Audit ofTravel Expenditures andReimbursementsMARTIN MATSONCity ComptrollerAYCHA SIRVANCI, CPAAudit ManagerCity of Milwaukee, WisconsinFebruary 2014

Table of ContentsTransmittal Letter .1I. Audit Scope and Objectives .2II. Organization and Fiscal Impact .4III. Audit Conclusions and Recommendations .5A. Ordinance .7Recommendation 1: Revise the travel expense reimbursement ordinance .8B. Travel Reimbursement Administration .8Recommendation 2: The Department of Administration should collaboratewith other departments to develop travel guidelines for the CitywideTravel Policy. .9Recommendation 3: Develop, revise, and maintain forms used to authorizetravel, request travel advance, and travel reimbursement .10Recommendation 4: Communicate the citywide travel expensereimbursement policy .12C. Segregation of Duties .13Recommendation 5: The traveler should not approve the voucher controlgroup register for their own expense report.13D. Observations .14Observation 1: The City should contract directly with vendors in orderto take advantage of cost reductions and increased efficiencies .14Observation 2: Travel expenses should only be charged to the travelexpense account .14Observation 3: Vendor invoices for travel related expenditures shouldbe charged to a prepaid account .14Departmental Response .15Appendix A .17Appendix B .24Appendix C .27

I. Audit Scope and ObjectivesThe audit examined the procedures and controls surrounding travel related expenditures andreimbursements. The audit included all travel related expenditures, advances, andreimbursements for the period July 1, 2012 through July 31, 2013. The sample size selected forthis audit was 186 vouchers (165 Statements of Expenses Incurred for City of Milwaukee(expense report) vouchers, 19 travel advance vouchers, and 2 travel advance repaymentvouchers) out of a total population of 1,817 vouchers, which was approximately 10% of the totalpopulation of travel reimbursements, travel advance repayments, and travel advance vouchers.The sample population came from all city departments except the Employees RetirementSystem. The Employees Retirement System was excluded due to the fact that the Pension Planpays the travel expenses. The sample included elected officials, judges, commissioners, directors,department heads, other city employees, and vendors.Audit procedures were developed to evaluate the processes and controls to meet the auditobjectives. The audit procedures included: Interviews of Accounts Payable personnel responsible for approving voucher controlgroup registers; Interviews of personnel responsible for processing expense reports, travel advancesand travel authorizations in the Police Department, Health Department, andDepartment of Public Works; Review of Statement of Expenses Incurred for City of Milwaukee (expense report),Travel Advances, and Travel Authorizations in the Office of the Comptroller; Review of City Ordinances and training materials; Information was extracted from the City’s accounting system, the FinancialManagement Information System, (FMIS), to identify the population of travelreimbursements and advances; Expense reports were obtained from eVault, the City’s record retention system, andcity departments to be verified to source documents.The audit procedures included testing of controls and detailed testing. The audit also examinedthe timeliness and accuracy of expense reports.2

The audit did not determine the appropriateness of the travel undertaken by the city departments.Internal Audit believes that the evidence obtained provides a reasonable basis for the audit’sfindings and conclusions based on the audit objectives.The objectives of the audit were to: Determine if travel related expenditure and reimbursement processes operate incompliance with existing City policies, applicable laws and regulations.Determine if these financial transactions are being processed in accordance withexisting City policy.Evaluate the adequacy of controls over travel related expenditure and reimbursementprocedures.3

II. Organization and Fiscal ImpactThe processes of expenditures, advances and reimbursements for travel are decentralizedthroughout the city and located within each individual department. Typically individuals withinthe various departments obtain travel approval, make plans and arrange airfare and hotels, andsubmit subsequent expense reports to their own departments. The remaining processes related tothis activity are centralized and performed by the Office of the Comptroller - GeneralAccounting and the Treasurer’s Office. This includes payment advance or reimbursementauthorizations, check creation and distribution, and subsequent account reconciliations.The table below summarizes the travel expenditures and advances processed through generalledger accounts for the period July 1, 2012 through July 31, 2013.Travel Expenditures and Advances July 1, 2012 through July 31, 2013General Ledger Account:Travel and Subsistence - 636501Employee Travel Advances - 115201Cash-Returned-Travel Advances -115202 864,21076,7132,2654

