Cos. Face Sarbanes-Oxley Law

The pending deadline of the Sarbanes-Oxley Act of 2002 is spurring corporate travel managers to redefine travel policies, reexamine reporting practices and set internal controls that restrain expense abuses in efforts to contribute to their companies' compliance with the legislation.

While many still are determining what impact, if any, the legislation has upon them, internal changes in response to the new law should be reflected in annual reports for the first fiscal year ending on or after June 15, 2004.

"There is a big piece of Sarbanes-Oxley in terms of travel. Companies have to declare any personal use of company assets to their stockholders, and travel gets involved in all of this through the use of tickets, the use of special funding, the use of company aircraft, etc.," said Earl Foster, president of Partnership Travel Consulting. Yet, the divisions and individuals "assigned to watch over the legislation have so much to look at that they don't realize to what extent travel is a part of it."

Although the act is more about financial reporting, and the "ambiguous language" is open to interpretation, it sets standards for allocating and monitoring company resources and setting internal controls to avoid fraud, a definite crossover to travel management, said Management Alternatives consultant John Ohaver at last month's National Business Travel Association's CCTE accreditation class in New York.

One specific implication to travel departments is section 402, which forbids personal loans to executives. It is unlawful to "extend or maintain credit, or arrange for the extension of credit, in the form of a personal loan to or for any director or executive officer," unless it is explicitly for business purposes, the section states.

To ensure that travel managers do not enable anything that could be considered a personal loan to executives, Ohaver suggested mandating the corporate card for business-only expenses—long considered a best practice by many in the industry. Also, "personal use of company cars and aircraft, travel advances and relocation expenses" should be carefully monitored and, in some cases, avoided, he said.

Compliance to this clause has been among the first priorities for corporate travel managers.

"We immediately got in the mode of making sure we didn't provide any company finances for personal travel. That was the first thing we knocked off," said Robert Magnus, director of global travel and events at Ford Motor Co., which just last week concluded an internal audit gauging travel compliance to the act. "It wasn't a practice that we did that, but we had to be more formal in our processes and controls. We designed a process to make sure that doesn't happen. When a request comes in and it's personal, we make sure it's documented separately and paid separately."

Months after the passage of the legislation in the fall of 2002, a group of lawyers convened to mull over some of the act's implications, issuing a consensus on its impact for publicly traded companies. Under the personal loans clause in section 402, they also warned of the dangers of personal use of company-issued assets.

The lawyers determined that the use of corporate charge cards avoids the trappings of the legislation if "company policy permits only business use and limited ancillary personal use (e.g., personal items included in hotel room charges) and requires settlement within a reasonable period (e.g., monthly)."

The group also agreed that allowing employees access to company cars, relocation expenses and cash advances do not have to be wiped out completely but need to be monitored to assure that such assets are not used for personal ends.

"The rules say, 'If you are going to do this, then who's controlling it, is it visible, are you auditing those kinds of things?' " Foster said. "The legislation is not looking to take any of those things away. It just says you better realize what the hell you're doing, and you can't have your CEO taking a million-dollar travel advance."

Other sections within the legislation garnering attention from corporate travel managers deal with the issue of internal controls. Companies affected by the act must document and attest to controls that they have put in place to combat fraud and other corporate malfeasance as an assurance that they are compliant with the law.

For travel departments, this means that the use of assets should be authorized and properly recorded, reported and backed up by explicit policies. Controls on expense reporting, pre-trip monitoring or risks, exception reporting—all of which many travel buyers have a hand in—are implications of the legislation.

Ohaver said companies should make travel policies clear, continually update them and communicate them to the employee population.

While several travel managers said they had not yet looked at the act's impact on their travel department, others are taking some initial steps. When BTN sampled a group of a dozen travel managers, about half said they had begun to take action.

One travel manager said that the legislation has spurred her large, publicly traded company to better define travel policies, while others had taken more initial steps—reaching out to those in the organization who are responsible.

"Most CFOs have assigned Sarbanes-Oxley compliance to somebody: the controller, the audit department or risk management," Foster said. "It's different in every company."

A recent report on Sarbanes-Oxley released by the Institute of Management and Administration said that while it is ultimately senior executives who are held responsible for any transgressions, "a quick review of the provisions reveals that the senior executives must rely on assurances from underlings to make the assertions required by the act."

"Reach out to the right resources in your organization," such as those who handle expense reporting, financial reporting, internal auditing, to coordinate compliance initiatives, Ohaver said. "If you're not sure that it applies to you, ask."

Foster has been echoing this sentiment as a first step for travel buyers: "We're encouraging them to reach out to their CFO and ask him or her, 'We realize Sarbanes has an impact on us, who should we be talking to?' "

Although other segments within corporations are affected more directly by the act, Phil Dunphy, corporate travel manger at Pfizer Inc., said, "This is an opportunity for travel managers to step up because, if you think about a lot of companies, where is the first place a person gets tagged? T&E. You want to make certain that everything is clean and neat and documented accordingly."

For many—especially those whose corporate travel departments have been considered best in class—compliance does not require an overhaul of procedures or policies, rather it suggests a tweaking of policies and a double-checking of practices.

After Dunphy examined policies and processes in terms of Sarbanes-Oxley compliance, he ruled them "very sound. Throughout the organization, there is a heightened level of awareness of crossing "t"s and dotting "i"s and making sure that everything is appropriately documented as it should be," he said. "It's just tightening it up."

Sarbanes-Oxley affects not only U.S.-based public companies but an estimated 1,350 foreign companies traded publicly in the United States, as well as private companies considering going public or selling to a public company.

"My bet is that several large companies are going to be targeted next year for random audits, possibly involving travel advances," Foster said. "At that point, it's too late."