What does SOX compliance means for travel expense approval? 1556

  • Hello,
    I work for a travel management company. Some of our clients are intrested in implementing an automated tool to approve travel expenses to comply with SOX .
    I have read that corporations need to document business purpose of travel and establish an approval system wherein senior management signs off on the objective of the event.
    The automated tool that we are researching offers delegating approval alternatives from management to other people.
    Would this be compliant with SOX? (my guess is no) or is the senior manager obliged to approve travel expenses himself as per company policy?
    Can you suggest any articles that specifilcally discuss the implications of internal controls for travel expenses?

  • Hi,
    SOX does not specifically address the sub-processes for travel expense reimbursement and/or delegation of approval authority.
    However, management approval of expense claims may be considered to be an effective control and may have an impact on financial reporting.
    Regardless of whether an automated tool is used, or if expense claims are reviewed and a manual approval process is involved, you might consider assessing the design adequacy and operating effectiveness of the following controls:
    Expense reports should be approved and signed by the employee’s Manager. This can be accomplished manually or through the system. If through the system, the system should capture and log the electronic approval.
    Generally, fax copies of expense reports should not be accepted.
    Expense reports should be processed in a manner similar to the processing of vendor invoices.

    Credit card statements should not be substituted as an acceptable receipt.
    Expense reports should be completed and submitted to the appropriate department periodically for a timely reimbursement.
    Reimbursement claims included on the expense report should be supported by a valid receipt and include a brief explanation of the expense. Claims for expenses while in a foreign country should be reimbursed and a currency conversion should be made if necessary.
    A time period should be established for submission of expense reports. Afterwards, the amount(s) should be reported as additional compensation subject to payroll tax withholdings, per IRS guidelines.
    Some companies stipulate that the Company reserves the right to delay the reimbursement during an investigation of expense report claims.
    Hope this helps,

  • I would also consider how material T-and-E is to your total net income. In some companies, it is very high (travelling sales reps, business with wide geographic coverage) while for others it can be immaterial.
    You should consider your company policies as to how expenses are approved for payment and ensure that the appropriate controls are in place to ensure compliance with policies (although this could be argued to be an operational control). More importantly, you need to consider what controls are in place to provide assurance that expenses are captured accurately, timely and classified appropriately on your income statement (COS vs. G-and-A, if applicable).
    Proper support for the expenses (receipts, etc.) is both a financial reporting control as well as a fraud control.

  • Hi
    SOX does not detail anything about requirements for any process. It basically intends to ensure a reasonably good internal control system. In your case, even if there is delegation of travel approval, if the same has been documented separately and signed off by top management, prior to implementation of the application, it would suffice as a control.
    From a control perspective, all that we need to look at is whether the ideal approvar is aware of the approval or atleast is aware of the fact that someone else can approve the requests he receives. Like i stated above, if the ideal approvar is aware of this fact, and then signs off the delegation matrix, it reasonably mitigates whatever risks are born out of it.
    hope this adds some value

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