I am new to a very small company. We have employees that turn in expenses for reimbursement but they don't sign the form. Is there a legal reason that I can quote for making them sign the form. I'm from the corporate world and signatures were always required for everything! Thanks in advance.
Why does an employee have to sign their expense report?
Yes, totally. It is a definite controls issue, and it provides legal protection for you and for the employee.
The signature can be electronic: docusign, expensify, jotforms (which will log their ip address), PDF-sig, there are endless *easy* ways to do this. So this is not a requirement for paper. Big4 auditors will want paper with the bits stapled together (I have been asked), but technically it isn't necessary.
Controls: you want a process that goes Employee-authorizer-executor/payer. The bank will require your signature as part of the process (the payer). You need to require the same as the authorizer/budget owner, and they in turn need to require that of the employee. If you are so small that the employee and authorizer are the same, that's ok. Just ask for the sig. Failure to do that is a controls failure. This would jeopardize and audit, might negate your insurance if there is an issue, etc.
Legal protection: Beyond the controls-failure-based horrors, there are legalities.
-Employee providing positive confirmation that the expense was for a purpose, and is not just embezzling money.
-Employee providing positive confirmation that the expense was a business expense, so if the IRS comes knocking, you can positively assert that you did not owe withholdings and you have aircover that you aren't party to
Example (though this may not dovetail with you). Employee/Founder/Authorizer is the same person, is very busy, and just runs their credit card through the expense process, high-lighting what should be reimbursed. The company pays.
Time goes on, and the IRS audits the payee. You don't have receipts (their cc statement does not count), and you don't have a signed document indicating that the employee approved the payment as a reimbursement and not as income.
Company ends up owing taxes and penalties, and you aren't in a position to help the employee. Employee in turn also needs to pay tax. Maybe they can sue you for that?
Worse example: disgruntled employee gets audited. Maybe you will need to have an employment practices claim. No controls; no claim. Add that to the list above.
You need controls and process. Not just for when it all works, but for when something goes off the tracks.
In addition to the above comments, signing the expense reports by the beneficiary protects the account manager from being charged with manipulation of expenses; ownership is attached to signatures.
Generally, companies do make employees sign the expense [reimbursement] reports. Companies want to know that the expenses are authentic and related to person who submitted them.
By not having employees sign the reports, the company has an internal control issue.
The company could just not reimburse the employee for the unsigned report with the expenses because it's not signed therefore not verified. That could be built into the internal control procedure that unsigned reports, along with missing receipts, etc..., would not be reimbursed.
Legal reasons are more tax related reasons...
An "accountable" expense plan that is written somewhere in the company's policies...
If the expenses are not justified or substantiated, the reimbursed monies would be considered "income" to the related employees, including officers, of the corporation.
The external accountants should've mentioned something to
I agree with the above comments, also around 5-7% of all expense items submitted are some form of fraud and 1 in four expense reports also contains a policy error. Having the employee sign a statement that the expenses are valid and according to company policy, not only provides some protection, but also gives the employee a moment to think about the items submitted prior to sending them in. Accountability is healthy. Automated solutions can help in this area.
I am thinking of starting a company that handles all expenses for companies.
From start to finish, everything the client needs is taken care of...food, travel, lodging, etc., for everything the company would reimburse for, but expects the client to cover until his trip is done. This way, all expenses that get reimbursed are handled, and would limit fraud. If the client wants more, they can pay for it, but since they are not going out of pocket then waiting a couple weeks to be paid back, provided they followed all rules and fill all paperwork correctly, they will be able to handle business far more efficiently.
I remember in my old days of filling out reimbursement paperwork. Some employers felt that every employee was cheating them, because a couple crooks were, so with each breach of trust, they implemented new rules that made it not worth filing anything for reimbursement.
Some employers were crooks themselves, denying reasonable reimbursement requests for frivolous reasons that meant they did not have to pay back legit expenses. I had been burnt so many times that I refused jobs that offered reimbursements.