Now that summer is here many business professionals will be trying to figure out ways to combine business travel with a summer vacation, and to include a spouse or family members on the trip too. Why not, right?
The question is: Just how much of that three to four-day business trip to Atlantic City or Vegas (with your spouse tagging along) can be written off? Even more pertinent for employers, how can the expenses be better tracked and accounted for?
For example, a hotel stay in a single room is fully deductible even when there is a spouse along since the employee would require a room regardless. However, if the professional were to upgrade the hotel room to a larger one in order to accommodate family, the employee should handle paying the difference in price. Likewise if there are a dozen beverages taken from the hotel room’s mini bar versus just one or two.
You may begin to wonder how many employees follow the rules? What if they take family members to dinner in place of clients? How many managers or employers catch the added expenses for an extra weekend of drinks by the pool of the resort hotel after the business part of the trip is over? Unless employees are honest, many organizations are too busy to notice, and expense fraud can occur.
The answer to these questions is simple: Spend management software can help you and your employees safely track business and vacation travel expenses.
The Losses Add Up
JP Morgan estimates that in the US more than $1 billion is lost each year to fraudulent expense reimbursement. And, according to the Association of Fraud Examiners, many companies are losing about five percent of revenue each year to expense fraud.
Some examples of expense fraud include falsified expenses and receipts, inflation of actual business expenses; inflated mileage; meals in excess of per diem amounts; altered or fake receipts; double dipping, or listing the same charge twice, but on a different expense report; and so on. For less than honest employees, there are many different ways to commit fraud. Sadly for companies, expense reimbursement fraud can be difficult to track and monitor unless the organization has a strong framework of internal control.
How easy is it for business professionals to separate the personal portions of their trip that are not business-related? Is there a way to keep track to make sure that personal expenses are not being combined with business expenses, costing the company more money?
Are Two Credit Cards Enough?
When combining business and vacation travel, many professionals think that using separate credit cards can solve the dilemma of keeping accurate track of spending in this particular situation. For instance, you can use a corporate credit card when you are dining with a business associate, and your personal credit card for breakfast or lunch with a family member. However, this method still does not ensure the control and visibility that expense software provides, and it may give a false sense of accuracy to employers.
ExpenseWatch hears stories from business owners who have experienced vacation expense fraud, and we are happy to share knowledge about how our expense software module can help thwart fraud and make sure employees are within company spending policy.
Expense software offers visibility and control through using customized policies and procedures designed to combat expense reimbursement fraud. This feature is built right into the ExpenseWatch expense module.
Another challenge is that without an automated system to help control spending, managers have little ability to keep tabs on employees’ expense reports. When expense software is used, it’s easier to perform risk assessments, conduct spot internal audits and periodic samplings of all employee expense reports.
A company’s accountant or accounting department must record every expense, save every receipt, categorize everything, and make sure that the right expenses are being deducted to meet IRS rules.
The IRS says travel expenses for a spouse, or any family member who is accompanying a business professional on a business trip, cannot be deducted unless the person meets the following test: They must be a family member of the employee, and have a real business purpose for the travel.
Business travel expenses that are deductible include:
Many employees have a travel per diem allowance. The government’s standard allowance varies area-to-area. Per diems can benefit a company because the business owner is not required to reimburse an employee for any more than the per diem amount. The employee just counts the days spent on business travel, multiplies by the per diem amount and is done. This makes separating out the business expenses from the personal family vacation expenses easier.
If a trip is partially business and the rest is personal, the amount the company can reimburse will depend on how much time is spent on business.
Here are a few tips to help control expenses when employees mix business and personal travel:
Remember it is the employer’s tax return that’s at risk if something does not comply with IRS rules so managers should not be shy about questioning doubtful expenditures and to conduct periodic sampling of all employee expense reports.
There are times when business travel is more perk than torture, but when family members come along, it is essential to carefully track expenses and question anything that looks doubtful. Automated expense management software makes it easier for employees to file expense reports, enforces policy and helps makes it much easier to spot fraudulent expenses that can be difficult, if not impossible, to find in the paper world.
Interested in learning more about the ExpenseWatch expense reporting module and how it can help your company? Fill in the form on the right and one of our experts will reach out to you shortly.
(Sources: The Association of Certified Fraud Examiners (“ACFE”); The IRS: “Travel, Entertainment, Gift, and Car Expenses”; and JP Morgan.)
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