Avoiding Common Pitfalls with T&E Expenses

Mike McIntyre
Manager

Over the years, I have seen regulators more closely scrutinizing banks' expenditures that are related to Officer's Travel and Entertainment ("T&E"). Although controls in this area might vary greatly depending on the asset size, officer structure, and nature of the bank's business, strong T&E internal controls will help prevent potential abuse. As such, I have identified three common pitfalls that your bank should watch out for to avoid unnecessary regulatory issues.

President/CEO Expenses

It is common practice for an employee’s expense report to be approved by their immediate supervisor, otherwise known as “one-up approval”. While this seems to work well as a general rule, who should approve the President/CEO’s expenses? Some banks might designate the CFO or the COO to approve such expenses, but this is not deemed as an acceptable practice. Since the President/CEO is at a higher-level position, other individuals would essentially be approving their supervisor’s expenses, which could leave subordinates pressured to approve all such expenses. In this situation involving a President/CEO, a more acceptable practice might be to have the Chairman of the Board or the Chairman of the Audit Committee approve the expenses. Certainly, such a practice is dependent on the size and culture of the institution.

Rather than using a one-up approval approach, some banks, especially smaller institutions, might have the President/CEO sign all employee reimbursement checks.  While this seems reasonable, it can result in instances of the President/CEO signing their own checks, which should also be avoided. It is unlikely that your institution has an authorized check signer above the President/CEO. Therefore, in this case, it is recommended to have a separate officer sign the check, but it is crucial to maintain documentation indicating approval from the Chairman of the Board or Audit Committee of the actual T&E expenses being approved. 

Regardless of which of the above methods your institution follows for approving the President/CEO’s reimbursable expenses, such process should be clearly documented in the bank’s policy to eliminate any confusion.

Spouse’s Expenses

Another question that often arises is how to go about reimbursing expenses for the spouse of officers and directors (e.g., during a business conference).  For these situations, clarity is critical.  The bank’s reimbursement policy should address whether spouses are eligible for reimbursement, and if so, for what type of expenses. A bank might reimburse a flight across the country as well as lodging, but what about the bill for morning coffee?  The more detail that is spelled out within the bank’s policy, the less it will be questioned.
 
Insignificant Expenses

It is also common for banks to require receipts to be provided for eligible reimbursements, along with a description as to why the expense is business related.  However, what about the taxi fare when the cab driver doesn’t bother giving a receipt? Or the gas receipt that was tossed somewhere in the car and eventually lost? Although such expenses are considered inconsequential, this does not matter if the policy requires a receipt for all reimbursements. That is why bank policy should indicate a clear minimum threshold (usually $25 or $50) for when receipts are required. This eliminates the burden of chasing down receipts for every $10 expense, and also provides clarity for what expenses require support.

Other Necessary Written Guidance

In all of these scenarios, maintaining a detailed reimbursement policy is key. In the absence of detailed policies regarding T&E expenses, bank officers are often forced to make assumptions and decisions that may not adhere to the Board of Directors’ intentions. Additional guidance that should be detailed within the reimbursement policy includes, but is not limited to, the following, which should be approved by the Board on an annual basis:

• Responsibilities and a list of approval authorities, including a requirement that the policy be approved on an annual basis or whenever a change to the policy is made
• Requirements for all employees/officers to submit an expense reimbursement form
• Reporting/submission requirements, including timely submission of expense reports (i.e., within 30 days of a business trip), a submission frequency (i.e., monthly), and timeframes for reimbursement to the officer (i.e., within 10 business days)
• Travel arrangements, including limits on flight prices, hotel stays and prices, and rental cars while on business, as well as cancellations, unused or voided airline tickets, lost or stolen airline tickets, etc.
• Usage of rental cars or other vehicles, including preapproval, insurance coverage, carpooling, Uber, vehicle categories, private drivers, rental car gas, taxi, shuttles, etc.
• Use of personal vehicles for business purposes, including mileage rates reimbursed
• Expenses related to bank-owned/leased vehicles, including who is entitled to use bank-owned/leased vehicles or any other bank property
• Lodging/hotel expenses and to ensure that the best available rates are obtained
• Reimbursement of meals during travel and for business development
• Telephone expenses, including business phone calls, phone calls from hotels, phone calls from cell phones, etc.
• An established process for corporate credit cards; ensure that corporate credit cards are only used for bank expenses, not personal expenses. This process could include determination of who is authorized to use a corporate credit card, the individual authorized to order/issue the cards, determination of the names on the cards, etc.
• The usage/redemption of any corporate card rewards point accumulated
• Clubs and memberships, including proper approval from the Board of Directors or a committee of the Board on an annual basis
• Miscellaneous expenses as they relate to your institution, such as office services, laundry, dry cleaning, seminar fees, training, parking tickets, etc.
• Action plan for any violations of the bank's policy
• Expenses paid or reimbursed by the Bank must be incurred only for the benefit of the Bank and its business. The policy can also state that expenses for the benefit of the employee or officer may not be paid for or reimbursed by the Bank
• A list of prohibitions for which the Bank will not reimburse

Mike McIntyre, CPA Manager, Financial/Treasury Audit Team
Mike McIntyre has been an integral part of the Firm’s Financial/Treasury Audit Team since 2015. He specializes in managing and conducting audits related to accounting, investment portfolio management, fixed assets, regulatory reporting, bank reconciliations, accounts payable, and other financial areas. He reviews policies and procedures, for adequacy and compliance with regulatory requirements. Prior to joining acxell, Mr. McIntyre worked at a New Jersey based financial institution for 11 years. He began his career in banking in 2002. A Certified Public Accountant (CPA) in the State of New Jersey, Mr. McIntyre earned his master’s degree in Taxation from Florida Atlantic University and his bachelor’s degree in Communications from West Chester University of Pennsylvania.