Swamped by the Weeds

"In his expense report, one of our senior consultants has requested reimbursement for a couple of drinks that he purchased on his Amtrak trip back from a customer visit in NYC last week. Do we pay for that or does he?"

I had a sense that the Controller was handing me a can of bayou worms in her email message to me last month, so I wrote back to ask what this (new) client of mine had done in the past about this kind of expense. The T & E policy stated only that "employees traveling on company business will be reimbursed for reasonable expenses incurred in transit and shall make every effort to minimize costs to the company and/or its clients."

"Well, it's never really come up," she said. "No one has questioned it, so I guess that we've always just paid it."

This got my controllership juices flowing. "Identify and control" — the Controller's Mantra — flashed through my mind. I churned out an 18-point policy memo overnight recommending daily meal limits ($60–75/day), approved transportation modes (the MBTA is often an efficient, money-saving option), porterage (hard to justify using a bellhop for carryon luggage), and such.

The memo sat for a week. I began to rethink it. For the most part, these are mature, experienced employees traveling for my client. Through stock or bonuses, they all have a stake in the business. The Controller can provide guidelines in an effort to get everyone on the same page, but at what level should she police it? Similarly, at what level should she require justification for every organizational membership, every subscription, every conference or meeting for which employees request approval?

In most small companies, the appropriate level of control comes from comparing the month's actual results vs. the budgeted amount in each expense category to understand why variances occurred and then communicating the result to the responsible manager. Assuming (which is always dangerous!) that every account line was considered in some detail during a Company's budgeting process, often the difference results from a time-shift ('We got a good deal, so we purchased the item a month early"), or a simple budget oversight.

Going through every receipt in an employee's expense report to confirm that it matches the reported expense, or asking a manager to justify spending $30 on an occasional pizza lunch for his work group is hardly the best use of anyone's time. If a manager is capable, he or she deserves some latitude in committing the company's funds within a reasonable budget. If they're not capable, they shouldn't be managing.

By the same token, don't encourage your motivated, energetic accounting staff (!) to play "gotcha" at the expense of the other employees in the company. Give them analytical assignments that add to their fellow employees' understanding of how the company works. The point is to encourage cooperation across the organization. Avoid becoming confrontational unless a manager or a work group is clearly abusing the budget.

I modified my reply to the controller. I sent my 18-point memo to her as a guideline, not as a requirement, and I went on to say that tight control of S, G, & A (Selling, General & Administrative) overhead expense — to the point of questioning employees' integrity — is penny-wise and pound foolish in smaller companies. If expense guidelines are observed by senior management and effectively communicated to the staff, honest employees will fall in line. The dishonest ones will go underground, ultimately to be discovered on the basis of something other than a padded expense report.

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