Processing expense reports for executives is... special 😅

General
1

Anyone else find that processing expense reports for executives is a whole different experience? :thinking:

I’ve been doing bookkeeping for 12 years and nothing quite prepares you for the creative ways executives document their expenses.

Some highlights from this week:

:bottle_with_popping_cork: The $4,800 “client dinner” - For two people. At a steakhouse. On a Sunday. The client? “Potential strategic partner” with no company name. Just… Bob. Bob from “consulting.”

:airplane: The mystery travel receipts - First class flights submitted 3 months late, hotel bills in foreign currencies with no exchange rate, and my personal favorite: “Lost receipt - was approximately $2,000 for client entertainment.”

:automobile: The creative mileage logs - “Drove around looking for client office” - 186 miles. In Manhattan. Where the client’s office is 3 blocks from ours.

:person_golfing: The golf “meetings” - $1,200 at the country club for “team building.” The team? The CEO and his college roommate who doesn’t even work here.

My favorite this month: An executive submitted a receipt for a $3,400 Peloton bike as “home office equipment for virtual meetings.” Because apparently you need to be cycling while discussing quarterly reports? :person_biking:

The best part? When you ask for clarification, you get:

  • “It’s obvious what this is for”
  • “Check with my assistant” (who knows less than you do)
  • “This is how we’ve always done it”
  • “Are you new here?”

How I handle it now:

  1. Document EVERYTHING in writing
  2. Create a paper trail of approval requests
  3. Use Beancount to track questionable expenses with detailed notes
  4. Keep a “CYA” folder (you know what that stands for)
  5. Forward everything questionable to the CFO with “Per your approval…” in the subject line

My Beancount setup for tracking:

2024-01-15 * "AMEX - Executive Card" "CEO dinner - insufficient documentation"
  Assets:Reimbursable:Executives:CEO  4,800.00 USD
    documentation: "Bob from consulting"
    receipt_date: "2024-01-14"
    flag_for_review: "TRUE"
  Expenses:Meals:ClientEntertainment

The metadata helps when auditors come knocking! :bar_chart:

Anyone else have a good system for handling these “special” expense reports? How do you maintain your sanity while staying compliant?

And please tell me I’m not alone in this struggle! What’s the most creative expense report you’ve seen? :joy:

2

Bob, this post gave me PTSD flashbacks! :joy:

As a CPA who’‘‘s survived multiple audits, let me tell you - you’’‘re doing the right thing with that documentation. I’''ve seen too many bookkeepers take the fall for executive “creativity.”

My hall of fame:

:slot_machine: The “conference” in Vegas - 2,000 for a “industry conference” that coincidentally happened during March Madness. The conference? It was a 2-hour webinar they could’''ve watched from home.

:motor_boat: The “client meeting” yacht rental - ,000 for “maritime transportation to client site.” The client was landlocked in Kansas.

:gem_stone: The “employee appreciation gift” - A ,000 Rolex. For an employee. Who happened to be the executive’‘‘s wife. Who doesn’’'t work here.

My survival strategy:

  1. The magic phrase: “I’''ll need to run this by our auditors first” - Amazing how many expenses suddenly become “unnecessary” after that

  2. The IRS documentation rule: “Per IRS requirements, I need XYZ documentation” - Nobody wants to argue with the IRS

  3. The helpful email: CC the CFO on everything with “Hi [CFO], just confirming you’''ve approved this expense for [ridiculous thing]. Please reply to confirm so I can process.”

  4. Beancount audit trail:

2024-01-15 * "QUESTIONABLE" "CEO expense - pending approval"
  ; Email thread: email-2024-01-15-ceo-yacht.pdf
  ; Approval status: PENDING CFO REVIEW
  ; Auditor note: See documentation folder 2024-Q1-Executive
  Assets:Reimbursable:PendingReview  8,000.00 USD
  Expenses:Unclassified

Pro tip: Start a “Best Of” spreadsheet of ridiculous expenses. When executives complain about your questions, show them what their peers tried to submit. Suddenly your requests seem very reasonable!

You’''re definitely not alone. We should start a support group! :hot_beverage:

3

OMG yes! :see_no_evil_monkey: And then they wonder why their tax returns get flagged!