III. Audit Conclusions and RecommendationsInternal controls over travel expense reimbursements are designed to provide reasonableassurance that disbursed travel funds have been utilized appropriately. Organizations typicallyhave several opportunities to exercise control over any given travel expenditure which are:1. The development of a comprehensive and consistent travel policy, one that informstravelers of the ground rules and allowable parameters.2. At the point prices are determined. This can occur at the time reservations are made(airline tickets, hotel rooms, car rentals).3. The utilization of efficient payment methods that simplify actual cost verification andcollect vendor data.4. At the time expense reports are reviewed and processed for payment.A travel policy typically demonstrates a high level of control when the following parameters aremandated: Use of preferred air, hotel and car rental vendors; Use of a corporate card; Use of appropriate class of air service; Submission of appropriate receipts to substantiate expenses; Submission of expense reports within encouraged time frame; Staying within meal/hotel spending guidelines.1The Milwaukee Code of Ordinances Chapter 350 – Employee Regulations and Benefits,Subchapter 8 – Transportation and Travel defines travel expense reimbursement. Theordinance’s main provisions governing travel expenditures are as follows:1350-181Authorized Travel Regulations and Procedures;350-183Private Transportation Reimbursement;350-185Automobile Reimbursement Withholding Taxes;350-187Odometer Readings of City Automobiles;350-188Parking.American Express Business Travel, “Building a Best-in-Class T&E Policy”, 6, 2007.5

There are procedures in place for reimbursing travel expenses, advancing funds for travel andrepaying travel advances. The audit concluded that there are opportunities for improvement ofthe processes and controls over travel expense reimbursement, travel advances, and advancerepayments. This audit makes five recommendations for improvement:1. Revise the travel expense reimbursement ordinance.2. The Department of Administration should collaborate with other departments todevelop travel guidelines for the Citywide Travel Policy.3. Develop, revise, and maintain forms used to authorize travel, request travel advances,and travel reimbursements.4. Communicate the citywide travel expense reimbursement policy.5. The traveler should not approve the voucher control group register for their ownexpense report.This report also identifies three observations. An observation may not constitute arecommendation, but should be taken under advisement.1. The City should contract directly with vendors in order to take advantage of costreductions and increased efficiencies.2. Travel expenses should only be charged to the travel expense account.3. Vendor invoices for travel related expenditures should be charged to a prepaidaccount.Details for each recommendation and observation are provided in the following sections.6

A. OrdinanceBest practice literature regarding travel expense reimbursement states, “a travel ordinance isincomplete if it is missing details on the following”2: Enforcement Language Hotel cancellation Airline class of service Hotel class & type Lowest logical airfare parameters Telecom expenses Preferred air carrier details Car rental guidelines Rail Travel Preferred car rental suppliers Corporate card Size limit of rental vehicles Specific & appropriate documentation Car rental insurance Expense reporting Car rental refueling Instructions & processes Frequent flyer programs Traveler reimbursement process Alternate transportation Cash advance issuance Converting foreign currency Cash advance limits Meals/Entertainment spending limitsThe Milwaukee Code of Ordinances, states “under 350-181 of the code of ordinancesproviding rules for the reimbursement of expenses for attendance at seminars and conventionsand other city travel, generally the City shall pay the actual expense for registration,transportation (up to airline coach fare), hotel (up to single rate for the number of days inattendance but not to exceed five days), and other miscellaneous expenses but not to exceed anestablished per diem. See 350-181 for the complete travel regulations and procedures.”The city of Milwaukee’s travel reimbursement ordinance is incomplete because it does notaddress a number of these topics. As a result, each department interprets the ordinancedifferently.2American Express Business Travel, “Building a Best-in-Class T&E Policy”, 4, 2007.7

Recommendation 1: Revise the travel expense reimbursement ordinance.The travel expense reimbursement ordinance should communicate clearly which travelexpenses are allowable and unallowable. The revised travel reimbursement ordinance shouldinclude: Transportation; Lodging; Car Rental; Meals/Entertainment; Documentation: Expense Reporting.The travel reimbursement ordinance should also be comprehensive within each topic. Asample of travel expense reimbursement ordinances has been provided for reference atAppendix A and B.B. Travel Reimbursement AdministrationThe administration of the city’s travel expense reimbursement ordinance is decentralized. Eachdepartment independently interprets and implements the ordinance based upon the department’sindividual needs or requirements. For example, the audit discovered that one department hasopted to follow the state of Wisconsin travel guidelines which are more conservative than thecity of Milwaukee’s ordinance, and another department has created, and utilizes an additional perdiem rate for its employees. Formal instructions are available on the city’s intranet for processingexpense reports and travel advances and repayments prepared by the Office of the Comptroller.The audit found that no citywide comprehensive guidelines exist or have been developed by theDepartment of Administration per ordinance Employee Regulations and Benefits 350-183 pg.949 (2/7/12). The “9. Guidelines” of this ordinance states:“The department of administration may issue guidelines relating to procurementof transportation, lodging, meals, automobile rentals and other travelarrangements consistent with this section. Such guidelines shall be approved bythe common council”.8

