Finance and Administration Policies

Business Expense Policy

I. Justification and Statement of Policy

This policy defines an allowable business expense as a necessary, reasonable, appropriate, and allowable non-compensation expense incurred for a valid business purpose to fulfill the mission of the College. While such allowable expenses may be eligible for payment using College funds, other funding sources may have more restrictions. The policy provides criteria for determining an allowable or unallowable expense and provides lists of common expenses.

As a non-profit organization defined under Section 501(c)(3) of the Internal Revenue Code, the College is committed to using institutional funds in an appropriate manner. The College engages in activities that are funded by private gifts and grants, and reconciliation of how those funds are expended is required to be on file and available for examination by donors and auditors. All business expenses must be reasonable and appropriate given the position of the employee and purpose of the expense.

Because the College must follow IRS laws and regulations in connection with expense payment and reimbursement practices, this Business Expense Policy is designed to meet the requirements of an "accountable plan" for business expenses, reimbursements, and allowances (see IRS Publication 463).

In general, this policy ensures appropriate use of College funds in support of its mission, follows Generally Accepted Accounting Principles (GAAP), and complies with federal, state, and local rules and regulations.

II. Scope

This policy applies to all employees, students, and independent contractors purchasing goods or services for non-compensation business expenses. It also applies to every employee or individual who reviews, approves, or records financial transactions on behalf of the College.

III. Definitions

a. Accountable Plan: An accountable plan is a reimbursement arrangement that meets three criteria:

  1. Expenses to be paid or reimbursed must have a business purpose and must be incurred in connection with an employee's position at the College.

  2. Expenses to be paid or reimbursed must be adequately accounted to the employee's supervisor within a reasonable period of time.

  3. Any excess allowance or balance from cash advances must be returned to the employee's supervisor within a reasonable period of time.

b. Allowable Expense: A necessary, reasonable, and appropriate expense incurred for the primary benefit of College business and, therefore, permitted to be reimbursed or directly charged based on the permission of the College or the terms of federally or privately sponsored agreements.

Allowable Expense Related to Federal Funds: Federal regulations contain categories of expenses that are unallowable as either direct or F&A (indirect) costs. For example, while alcohol and entertainment costs may be allowable as College expenditures, these costs are expressly prohibited by regulation on federal grants and contracts and, therefore, are always unallowable in relation to federal funds.

c. Appropriate: Costs are appropriate if they are suitable or fitting for a particular business purpose, which is normally the responsibility of the department or program to determine. The following questions should be considered when determining the appropriateness of costs:

  • Would you be comfortable justifying the purchase to students, alumni, trustees, and parents?

  • Would you be confident if the cost was selected for audit?

  • Would you be comfortable explaining to a donor that their donation was used this way?

  • Would you be comfortable defending the purchase under public scrutiny or reading about it in the newspaper?

d. Cash and Cash Equivalents: Cash and cash equivalents include, but are not limited to, cash, gift cards, gift certificates, and prepaid debit/credit cards with face value. Cash and cash equivalents are taxable compensation to the recipient.

e. De Minimis: A non-cash gift or prize that is so small that accounting for the items would be considered unreasonable or administratively impractical. De minimis gifts, prizes, or awards are only provided on an occasional basis and must be small in amount. Non-cash gifts with a value of less than $50 will be considered de minimis. Cash and cash equivalents are never considered de minimis.

f. Generally Accepted Accounting Principles (GAAP): Fundamental principles of accounting that are used as guidance in the preparation of the College financial statements and the premise of validation for the audited financial statements.

g. Necessary: An expense is necessary if there is a valid business purpose required to fulfill the mission of the College. The primary beneficiary of a necessary business expense is the College, not the individual. A necessary expense is a minimum purchase or service required to achieve a valid business objective.

h. Notation: Written or typed information that is required on the receipt, disbursement voucher, expense reimbursement form, or other document.

i. Original Receipt: The original merchant receipt or invoice, that includes an itemized breakdown and details of the transaction, issued by the supplier or service provider to document and substantiate the business transaction. A legible digital image of the original receipt is allowable when a paper receipt is unavailable or has been approved.

j. Reasonable Expense: An expense is considered reasonable if it is not extreme or excessive and reflects a prudent decision and action to incur the expense. The Business Expense Policy does not define precise dollar amounts for what constitutes reasonable because the reasonableness of an expense depends upon many relevant factors, including the business purpose, the context, the source of funds, and the circumstances surrounding the expenditure.

