FINANCIAL SERVICES BULLETIN #97/98-06

 

September 30, 1997

 

M E M O R A N D U M

 

To:

Executive Committee, Department Chairpersons, Directors, Administrative Heads and C.A.P. Representatives

From:

Steve Lynch
Executive Director of Financial Services

Subject:

Substantiation Requirements for Official Business Expense Payments

 

Section 7.1.5.4 of the UTHSCSA "Handbook of Operating Procedures" outlines the information required to support payments, including reimbursements, for entertainment and other official business expenses. This policy has been in place at UTHSCSA for several years. However, recent IRS Audits of other universities, including other U. T. System components, have focused on the lack of proper substantiation for employee expense reimbursements and official business expense payments. Therefore, it is prudent that we emphasize the importance of compliance with our established policy.

Our policy requires that the purpose and benefit of the function be clearly described within the documentation supporting all payments. The absence of such statements on expense reimbursements or other payments for business expenses has resulted in the IRS ruling that the payments are not related to the institution’s business purpose and are therefore taxable income to the payee.

Our policy also requires that the names and titles of the persons attending be included as support for the payment/reimbursement. The policy allows for the department to retain this information if the list of attendees is too extensive to itemize on the voucher payment request or if the names and titles of the attendees are not known at the time the payment is processed (in the case of prepaid catering, etc.). This information is also critical to the IRS’s acceptance of these payments/reimbursements as non-taxable business expenses. Therefore, this information must be either supplied with the voucher being submitted for payment or retained within the department for a period of (3) years. Please note that the Accounting Department archives this information as document images. Therefore, Accounting is capable of accepting extensive lists of attendee names and titles as payment support, relieving departments from the need to retain this information in their records, if they so choose.

The payment substantiation policy detailed in Section 7.1.5.4 of "HOP" does not just apply to reimbursements to individuals. This policy must also be followed on business entertainment expense payments made directly to restaurants, caterers, hotels and other vendors. For example, if payment for an official business entertainment function is made directly to a caterer, restaurant, hotel, etc. upon receipt of their invoice, these payments must also comply with the substantiation requirements of 7.1.5.4 (statement of purpose/benefits & listing of names and titles of attendees).

Furthermore, the substantiation policy also applies to payments made for catering provided through both ARAMARK and the University Hospital Food Service.

When booking catering through ARAMARK, the statement of purpose and benefits should be included in the "PURPOSE AND BENEFIT OF EVENT" section of the ARAMARK "Catering Event Request Form". The names and titles of attendees should either be included in the "ADDITIONAL COMMENTS" section of the form or a statement indicating that this information is retained on file by the department should be included therein. If additional space is needed an addendum should be attached to the form.

When booking catering through University Hospital Food Services, the statement of purpose and benefits as well as the names and titles of attendees should be included in the "Special Instructions/Requirements" section of the University Hospital "Catering Service Requisition". Again, if names and titles of attendees are not provided, a statement indicating that this information is retained on file in the department should be included. If additional space is needed an addendum should be attached to the form.

In summary, it is important that UTHSCSA maintain compliance with IRS policies. Following the policies and procedures outlined above will enhance the quality of our performance in this area. Please share this information with all on your staff who are involved with processing business entertainment expense payments and reimbursements. If questions arise regarding this policy or its applicability to specific payments, please contact the Accounting Department for clarification.

Thank you for your support and cooperation.