The tax implications they don’''t think about:

That ,800 “client dinner”? The IRS allows 50% deduction for meals. But when it’''s that excessive, they can disallow the ENTIRE deduction as “lavish and extravagant.” Guess who gets to explain that to the executive?

My greatest hits collection:

:beach_with_umbrella: The “business trip” to Cancun - During spring break. With the whole family. Business purpose? “Exploring international markets.” They sell plumbing supplies in Ohio.

:dog: The emotional support dog - ,000 for a pure-bred puppy claimed as “office mental health equipment.” The dog has never been to the office.

:artist_palette: The “office art” - 5,000 painting that somehow ended up in the executive’‘‘s living room. "It’’'s for video call backgrounds!"

What I’''ve learned:

  1. Make them sign a personal liability acknowledgment - “I understand that if the IRS disallows this deduction, I am personally responsible for any penalties and interest.”

  2. The audit risk calculator - I literally show them: “This expense increases audit risk by 73% based on IRS algorithms.” Suddenly they find the receipt!

  3. The personal benefit test - “On a scale of 1-10, how much personal enjoyment did you derive from this purchase?” If it’‘‘s above 3, it’’'s probably not deductible.

My Beancount setup includes audit risk flags:

2024-01-15 * "High Risk" "Executive expense - audit flag"
  audit_risk: "HIGH"
  irs_category: "Potentially Lavish"
  personal_benefit_percent: "80%"
  Expenses:Nondeductible:Executive  3000.00 USD
  Assets:Reimbursable:AtRisk

The key is making THEM uncomfortable with their own requests. Once they realize it’''s their name on the tax return, not yours, they become surprisingly reasonable! :clipboard:

4

This thread is gold! :grinning_face_with_smiling_eyes: From the FP&A side, these “creative” expenses are why our actuals never match our budgets.

The budget vs. reality show:

  • Q1 Budget for executive meals: ,000
  • Q1 Actual: 7,000
  • Explanation: “Increased business development activities”
  • Reality: The CEO discovered omakase

My contribution to the hall of shame:

:helicopter: The “traffic avoidance” solution - Helicopter charter for ,000 to avoid “traffic” to a meeting… 30 miles away. The meeting was virtual.

:wine_glass: The “team building” wine club - 00/month wine subscription for “remote team building.” The team never saw a single bottle.

:in_hole: The “client relationship” country club membership - 0,000 initiation fee. We don’''t have any clients who golf. We sell software to libraries.

How I handle it in our FP&A systems:

  1. The shame dashboard - A real-time display of executive expenses vs. regular employee expenses. Nothing like seeing you spent more on one dinner than your admin makes in a month.

  2. The ROI calculator - “This ,800 dinner needs to generate 8,000 in revenue to meet our standard ROI. Which contract will this close?”

  3. The comparison report - “Your peer executives at similar companies spend an average of . You’''re at 4.7x that amount.”

My Beancount tracking for variance analysis:

2024-01-15 * "Executive Overspending" "Variance Analysis"
  budget_variance: "840% over"
  explanation_provided: "Business development"
  explanation_validity: "Questionable"
  Expenses:Executives:Actual  47,000 USD
  Expenses:Executives:Budget  -5,000 USD
  Expenses:Variance:Unexplained  -42,000 USD

The psychology trick that works: I started sending a monthly “Executive Expense Transparency Report” to the board. Suddenly, receipts are complete, amounts are reasonable, and business purposes are clearly documented!

It’''s like executive expenses follow some inverse law of physics - the less oversight, the more creative they become! :chart_increasing:

5

You all are making me feel so much better! I thought I was going crazy! :sweat_smile:

Alice, that “I will need to run this by our auditors” line is GENIUS. Stealing that immediately.

Fred, the shame dashboard… I am dying! :rofl: That is brilliant!

Update from today:
Just got an expense report with a $2,100 charge for “office supplies.” It was from Tiffany & Co. When questioned? “High-quality pens are essential for signing important documents.”

I am implementing all your suggestions immediately. Already drafted my first “Per IRS requirements” email!

New policy I am proposing:
Any expense over $500 requires:

  1. Pre-approval in writing
  2. Business purpose statement (minimum 50 words)
  3. Expected ROI calculation
  4. Signature acknowledging personal liability if disallowed

Think that will fly? Or should I start updating my resume? :joy: