Accountable Reimbursement Policy

How to Set Up and Administer a Proper Accountable Reimbursement Policy

An accountable reimbursement policy is a method for claiming and reimbursing professional or business expenses. 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.

 In order to be accountable, your reimbursement policy should comply with the following rules:

• Be adopted through an official action by the paying church or nonprofit. 
• Be written. Your accountable reimbursement plan should be as detailed as possible and contain all of the following rules and regulations. 
• Have a business connection. Your reimbursement plan can only provide payment for 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 substantiation be submitted within a "reasonable" period of time. No more than 60 days after the expense is incurred.
• Require excess reimbursements be returned. An excess reimbursement or allowance is any amount paid that is more than the actual business related expense. You must require the employee to return any excess reimbursements within a "reasonable" period of time. No more than 120 days after an excess reimbursement is paid.
• Reimbursements cannot be made by reducing the employee's salary. 

Employee business expenses included in your policy may include, but are not limited to:

• Mileage (many use the standard federal rate which is 54.5 cents for 2018)
• Tolls and parking
• Travel Expenses
• Postage
• Office Supplies
• Professional dues, subscriptions, and certain books
• See more examples of proper and improper items in the AR ebook in the Church Accounting Package
  

Tips on setting up an accountable reimbursement policy:

1. Include a budget for your AR policy that will “cap” the allowable amount for each staff member. 

2. Include the proper wording in your policy to cover reimbursing your staff member directly for their eligible expenses and/or paying for those expenses directly. Either method is acceptable and you can include both in your policy.

3. Properly substantiate expenses. 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.

4. Include a set time of when substantiation/receipts must be provided to your organization in the wording of your policy.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 days" is common, but the IRS  considers "up to 60 days" to be a "reasonable" amount of time. 

5. Include wording authorizing advance payments.This can be especially beneficial for staff travel. Important...if an advance is given and exceeds the amount of business expenses substantiated, the staff person must return the excess within a "reasonable" time of the date incurred or paid.

6. Include wording that items, equipment, or property purchased by your church or nonprofit through the accountable reimbursement policy belongs to your organization.

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