Recommendation 2: The Department of Administration should collaborate with otherdepartments to develop travel guidelines for the Citywide Travel Policy.The guidelines should be written in collaboration with the Office of the Comptroller and includeprocedures covering the entire travel expense reimbursement, travel advance, and repaymentprocesses. These guidelines should include: Travel Arrangement; Air Travel; Other Transportation, such as Lake Express Car Ferry; Travel Advance Form; Travel Authorization Form; Communication Expenses; Group and Meeting Travel; Luggage Fees; Per Diem rates;Mileage Rate; Expenses greater than per diem; Foreign currency translation; Alcoholic beverage policy; Valet parking; Receipts; Enforcement of repayment of travel advances; Enforcement of the use of CityTime for mileage only reimbursement.These guidelines should clearly describe who has the responsibility for the various aspects ofthe processes (including supervisory and monitoring considerations), when and how the travelexpense reimbursements are to be executed, and documentation requirements. Theseguidelines should be maintained and updated for changes that may occur in the travel industry.Formal guidelines would establish consistency for travel expenses across all city departments.A sample of travel expense reimbursement procedures has been provided for reference atAppendix C.9

In addition to the absence of guidelines, the audit also found that there are issues with theexpense report, travel authorization, and travel advance forms. The audit discovered that acitywide travel authorization form does not exist. However, the audit found that somedepartments have developed their own travel authorization form. These departments include theHealth Department, the Milwaukee Police Department, and the Milwaukee Fire Department. TheMilwaukee Police Department has automated their travel authorization form.Per Ch. 350-181, “no advance of funds for travel expenses shall be made unless such travel hasbeen authorized under this section. Advances of funds for travel expenses shall be made by cityaccounts payable check from a properly audited request for advance form, signed by the officeror employee requesting advance of funds and a control group register and voucher approved bythe department head or delegated representative”. The audit found that supervisory approval isnot a required item on the travel advance form.The city does have a uniform expense report form, but not all departments are currently using theform. Several departments have developed their own expense report forms. It was noted that thecurrent expense report form is confusing to employees because it does not include changes thathave occurred in the travel industry such as luggage fees.Recommendation 3: Develop, revise, and maintain forms used to authorize travel,request travel advance, and travel reimbursement.The Department of Administration in collaboration with the Office of the Comptroller shoulddevelop a universal travel authorization form to be used by all departments. The twodepartments should review the expense report and travel advance for possible revisions basedon the revised ordinance. Possible revisions must include the following: Luggage fees; Supervisor’s signature; Automatically calculate subtotals; Automatically calculate the lesser of per diem and actual expenses.10

All travel related forms should be reviewed annually and updated for changes. Automating theforms should also be explored. The use of universal forms would standardize traveldocumentation for all departments and increase processing efficiency.The audit found that the city of Milwaukee’s travel expense reimbursement ordinance is onlycommunicated in the instructions to process expense reports, travel advances and repaymentsavailable on the city’s intranet. These are only instructions for individuals that process theexpense reports and travel advances and are not intended as guidance for general cityemployees for travel expenses.The audit tested 165 expense reports. Of the 165 expense reports, 11 were found to be noncompliant with the City’s travel policy, and 26 were found to be filed more than 15 days afterthe traveler returned from travel, which is part of the city’s ordinance. The results of thetesting of expense reports are summarized in the chart below.Results of Expense Report Testing16%7%Filed more than 15 days afterreturnNon-compliance with City travelpolicyCompliant with City travel policy77%11

The chart below details the reasons the expense reports were found to be not in compliancewith the city’s travel policy.Expense Reports found to be non-compliantwith City's travel policy9%9%Convenience of Traveler18%Non-Use of CityTime for mileagereimbursementHotel Stay 5 daysIncorrect mileage rate used9%55%Transportation round-trip coachairfareRecommendation 4: Communicate the citywide travel expense reimbursement policy.The City of Milwaukee’s travel policy should be communicated by providing the policy onlineand through educational seminars. All travel related policies and forms should be available inone location on the City’s website for access by all city employees. Communicating the City’stravel policy will help to ensure that employees are aware of the travel policy and can accessinformation quickly and easily on short notice before leaving on travel.12

