Overview
It is common for local government employees, elected and appointed officials, and others (such as advisory board members or volunteers) to incur business and travel-related expenses in their official capacity working on behalf of the jurisdiction. (For simplicity’s sake, we will refer to all of these employees, elected officials, etc. as “employees” unless otherwise noted.)
In some instances the local agency may pay for these expenses through a centralized procurement/accounts payable system, advanced travel imprest accounts, or the use of a government-issued credit card. In other cases, the employee may incur the expenses out-of-pocket and seek reimbursement from the local agency. To address these various situations, the agency should have appropriate policies in place.
Sometimes travel and expense reimbursement policies are adopted as stand-alone documents, while other times they may be incorporated into other local policies such as a personnel policy or elected officials’ handbook.
Statutory Authority
RCW 42.24.090 is the general statute authorizing reimbursement of expenses incurred by “officers and employees of any municipal corporation and subdivision of the state.” That statute also allows for other reimbursements in lieu of actual expenses incurred (such as per diems, mileage reimbursements for use of a personal vehicle, or hourly or monthly allowances or other basis that the legislative body determines to be proper).
In addition, there are several other statutes that apply only to specific agencies or officials. For instance:
There may be additional local government examples not listed here.
These statutes provide fairly broad authority. Many of these statutes provide for reimbursement of “necessary” and/or “reasonable” expenses. However, it is not always clear what constitutes a “necessary” or “reasonable” expense. Some expenses (such as trainings and conferences to obtain necessary certification credits) may seem self-explanatory, but others (such as meals) may not.
There is separate statutory authority authorizing “advance travel” funds (RCW 42.24.120 - .160) and the use of official government credit cards for travel expenses (RCW 42.24.115). The State Auditor’s Office provides guidance on Employee Travel in Section 3.8.2 (see Cash Basis and GAAP manuals), which states:
The legislative body of each municipality must pass an ordinance or resolution to establish rules and regulations for the reimbursement of travel expense. There should be rules to cover all municipal officials and employees. The ordinance or resolution should discuss the municipal policy on tipping, charging expenses to the municipality, and it should prohibit reimbursement for personal expenses and entertainment.
Federal Tax Implications
It is possible that certain reimbursements may be considered as taxable compensation under the federal tax code, in which case they may be subject to income tax and FICA withholding. The Internal Revenue Service (IRS) has provided increasingly clear guidance on the types of employee reimbursements that might be considered as compensation.
Basically, if an item isn’t specifically identified as exempt from compensation for federal tax purposes, then it should be considered taxable. There are exemptions for employees when in “travel status” on official business, de minimis meals (those expenses for which accounting is not reasonable or practical due to how small the expenses are in relation to the frequency that they are incurred), etc. It is not our intent to provide federal tax law guidance here, but rather a high-level summary of the issues. For more detailed guidance on taxable compensation, refer to IRS Publications 15-B and 463.
Key Components of Travel and Expense Reimbursement Policies
Effective travel and expense reimbursement policies should address a number of different situations. For the purposes of our guidance, we have divided these policies into the following major policy areas, discussed in more detail below along with key questions to consider for each one:
- Authorized individuals
- Authorized expenses
- Transportation
- Meals and lodging
- Methods of payment
- Documentation and internal controls
Authorized Individuals
Your policy should clearly state who is (and is not) covered. Local governments typically reimburse employees (paid staff members) for travel or business-related expenses. However, there may be different considerations for elected officials or volunteers that require you to adopt different policy approaches.
Authorized Expenses
It is important for your policy to clearly establish what types of expenses are reimbursable and what expenses are not. Some local governments have very strict views on what is a reasonable and reimbursable expense, while others are more relaxed. For instance, some jurisdictions only pay for meals in travel status, while others may pay for meals in certain non-travel situations. Likewise, some allow for certain incidentals during travel (such as valet service or dry cleaning), while others may not.
Your policy should clearly establish the general rules for travel and business expense reimbursement, as well as any exceptions to the normal rules. Remember that reimbursable expenses should serve a fundamental public purpose and be reasonable. It can be helpful to provide examples of allowable and non-allowable expenses, as problems can arise when an employee substitutes their own judgment as to what is “reasonable.”
Transportation
Different trips and destinations may require different modes of transportation such as renting a car, using a personal vehicle, taking a bus, or traveling by plane, each of which has its own unique considerations.
Meals and Lodging
When an employee is in travel status, some jurisdictions use a “per diem” (or daily allowance) for meals and/or hotels, typically following the U.S. General Services Administration (GSA) per diem rates (summarized in a nice map on the Washington Office of Financial Management website). Other jurisdictions use “actual costs” and will only reimburse the employee for the actual expenses incurred.
