Photo Credit: Galina Peshkova

By: Sharon Geiger, Senior Quality Control and Review Specialist

Over the past year, we have seen the regulators more closely scrutinizing banks' expenditures as they relate to Officer's Travel and Entertainment ("T&E"). Depending upon the nature of the bank's business, asset size, and officer structure, controls in this area might vary greatly. However, one thing for sure is that we are moving towards the fact that institutions should have an adequate process in place to address their specific risks. While the following listing of controls and practices might not all pertain to you, as policies and procedures vary at each institution, it's a good starting point and may be helpful to your institution for preventing risk and ensuring that your staff is aware of key requirements.

1. Ensure that you have a documented policy and procedures. Samples of what could be included in the policy and procedures are:

• 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
• 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
• Expenses related to an officer's spouse
• 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 to the Bank's policy
• The requirement of receipts for expenditures in excess of a certain dollar amount (i.e., expenditures in excess of $25.00). Or, you may wish to require receipts for ALL expenditures except for mileage
• 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

2. Ensure that the policy is approved by the Board of Directors.
3. Ensure that all officers have a clear understanding of the policy and procedures. Perhaps require that all officers sign an acknowledgement form that they have read, understand, and will comply with the expense reimbursement practices. You may want to provide a training session on the policy and even require annual training to ensure that all officers are reminded of the expense policy.
4. Establish a budget for each department. This will help establish an estimate of the necessary and suitable expenses for each area of the financial institution.
5. Establish a process whereby all proposed travel arrangements must be approved in advance prior to booking the travel arrangements. Likewise, it might be a good control to have a centralized location or person responsible for booking travel arrangements for all officers. Centralized travel booking will ensure that all travel plans have been preapproved and may aid in obtaining reduced fares/hotel costs, etc.
6. Ensure that there is a process in place to utilize expense reimbursement forms. An example of what could be included on the form is as follows:

• Name of the employee who incurred the expense
• The date the expense was incurred
• The vendor to which the expense was paid (i.e., name of restaurant, name of hotel, etc.)
• A description of the expense, including the business nature of the expense and who attended (i.e., name of all attendees at business lunches)
• Category of the expense (i.e., meals, airfare, hotel, conference, mileage, gas, tolls, parking, cell phone, etc.)
• Total amount of the expense
• Sign off by the employee requesting the reimbursement
• Sign off by the employee's direct supervisor
• Evidence of approval from the Chairman of the Board or Audit Committee, if one was required

7. Ensure that expense reimbursement forms are required to be signed by both the employee and the employee's direct supervisor prior to submission. In the case of the Bank President, ensure there is a "one-up" approval process in place (i.e., expenses of the President are approved by the Chairman of the Board and expenses of the Chairman of the Board are approved by the Chairman of the Audit Committee).
8. Ensure that all expenses are properly approved prior to payment and that the individual approving ensures that the expenses are reasonable based on the nature of the expenses. Reasonableness could vary based on many factors, based on the culture of the financial institution and nature of the specific expense.
9. Ensure that accounting controls are in place for review and payment of officer expenses, including review and approval by someone other than the person submitting the expense report. Also, ensure that all expense reports are stamped "paid" in order to reduce the risk of paying the same expense report twice. Furthermore, you could require final review and approval by the CFO.
10. Establish a process whereby any incomplete or inaccurate expense reports are returned to the officer for correction prior to any payments being made.
11. Establish dollar limits for certain expenses (i.e., maximum meal expense for lunch, maximum meal expense for dinner, etc.).
12. When events are attended by more than one officer, require that the highest ranking officer be responsible for paying the expense and, in turn, requesting reimbursement. This will help to ensure that a higher ranking officer is not approving his/her own expenses.
13. Ensure that any corporate credit card payments are made on a timely basis to the credit card company (by the due date) to avoid incurrence of any late charges or additional interest charges.

The information I have shared may need to be revised based on your control environment, but at least you can get a good idea of what to consider when assessing your needs for an employee's and officer's T&E policy!

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