C. Segregation of DutiesA fundamental element of internal control is segregation of duties. Appropriate segregationof duties ensures no one person initiates the transaction, approves the transaction, records thetransaction, reconciles balances, and reviews reports. When these functions cannot beseparated, detailed supervisory review is required as a compensating control activity. Propersegregation of duties also prevents fraud or error by one person.The Voucher Control Group Register is a form that lists the vouchers entered under the controlgroup. The Voucher Control Group Register also has two signature lines that are required tocontain the signatures of the authorized approvers, without these signatures the VoucherControl Group Register will not be approved for payment by Accounts Payable.The audit verified that Voucher Control Group Registers are approved by the authorizedindividuals in the department. The audit found that authorized individuals to approve VoucherControl Group Register are approving the Voucher Control Group Register for their ownexpense reports. This is a segregation of duties violation.Recommendation 5: The traveler should not approve the voucher control group registerfor their own expense report or travel advance.The departments are responsible for approving voucher control group registers for members oftheir own department. Therefore, the departments should ensure that the voucher controlgroup register is not approved by the individual requesting the travel reimbursement or traveladvance. Having another authorized individual approve the voucher control group register forthe authorized approvers expense report or travel advance would mitigate the segregation ofduties infraction. Also, the approval of the actual expense report by an appropriate individualwould be a compensating control if no other authorized individual is available in thedepartment to approve the voucher control group register. This would also mitigate the controldeficiency.13

D. ObservationsThe following are observations noted during the audit that may not constitute arecommendation; however, management should take these items under advisement.Observation 1: The City should contract directly with vendors in order to takeadvantage of cost reductions and increased efficienciesThis would enable the city of Milwaukee to receive better rates, therefore, reducing the City’sspending on travel expenses.Observation 2: Travel expenses should only be charged to the travel expense account.Departments are using the travel account as a catch-all account. They are charging items suchas moving expenses, travel expenses for consultants, training, convention registration,sponsorship of tables at a luncheon and seminar registration to the travel account. Theseexpenses should be charged to the proper accounts or new accounts should be set up toaccount for these items.Observation 3: Vendor invoices for travel related expenditures should be charged to aprepaid account.The audit found that invoices from travel agencies are directly expensed to the travel account.The travel agency invoices should be charged to a prepaid account which allows the filing ofexpense reports to be monitored because the related invoice will not be expensed until theemployee’s expense report is filed.14



Appendix A: Example of Travel Expense Reimbursement Policy[name of organization]TRAVEL AND OTHER EXPENSE REIMBURSEMENT POLICY1. Purpose.The Board of Directors of (name of organization) recognizes that boardmembers, officers, and employees (“Personnel”) of may be required to travel orincur other expenses from time to time to conduct Company business and to further themission of this non-profit organization. The purpose of this Policy is to ensure that (a)adequate cost controls are in place, (b) travel and other expenditures are appropriate, and (c) toprovide a uniform and consistent approach for the timely reimbursement of authorizedexpenses incurred by Personnel. It is the policy of to reimburse only reasonableand necessary expenses actually incurred by Personnel.When incurring business expenses, expects Personnel to:Exercise discretion and good business judgment with respect to those expenses.Be cost conscious and spend ’s money as carefully and judiciously asthe individual would spend his or her own funds.Report expenses, supported by required documentation, as they were actually spent.2. Expense Report.Expenses will not be reimbursed unless the individual requesting reimbursement submits awritten Expense Report. The Expense Report, which shall be submitted at least monthly orwithin two weeks of the completion of travel if travel expense reimbursement is requested,must include:The individual’s name.If reimbursement for travel is requested, the date, origin, destination and purpose of thetrip, including a description of each Company-related activity during the trip.The name and affiliation of all people for whom expenses are claimed (i.e., people onwhom money is spent in order to conduct ’s business).17

