'm not sure why it appears to be such an industry specific idea, but seems like a reasonable way to approach the issue. Especially if you tied that to reporting and/or other policy limits. Probably not bullet proof, but a reasonable policy idea.

Patrick Slattery
Title: Managing Director
Company: Canopach
(Managing Director, Canopach) |

Establish a per-diem standard. It can be fit to locations based on cost, e.g. higher for trips to Paris, France than for trips to Paris, Texas. This practice is common in professional services where there is a high volume of T&E activity and a great degree of variability in the circumstances. For meals, you can break down the per-diem to a per-meal component, i.e. so much for breakfast, so much for lunch, and so much for dinner.

I would also encourage some education and reinforcement of the tenet that T&E reimbursement is intended to cover the incremental cost of requisite business travel over what the individual would ordinarily spend when at work near home. As an example, I buy coffee routinely throughout the day whether I am near home, or on the road. Just because I am traveling for business is not a reason for me to charge someone else for my coffee. The bottle of water example earlier may fit that same circumstance.

Be careful not spend more in lost productivity and real wages, benefits and out of pocket costs on extraordinary T&E compliance activity than the potential cost of errors.

Anonymous
(CFO) |

"For meals, you can break down the per-diem to a per-meal component, i.e. so much for breakfast, so much for lunch, and so much for dinner."

It isn't so much that you can, it's that you have to if you want to stay income tax compliant. i.e. you can't pay a full day's meal per diem as a non-taxable, reimbursable business expense, if they aren't meeting the definition of a full day's attendance in a distant locale.

Also, there is to be an allowance for meals provided by third parties.

This is where my agency is off the rails. The CEO and Board members take meal per diems like candy. But, at most of the events they attend, vendors and others provide meals for them. And, the CEO likes to take the board members out and wine and dine them on his agency credit card.

I've tried warning them to no avail. It's completely political and they think I'm too detail oriented. They just haven't been caught..............yet.

This is not only and income tax violation, it's also a violation of state ethics laws for elected officials and a violation of the public trust.

Per Diems are not a panacea for proper accounting and control of T&E expenses. My first experiences with per diems were as a recipient traveling with other employees, who right away started showing me how to abuse the system.

In my own experience, providing clear agency guidelines for reimbursable expenditures along with making the employee or board members pay up front with their own funds and submitting receipts for reimbursement is far more effective in controlling these expenditures and limits the exposure of the organization. It's too easy to spend OPM. When it comes out of one's own pocket with some risk involved, the employee is much more likely to be frugal and efficient with the funds.

But hey, what do I know? ;-)

Topic Expert
Keith Perry
Title: Consulting CFO and Business Operations A..
Company: Growth Accelerator
(Consulting CFO and Business Operations Advisor, Growth Accelerator) |

I'm of two minds in this debate....but it is a good debate and I think the outcome is reasonably clear, in the US.

Elsewhere in the world, it is more common to have everything be electronic. The idea of a paper invoice getting paid with a paper check, all stapled together...this is a silly and archaic concept. Anywhere outside of the US that I work, the answer is different from the US answer.

But, per above, it is what we do. The above threaded reasons are sufficient.

Efficiency and avoidance of lame excuses are relatively easy these days. Any cloud based system will let you take a picture of the receipt with your phone and add it to an expense report automatically. So, from an efficiency standpoint, we can still get to a similar place.

And when all else fails, have someone sign off. Have a documented process (as above) that captures the necessary information to avoid senseless liability.

MJ Joy
Title: Owner
Company: MJ Consulting, LLC
(Owner, MJ Consulting, LLC) |

What do you do when an employee gives a full, detailed receipt that looks like a business expense, but it is on the employee's personal credit card, and there are over 30 individual credit card numbers that this employee has handed in on receipts. Is there a audit/IRS way to verify that the employee actually purchased that product or service for the business? And how can I book these receipts? The manager reimbursed the employee with cash.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Sounds fishy.

Set policies and procedures. Talk to his manager. Do an asset audit if that is what he is buying. Revoke his authority to purchase on behalf of the company. Part ways.

All these are options, it's picking the right ones for the situation.

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