Adopt Thorough Travel Policy to Avoid Audit Problems
Many management companies charge employees’ travel expenses to site operating accounts. Travel expenses to visit sites, meet with owners, and attend training are allowed because charges involve work-related travel by employees who perform such frontline tasks as certification, accounting, or maintenance [HUD Handbook 4381.5, fig. 6-2]. But problems can occur if companies don’t keep track of who’s doing the traveling and for what purpose, or whether the travel expenses are reasonable or necessary.
HUD auditors have been probing into these travel expenses and have found improper or excessive travel expenses, insufficient supporting documentation, and lack of travel policies to control travel expenses. Unless you can show auditors that travel expenses are legitimate, you could end up having to reimburse the site for expenses they find to be ineligible. That’s why it’s important to have a travel policy that helps you control travel expenses and make sure you charge the site only for frontline employees’ legitimate travel expenses.
We’ll tell you what types of problems catch the eye of HUD auditors. To help you avoid these problems, we’ll also tell you about eight items you should include in your company’s travel policy to make sure all travel expenses are legitimate and reasonable. And having your employees fill out our Travel Expenses Form will help ensure that they follow your travel policy and give you the paper trail you may need to document travel expenses for auditors.
Auditors Find Numerous Problems with Travel Expenses
In June 2012, HUD auditors scrutinized the travel expenses of a housing authority in Texas and found serious violations. The audit concluded that the authority charged an excessive amount of travel to its American Express charge card, which it couldn’t support.
Its statements reflected at least $66,000 in travel charges for its commissioners, management, employees, and contractors. And despite repeated requests, the authority couldn’t provide sufficient documentation to support the purpose of the travel. The limited documentation the authority provided included various course flyers, class agendas, and printouts from the Internet regarding training classes offered by housing-related entities. But general information about course offerings didn’t support the purpose of individual trips, nor did it document that anyone from the authority actually attended any training.
In response to questions regarding travel, the board chairman admitted that authority staff had received an inordinate amount of training. But he also stated that staff should be very knowledgeable in program and record-keeping requirements. Yet, authority staff failed to exhibit this knowledge during the audit.
In addition to excessive and unsupported travel, the charges reflected other questionable travel transactions. For example, in 2009 the authority paid $688 in “cancellation” and “no show” fees for luxury hotel rooms for the executive director and the board chairman. The documentation didn’t provide an explanation for not cancelling the reservations in a timely manner. While the amounts were not necessarily material, it showed the auditors the board’s and management’s lack of regard for responsible fiscal administration and their disregard for their fiduciary duties.
The auditors recommended that HUD require the authority to repay $8,410 in ineligible charges and support or repay $55,986 in unsupported charges they identified. They also recommended requiring the authority to implement controls over its charge cards, including a policy that: emphasizes that only the authorized cardholder may use an authority charge card; limits the types and amounts of purchases permitted with the cards; and provides guidelines for selecting merchants and vendors, tracking purchases, and card payment and settlement procedures.
Eight Items to Include in Travel Policy
The best way to ensure that employees’ travel expenses meet auditor scrutiny is to spell out rules for employees to follow when making travel plans and incurring travel expenses. We came up with eight items you should include in your travel policy. Including these items can help you keep travel expenses under control and make sure the amounts your employees charge to site accounts are eligible.
Item #1: When travel is permitted. Spell out when frontline staff may travel at company expense. Make clear that the travel should be work-related, and give examples of permissible travel purposes, such as training seminars, conferences where site-related issues will be discussed, and site inspections.
Item #2: How to make travel arrangements. Tell employees how to make hotel and transportation arrangements when traveling on site-related business. Some companies have specific travel procedures. For example, they may require employees to use certain airlines (often with prearranged discounts) or a particular travel agent. Others spell out basic rules for making travel arrangements.
The more detail you give in your policy, the more likely that employees will keep the cost of their travel arrangements down. Depending on how detailed you want your policy to be, you may want to cover:
- Use of recommended travel agency or staff travel agent;
- Preferred airlines;
- Class of service (for instance, coach class only, no business- or first-class travel permitted);
- Train or bus travel arrangements;
- Car rental procedures, including: when permitted, preferred rental company, class of cars, insurance; and
- Cancellation procedures. To prevent unnecessary charges, tell employees to properly cancel any travel arrangements as soon as possible after their plans change.
