Accountable Reimbursement Policy

How to Set Up and Administer

For business and tax reasons, it is usually in the best interest of your church or nonprofit to have such a policy in place.

However, you need to realize that the rules for employee expense reimbursements are the same for churches and nonprofits as they are for all other businesses. There are not any special rules for churches or nonprofits in relation to employees’ business expenses.

How do you set up a reimbursement policy?

In order to be accountable, a policy must:

• Be written (It can be as simple as a short paragraph in the form of a resolution or a detailed plan depending on your church or nonprofit's own needs and structure.)

• Be adopted by an official action by the paying entity
• Provide payment for only legitimate expenses with a business purpose, incurred solely for the benefit of the paying entity
• Require proper substantiation of the expense, including a written record made at or near the time of the expenditure, plus documentary evidence, such as receipts
• Require that the substantiation be submitted to a third party (usually the treasurer), within a "reasonable" period of time.

What employee business expenses should be included in your policy?

Some expenses include, but are not limited to:

• Mileage (standard federal rate)
• Tolls and parking
• Travel Expenses
• Postage
• Office Supplies
• Professional dues, subscriptions, and certain books

Either or both methods are acceptable. Your staff may submit a bill and ask the church or nonprofit to pay it. Or...they can substantiate the expense and ask your organization to reimburse them.

How should expenses be substantiated?

The IRS requires the church or nonprofit to maintain good records and have actual receipts for any expense over $75 (you may use this figure or set a lower limit such as $25) and proper documentation to back up expenses.

The documentation must include:

• the purchase
• amount
• date
• place
• business nature of the expense.

When must substantiation/receipts be provided?

The IRS requires that all substantiation of expenses occur within a "reasonable" time of the expense being paid or incurred. (This is set in the resolution and/or detailed policy plan...30 or 60 days is common)

Can the church or nonprofit make advance payments?

Yes. However, it needs to be set up that way in the policy. This can be especially beneficial for staff travel.

If an advance is given and exceeds the amount of business expenses substantiated, the staff person must return the excess within a "reasonable" time (your organization sets time limits) of the date incurred or paid.

Who owns the equipment and other items purchased under the accountable reimbursement policy?

The organization. If your church or nonprofit has paid for items through the accountable reimbursement policy, the equipment or other property belongs to your organization.

This does not apply to travel, continuing education, professional dues, or entertainment expenses which are not "tangible" things.

It would also not pertain to small office supplies, postage, periodicals, or personal religious supplies, such as robes. These items are used up or are so personal that they have limited or no value to the church.

How should "ticketless" airline expenses be substantiated?

It is necessary that the documentation show the date, place, amount, and business reason for the trip. The IRS has suggested that the itinerary from the travel agency and/or the airline receipt, along with an explanation of the reason for the travel, should be sufficient.

Go to Nonprofit Accounting from the Accountable Reimbursement Policy