Per diems have several advantages, including eliminating the need to submit or review receipts for relatively small purchases and avoiding potential disputes and differences of opinion over what constitutes a “reasonable” cost for a meal or hotel room. Some jurisdictions also use prepaid cards to issue per diem.
In some cases a combination of methods can be used, such as per diem for travel to certain events or locations and actual expenses for all other travel, or at the discretion of the approving official. Other policies might reimburse actual expenses up to a certain maximum amount, such as the GSA per diem rates.
The issue of meal expenses also arises in certain non-travel situations. In 1987, the state Attorney General’s Office issued a memorandum on Eating and Drinking at Public Expense, addressing both travel-related and non-travel meal expenses. This memorandum, while over 30 years old now, is still the leading authority on questions related to municipalities paying for food and drink, and it goes into considerable depth on the issue and includes various scenarios for eating and drinking at public expense along with explanations of when and why it may or may not be justified. It also states that “the enactment of an appropriate authorizing local legislation is a prerequisite, because expenditures of this type must be affirmatively authorized by law. See James v. Seattle, 22 Wash. 654 (1900)”.
Methods of Payment
Some business expenses may be paid for in multiple different ways, such as reimbursement or an official government credit card. Travel expenses in particular may involve multiple forms of payment. For example, registration fees and airfare might be paid through an accounts payable voucher or a government credit card, incidental expenses might be paid by the traveling employee and reimbursed, and the employee may have requested an “advance travel” payment for certain expenses. Your policy should clearly state what methods of payment are authorized for which types of expenses.
The different payment methods can make it complicated to track the various payments and reimbursements for a single business trip. This creates a risk of paying for the same expenses more than once through different channels. In many cases, a travel pre-approval process is helpful to clarify the form of payment and/or reimbursement.
The policy should be clear that official government credit cards should not be used for personal (non-reimbursable) expenses, even if they are intended to be repaid prior to the entity’s payment of the credit card statement. See the BARS Manual section 3.8.4.40 on Purchase Cards (Cash Basis and GAAP manuals), as well as a 2011 informal opinion letter from the state Attorney General’s Office.
Documentation and Internal Controls
Before any reimbursement is issued, the employee must submit proper documentation, and if proper procedures are not followed the employee may be ineligible for reimbursement or have to repay the agency for expenses already incurred. Your policy and procedures should clearly identify the required approval processes and timelines. The entity’s auditing officer is responsible for reviewing the documentation to substantiate the purpose of the expenditure (see RCW 42.24.080 and 42.24.090).
Travel expenses in particular can create opportunities for misuse of public funds. Traveling employees sometimes incur voluntary hotel costs, meal expenses, and other charges that are not related to the purpose of the travel. Common examples include the extra expenses (if any) of a non-governmental traveling companion (such as a spouse or significant other), non-business incidentals such as hotel room movie rentals, and extending a business trip to include personal vacation time and expenses.
Reimbursement requests and documentation should be submitted in a timely manner. Delayed requests can lead to problems such as loss of documentation or clarity of the business purpose, confusion over the authorization to incur such expenses, problems recording expenses in the correct accounting or budget period, and conflicts over employees seeking reimbursement for “stale” expenses that are months or even years old.
To avoid these issues, your policy should establish a reasonable time limit to submit any claims for reimbursement. For employees who incur travel-related expenses on an official government credit card, state law requires fully itemized travel vouchers to be submitted upon billing or no later than 30 days of the billing date (RCW 42.24.115). While this only applies to the use of official government cards, it is also a good general rule to follow for reimbursing other travel and business expenses. For advance travel, fully itemized receipts must be submitted within 15 days after the travel period ends (RCW 42.24.150).
Examples of Travel and Expense Reimbursement Policies
Below are selected examples of travel, meal, and expense reimbursement policies adopted by local governments in Washington. Some jurisdictions adopt comprehensive travel and expense reimbursement policies addressing both travel and non-travel situations, while others adopt separate policies for travel expenses and non-travel business expenses.
Cities
Counties
Special Purpose Districts/Departments
Examples of Travel and Expense Reimbursement Forms
Below are examples of selected business and travel expense forms. Forms should be carefully designed for compliance with the jurisdiction’s adopted policies. Such forms can clarify whether prior approval was obtained (if required by policy), clarify which methods of financing the travel were used (such as reimbursement, government credit card, advance travel, or accounts payable), and provide for necessary review prior to issuing reimbursement.
Travel Authorization/Reimbursement Forms
Lost/Missing Receipt Affidavits
Recommended Resources