An itemized list of all expenses for which reimbursement is requested.3. Receipts.Receipts are required for all expenditures billed directly to , such as airfare andhotel charges. No expense in excess of 25.00 will be reimbursed to Personnel unless theindividual requesting reimbursement submits with the Expense Report written receipts fromeach vendor (not a credit card receipt or statement) showing the vendor’s name, a descriptionof the services provided (if not otherwise obvious), the date, and the total expenses, includingtips (if applicable).4. General Travel Requirements.A. Advance Approval.All trips involving air travel or at least one overnight stay must be approved in advance by theindividual’ssupervisor;however,any out-of-statetravelmustbeapprovedby’s Chairman of the Board or his/her designee.B. Necessity of Travel.In determining the reasonableness and necessity of travel expenses, Personnel and the personauthorizing the travel shall consider the ways in which will benefit from thetravel and weigh those benefits against the anticipated costs of the travel. The sameconsiderations shall be taken into account in deciding whether a particular individual’spresence on a trip is necessary. In determining whether the benefits tooutweigh the costs, less expensive alternatives, such as participation by telephone or videoconferencing, or the availability of local programs or training opportunities, shall beconsidered.C. Personal and Spousal Travel Expenses.Individuals traveling on behalf of may incorporate personal travel or businesswith their Company-related trips; however, Personnel shall not arrange Company travel at atime that is less advantageous to or involving greater expense toin order to accommodate personal travel plans. Any additional expensesincurred as a result of personal travel, including but not limited to extra hotel nights, additionalstopovers, meals or transportation, are the sole responsibility of the individual and will not be18

reimbursed by . Expenses associated with travel of an individual’s spouse,family or friends will not be reimbursed by .5. Air Travel.A. General.Air travel reservations should be made as far in advance as possible in order to take advantageof reduced fares. will reimburse or pay only the cost of the lowest coach classfare actually available for direct, non-stop flights from the airport nearest the individual’shome or office to the airport nearest the destination.B. Saturday Stays.Personnel traveling on behalf of are not required to stay over Saturday nightsin order to reduce the price of an airline ticket. An individual who chooses to stay over aSaturday night shall be reimbursed for reasonable lodging and meal expenses incurred overthe weekend to the extent the expenses incurred do not exceed the difference between theprice of the Saturday night stay ticket and the price of the lowest price available ticket thatwould not include a Saturday night stay. To receive reimbursement for such lodging and mealexpenses, the individual must supply, along with the Expense Report, documentation of theamount of the difference between the price of the Saturday stay and non-Saturday stay airlinetickets.C. Frequent Flyer Miles and Compensation for Denied Boarding.Personnel traveling on behalf of may accept and retain frequent flyer miles andcompensation for denied boarding for their personal use. Individuals may not deliberatelypatronize a single airline to accumulate frequent flyer miles if less expensive comparabletickets are available on another airline.6. Lodging.Personnel traveling on behalf of may be reimbursed at the single room rate forthe reasonable cost of hotel accommodations. Convenience, the cost of staying in the city inwhich the hotel is located, and proximity to other venues on the individual’s itinerary shall beconsidered in determining reasonableness. Personnel shall make use of available corporate anddiscount rates for hotels. “Deluxe” or “luxury” hotel rates will not be reimbursed.19

7. Out-Of-Town Meals.Personnel traveling on behalf of are reimbursed for the reasonable and actualcost of meals (including tips) subject to a maximum per diem meal allowance of 38 per dayand the terms and conditions established by relating to the per diem mealallowance.8. Ground Transportation.Employees are expected to use the most economical ground transportation appropriate underthe circumstances and should generally use the following, in this order of desirability:Courtesy CarsMany hotels have courtesy cars, which will take you to and from the airport at no charge. Thehotel will generally have a well-marked courtesy phone at the airport if this service isavailable. Employees should take advantage of this free service whenever possible.Airport Shuttle or BusAirport shuttles or buses generally travel to and from all major hotels for a small fee. At majorairports such services are as quick as a taxi and considerably less expensive. Airport shuttle orbus services are generally located near the airport’s baggage claim area.TaxisWhen courtesy cars and airport shuttles are not available, a taxi is often the next mosteconomical and convenient form of transportation when the trip is for a limited time andminimal mileage is involved. A taxi may also be the most economical mode of transportationbetween an individual’s home and the airport.Rental CarsCar rentals are expensive so other forms of transportation should be considered whenpractical. Employees will be allowed to rent a car while out of town provided that advanceapproval has been given by the individual’s supervisor and that the cost is less than alternativemethods of transportation.20

9. Personal Cars.Personnel are compensated for use of their personal cars when used for Company business.When individuals use their personal car for such travel, including travel to and from theairport, mileage will be allowed at the currently approved IRS rate per mile.In the case of individuals using their personal cars to take a trip that would normally be madeby air, e.g., Minneapolis to Milwaukee, mileage will be allowed at the currently approved rate;however, the total mileage reimbursement will not exceed the sum of the lowest availableround trip coach airfare.10. Parking/Tolls.Parking and toll expenses,

develop travel guidelines for the Citywide Travel Policy. 3. Develop, revise, and maintain forms used to authorize travel, request travel advances, and travel reimbursements. 4. Communicate the citywide travel expense reimbursement policy. 5. The traveler should not approve the vou