People working in accounts payable (AP) roles often face a thorny issue: when executives or employees fail to submit expense reports as required, should finance staff fill them out on their behalf? Based on the actual confusion of an AP practitioner, this article explores whether relevant accounting and tax rules explicitly prohibit such behavior and analyzes the internal control considerations behind it.

Problem Background: Missing Reimbursement Process and the Practice of Filling Out on Behalf

According to the AP staff member, their company has not yet officially issued an expense reimbursement policy. Although policy drafts have been submitted multiple times, the CFO has never approved them. The company still operates in a small-business model, relying on high trust and minimal administrative rules. Currently, only one executive (a vice president) submits reimbursable receipts without an expense report, and their assistant refuses to fill one out. Most receipts already contain the necessary descriptions. In the past, the AP manager completed expense reports and processed payments on their behalf. The employee asks whether they should continue to "grin and bear it" and do the work for them.

Accounting Principles and Internal Control Perspective

From an accounting principles perspective, the core of expense reimbursement is to ensure that expenditures are genuine, reasonable, and in line with company policy. U.S. Generally Accepted Accounting Principles (GAAP) do not directly prohibit finance staff from filling out reimbursement reports, but they emphasize internal controls and segregation of duties. The COSO internal control framework points out that key control points include: transaction authorization, asset custody, and separation of recording and review. If AP staff are simultaneously responsible for filling out reports, reviewing, and making payments, controls may be weakened, increasing the risk of errors or fraud.

The American Institute of Certified Public Accountants (AICPA), in its Statements on Auditing Standards, recommends that management establish clear reimbursement policies and ensure that all expense reimbursements are submitted by the employee themselves or are properly authorized. Filling out on behalf of others may cause approvals to become a mere formality, as AP staff may not be able to verify whether expenses actually occurred or are for legitimate business purposes.

IRS Rules and Tax Compliance Requirements

The U.S. Internal Revenue Service (IRS) has specific rules regarding employee business expense reimbursements, mainly involving Section 62 of the Internal Revenue Code and Treasury Regulation Section 1.62-2. According to these rules, if an "Accountable Plan" is used, reimbursements are not included in employee wages, but three conditions must be met:

  • Expenses must be business-related and adequately substantiated (e.g., with receipts);
  • Employees must submit expense reports within a reasonable period;
  • Excess advances must be returned.

The IRS does not explicitly prohibit finance staff from filling out reimbursement reports, but it requires that expense reports be "substantiated" by the employee. If filled out by someone else, substantiation may be insufficient, especially if the employee does not personally confirm the expense details. If reimbursements do not meet the requirements of an Accountable Plan, the reimbursement amounts may be treated as wages and subject to income and employment taxes.

Additionally, during audits, the IRS may question the authenticity of reimbursement reports filled out by others, as they lack the employee's direct declaration. If it cannot be proven that the expenses were actual business expenditures incurred by the employee, the company may face tax adjustments and penalties.

Practical Recommendations: Risks and Countermeasures

In response to the above situation, AP staff should not simply "grin and bear it," but should proactively drive process improvements. The following recommendations are based on industry best practices:

  1. Promote Formalization of Policy: Communicate with the CFO, emphasizing that the lack of a policy may lead to tax and audit risks, and recommend approving the reimbursement policy as soon as possible, clearly defining the responsibility of employees to submit their own expense reports.
  2. Insist on Segregation of Duties: AP staff should not fill out reimbursement reports on behalf of others; instead, they should require employees to complete and sign their own reports. If executives do not cooperate, the issue can be escalated to the CFO or the audit committee.
  3. Retain Sufficient Evidence: Even if filling out on behalf is unavoidable, require employees to provide written confirmation (e.g., email) and attach all receipts to ensure compliance with the IRS's "adequate substantiation" requirement.
  4. Consider Tax Implications: If reimbursements do not meet the requirements of an Accountable Plan, the company must include the reimbursement amounts on the employee's W-2 form and pay the corresponding taxes.

Conclusion

Currently, no clear accounting or IRS rules directly prohibit finance staff from filling out expense reimbursement reports, but the practice contradicts internal control principles and may lead to tax compliance risks. The best practice is to establish a clear reimbursement policy, require employees to submit and substantiate their own expenses, and ensure the independence of the approval and payment processes. AP staff should proactively raise risks rather than passively accept unreasonable practices.