Business Expense Policy - 01. General Policy and Compliance Matters
Accountable Plan
Establishing and maintaining an "accountable plan" under IRS guidelines, for business expenses, is beneficial to everyone. Amounts paid to an employee under the university’s accountable plan are generally excluded from the employee's taxable income and are therefore exempt from payroll taxes and income taxes. However, amounts paid under a nonaccountable plan (or one that is improperly maintained) will result in additional income on the employee's W-2 form and additional payroll taxes will be withheld. The university adheres to Internal Revenue Service (IRS) regulations surrounding Accountable Plans, ensuring expenses are actual, reasonable, substantiated, and accounted for appropriately and in a timely manner. These regulations require that the following standards be met when documenting and recording expenses:
1) Documentation of a Business Connection or Purpose
A business purpose must be documented and be specific, addressing the questions of who, what, where, when, and why. For example, “Professor Smith traveled to Boston, Massachusetts, on July 31, 20XX, to speak at an Accounts Payable Network conference” is an appropriately documented business purpose. “Travel to Boston for conference” is not.
2) Adequate Accounting of Expenses Within a Reasonable Period of Time
The determination of a reasonable period of time depends upon the facts and circumstances, but is generally held to be no later than thirty days after the date of the expense, except at fiscal year-end when expenses should be reported immediately.
Expense reports submitted more than thirty days after the date of the expense (if travel related, then after the return date of the trip), or outside the closing schedule at year-end, require supplemental approval (see Responsibilities). Supporting documentation must be provided to describe the circumstances leading to the late submission in order to evaluate whether the expense reimbursement is taxable. Any expense that is not reconciled within sixty days after it is incurred may become taxable to the employee. In this case the responsible Officer or Dean will be notified.
3) Return of any Excess Reimbursement, Allowance, or Advance Within a Reasonable Period of Time
Cash advances are meant to cover expenses that cannot be charged to the corporate card and can be obtained through the corporate card with prior arrangements with the Travel, Expense and Credit Card Program Manager.
If an employee does not have a corporate card, one should be requested at least fifteen days before it is needed.
Failure to account for an advance or to return excess reimbursements within sixty days from incurring the expense or return from the trip will result in a written notification from Accounts Payable to the department head, suspension of advance privileges, and under IRS regulations, will become taxable to the employee.
Segregating Unallowable or Excessive Expenses
Federal guidelines prohibit certain expenses from being charged to federal grants and contracts (see OMB Circular A-21, downloads PDF). These include expenditures for alcohol, entertainment, flowers or gifts, or excessive costs, such as first class travel and excessive lodging or meals costs. These unallowable costs must be identified and segregated on all expense reports.
All purchases or vendor contracts for sponsored projects must be made with vendors in good standing with the federal government and not with any vendor currently either debarred or suspended from doing business with the Federal government. During annual contract renewals, vendors’ debarment and suspension status should be checked using the System of Award Management. All reviews should be made in coordination with the university’s Grants Manager.
The university deems certain expenses unallowable, which include, but are not limited to, expenses that are personal, unauthorized, unreasonable, or not aligned with the university’s mission (see Non-Reimbursable Expenses for listing of common examples). All unallowable or excessive expenses charged to or paid by the university are considered excess reimbursements and are the responsibility of the payee (see above 3. Return of Any Excess Reimbursement...).
Proper Documentation
The Purchaser and Delegate (see Responsibilities) are responsible for providing sufficient documented evidence to substantiate and support the business purpose of all expenses. Documentation should be in the form of invoices or receipts including the name of the vendor, location, date, dollar amount, description of goods or services purchased, and proof of payment.
If the receipt does not include this information, a copy of a credit or debit card statement identifying the date, location, and amount of the expense may be submitted along with a description of the purchase. Private or unrelated information should be redacted from these statements. Documentation (proof of payment) demonstrating that payment was tendered must be provided and identify the means by which payment was tendered. This is often part of the receipt. Examples of this may include notation of “cash tendered”, “paid”, a zero balance due or a debit or credit card payment.
While receipts are strongly encouraged for all purchases, purchases on the university credit card in amounts less than $25 do not require receipts. All purchases made with sponsored project and faculty research funds, regardless of dollar amount, require receipts.
In rare instances when receipts are lost or cannot be obtained the Purchaser must provide other documentation that supports the validity of the expenses. Attach a signed memorandum indicating what the expense is and the extenuating circumstances for not submitting a receipt.
Partially Covered or Shared Expenses
If expenses are partially covered by another organization, contract, or funding source, the expense report must include the name of the organization that is partially covering the expense and the amounts to be paid by the university and the other funding source.
Business expenses shared by groups of employees should be paid by the most senior employee, who is to submit a single expense report, including names and amounts paid on behalf of the group.
Tips
Tips are allowed up to a “reasonable” limit (up to twenty percent of the total expense) on purchases upon which the inclusion of a tip is customary. Tip amount may be set at the traveler’s discretion as long as it does not exceed twenty percent.
Taxes
Business and travel expenses are often subject to taxes, which vary by country, state, and locality. The university is exempt from New York State and City taxes. Therefore, employees incurring expenses on behalf of the university should not pay New York sales tax. The tax exemption can be achieved by either:
- Using the university’s preferred vendors who recognize the university’s tax exempt status (highlighted in the MyNewSource Marketplace).
- Providing the university’s exemption certificate to other vendors. Some vendors will only require that the exemption certificate be provided upon the initial purchase, while others may require that it be provided upon each subsequent purchase.
Taxes paid which could have been avoided are unallowable expenses and may be charged back to the purchaser. The exemption certificates should only be used for university expenses and must never be used for personal expenses. Using the university’s tax exemption certificate to avoid the payment of taxes on personal purchases constitutes fraud.
Methods of Payment
Corporate cards and purchase requisitions are acceptable payment methods for business and travel expenses. Personal funds should only be used in the rare instance when these payment methods are not possible.
Approval and Submission of Expenses
All expense reports (reconciliation of credit card transactions and reimbursement for expenses) for university employees (including student employees) should be submitted through MyDay (Workday). Workday is the online expense management tool and the online travel booking solution (Concur Travel) for The New School. This paperless solution allows users to book all travel and complete expense reports online. Item details can be uploaded to expense reports and automatic payment capability enables quick payments for reimbursements. If an employee has a corporate card, these charges are automatically uploaded to the system, where they await the employee’s settlement.
Once an expense report is submitted through Workday, it is automatically routed to the correct approver. The submitter will receive email notifications regarding the report’s status as the report moves to processing.
Return to Business Expense Policy.