Small Business Shared Interest Group

Nellyreth,

We are a large international firm and for good internal control we require receipts for all expenses that are to be reimbursed from a partner on down without exception.  As a firm we want to ensure that all payments are in accordance with firm policies and are legitimate.  Also our financial auditors test certain transactions from completeness and accuracy including expense reimbursements.  Finally for tax purposes the documentation serves as the basis for the appropriateness of the expense on our income tax returns and as support for sales and use and property tax audits.

Good Luck!

Hi Nellyreth,

If you're working under U.S. tax law, I would strongly advise reading the IRS accountable plan rules at 26 CFR 1.62-2 and Pub 463. You may also want to peruse Revenue Procedure 2011-47. If you don't get timely receipts for expenses, and you aren't covered by an exception such as a valid flat rate per diem plan or an expense under $75, you may have to report the expenses as taxable income to the employee. This is in addition to any problems you might have substantiating a business purpose for the expense in potential audits of the company's books. No one wants to pay personal income taxes on their business travel costs or office supply purchases. By asking for receipts and enforcing timeliness, you're protecting the employee, and also protecting everyone else in the company who has expense reports by ensuring your accountable plan remains intact.

My company has a $0 receipt threshold, other than M&IE at government rates. If you incurred the cost, you have to submit a receipt, or write a memo explaining why a receipt wasn't obtainable. But I work for a government contractor and we're subject to far more audit scrutiny than most businesses, so we're probably not a good reference point on the dollar amount. 

Disclaimer: I am not a CPA and the foregoing should not be construed as tax advice. :)

Good luck!

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Rob Teitelbaum CMA CPCM
Chief Financial Officer
SC&A, Inc.
Arlington, VA, USA
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You can never have enough documentation. While there is precedent for the $75 threshold, it is only recommended. Technically speaking, the IRS itself states "Except in a few cases, the law does not require any specific kind of records." (IRS Pub. 583, pg. 12) The records are more for CYA (Cover Your Assets) situations. Therefore, it's always better to be safe than sorry, especially when the IRS is involved.

There are a number of document management systems out there that allow card holders to scan receipts immediately and upload them so you are not always getting after them when the monthly statement comes around. A couple of them were even present at the IMA conference this year as vendors. As far as company policy is concerned, my clients encompass the entire range of options. I have one client that insists on a receipt for every single transaction regardless of amount. I have another client that does not require any receipt for any charges. It boils down to what the owners are willing to accept as risk in the event of an audit and/or fraud and the associated culture they impart to the company.

Nellyreth, like many start-ups and SMEs, your firm faces similar challenges. Determining the minimum threshold for daily expenses is a decision for management. However, for financial accountability, it's best to get receipts for every expense without exception. This practice promotes transparency and helps prevent fraud and ethical issues. In my view, today's start-ups and small businesses should aim to become large corporations one day, so it's beneficial to practice zero tolerance from the beginning. This way, when audits occur, management and employees will be well-prepared and compliant.