Item #3: Which travel expenses are permissible. Detail the types of permissible travel expenses—and any limits on each—including expenses related to:
Transportation. In addition to the above policies on arranging air, bus, and train travel and car rental, you might give mileage/gasoline allowances for use of personal cars, and explain when taxi fares are reimbursable.
Hotels. For example, you might tell employees under what circumstances overnight stays are permitted, the permissible rate limits, room sharing requirements, and room size limits.
Meals. Topics may include spending limits, alcoholic beverages, and tips.
Entertainment. It’s usually not wise to charge entertainment expenses, such as meals with other employees or contractors, to site accounts, unless they’re clearly site-related. For example, it may be necessary to conduct business during lunch or dinner with other company employees who aren’t traveling on company business.
Make sure you address when and what entertainment expenses are permitted. Also, require employees to detail whom they entertained, their guests’ company names and job titles, when and where they entertained, and how much it cost.
Other permissible expenses. List other permissible expenses, such as Internet charges, and tips for bellhops and porters.
Item #4: Which travel expenses aren’t permissible. It’s a good idea to make clear in the policy what travel expenses aren’t permissible. For example, auditors might question your site’s paying for employees’ alcoholic beverages, hotel pay-per-view movies, luxury car rentals, laundry expenses, traffic fines, personal automobile repairs, or entertainment expenses other than meals (for example, tickets to the theater or athletic events). Give examples of the types of travel expenses you won’t cover.
Item #5: Proper use of company credit cards. If you let employees use company credit cards to pay for travel expenses, spell out who can arrange for a credit card, permissible uses of the card, and how to document expenses paid with a credit card.
Item #6: Proper procedures for cash advances. If you give employees cash advances instead of—or in addition to—a company credit card, specify the procedures for getting and accounting for cash advances, including:
- Approval procedures and forms to use to get cash advances;
- Daily cash advance limits;
- Documenting expenses paid with advances; and
- Requirements for repaying unused advances.
Item #7: How to get out-of-pocket expenses reimbursed. Explain your policy on reimbursing out-of-pocket expenses. Some management companies may not reimburse out-of-pocket expenses, but instead require employees to arrange for and use a company credit card or to get cash advances. Others will reimburse these expenses as long as employees carefully document the expenses and give detailed receipts. State your site’s policy, and give procedures if you let employees pay their travel expenses out of pocket and get reimbursed later.
Item #8: Procedures for documenting travel expenses. Spell out procedures for employees to document their travel expenses. Include requirements for:
- Submitting expense reports or other forms;
- Getting approval of expenses;
- Providing receipts and other backup documentation; and
- Reimbursement of out-of-pocket expenses and/or repayment of unused cash advances.
Use Form to Detail Travel Expenses
To get the documentation you need to show auditors, have employees keep records of their work-related travel. To do this right, give employees a travel expenses form to fill out for each trip. This also helps ensure that employees will follow your travel policy and incur only eligible travel expenses.
We’ve prepared a Model Form: Travel Expenses, that you may adapt for use at your site. The form gives the employee instructions and then asks when, where, and why the employee traveled. It also asks for a daily breakdown of travel expenses by category, including transportation, lodging, meals, entertainment, and other expenses, for up to seven days. It asks the employee to list all expenses, even those billed directly to the company. In addition to the amount of entertainment expenses, our form requires employees to give the names, organizations, and job positions of anyone they entertained; the reason for entertaining (that is, what business was discussed); and where the entertainment took place.
It then asks the employee to certify that the expenses are accurate and that all receipts are attached. Have the employee give the form to his supervisor for approval and then submit the form to the accounting department.
The bottom of the form details the total travel expenses; the amounts paid by the company credit card, billed directly to the company, or paid out of pocket; the amount of the cash advance; and finally, the amount due the employee in reimbursement or, alternatively, the amount due the company.
See The Model Tools For This Article