Reasonable Expenses Related to Federal Funds: The Federal Government has given specific guidance on the definition of reasonable expenses that must be applied when determining whether a cost is allowed to be charged to federal funds. This description should be used as guidance about reasonable expenses charged to College funds. The federal Office of Management and Budget Circular A-21 §C.3. states:

A cost may be considered reasonable if the nature of the goods or services acquired or applied, and the amount involved therefore, reflect the action that a prudent person would have taken under the circumstances prevailing at the time the decision to incur the cost was made. Major considerations involved in the determination of the reasonableness of a cost are: (a) whether or not the cost is of a type generally recognized as necessary for the operation of the institution or the performance of the sponsored agreement; (b) the restraints or requirements imposed by such factors as arm's- length bargaining, federal and state laws and regulations, and sponsored agreement terms and conditions: (c) whether or not the individuals concerned acted with due prudence in circumstances, considering their responsibilities to the institution, its employees, its students, the Federal Government, and the public at large; and (d) the extent to which the actions taken with respect to the incurrence of the cost are consistent with established institutional policies and practices applicable to the work of the institution generally, including sponsored agreements.

k. Reasonable Period of Time: The definition of a reasonable period of time depends on the facts and circumstances of the situation. However, regardless of the circumstances, actions that take place within the following time frames will be treated as occurring within a reasonable period of time:

  1. An employee adequately accounts for their expenses within 45 days after the expenses were paid or incurred or within 45 days of returning if expenses involve travel.

  2. An employee returns any excess allowance or cash advance within 15 days after the expense was paid or incurred. An excess allowance or cash advance is any amount an employee is paid that is more than the business-related expenses that were approved and adequately accounted for by the employee's supervisor.

If the employee meets the criteria for an accountable plan as outlined above, the College is not required to include any advances or reimbursements in the employee's taxable income.

l. Senior Officer: For purposes of this policy, the President or Divisional leaders of the College who report directly to the President.

m. Substantiation: Documentation to support an incurred business expense that includes the original receipt, documentation of business purpose, names of persons in attendance, and appropriate expense report for the incurred cost. The receipt/documentation needs to address:

    • WHO was in attendance

    • WHAT was purchased (restaurant receipts need to be detailed and not the summary receipt)

    • WHERE the purchase was made (supplier)

    • WHEN the purchase occurred

    • WHY the purchase was necessary; the business justification of the expense

IV. Policy

Criteria for Determining an Allowable Expense: In order to be paid directly by the College or reimbursed to an individual, a business expense must be:

  • Necessary to perform a valid business purpose fulfilling the mission of the College; and

  • Reasonable in that the expense is not extreme or excessive, and reflects a prudent decision to incur the expense; and

  • Appropriate in that the expense is suitable and fitting in the context of the valid business purpose; and

  • Allowable according to the terms of any federal regulation, sponsored contract, or College policy.

Special Notes:

  • Preferred providers are required to be used for all purchases unless prior authorization is provided by the Director of Payable and Purchasing Services.

  • All purchases must be processed through the College's eProcurement system whenever possible.

  • All services provided to the College require a fully executed contract - a contract may take the form of a standard purchase order, obtained by submitting a requisition into the College's eProcurement system, or a contract such as a professional services agreement, real property lease, etc.

  • PCard purchases are only allowable in special circumstances such as emergencies or if the supplier does not accept other forms of payment.

  • All purchases greater than $5,000 are subject to the Capital Asset Policy. This includes the securing of services in excess of $5,000.

  • Schedule A is a guideline for allowable expenses. Schedule B is a guideline for unallowable expenses. The lists are not all-inclusive.

Additional Allowable and Unallowable Expenses: Federal Funds
Federally funded contracts and grants carry a specific list of rules and prohibited costs that cannot be directly charged to a sponsored account nor included in the Facilities & Administrative rate (F & A rate, overhead rate, or indirect cost rate) charged to such projects. Please work with the Office of Sponsored Research and the Senior Accounting Analyst for questions related to federal funds.

V. Related Documents and Forms

Schedule A: Allowable Expenses
Schedule B: Unallowable Expenses
Disbursement Voucher
Missing Receipt Form

Policy Maintained By: Office of Finance and Administration, Vice President for Finance and Administration
Original Effective Date: April 3, 2023