Fraudulent Business Expense Reimbursements

Exploring the penalties that can result from this fraudulent act.

State v. Brumback, 671 N.E.2d 1064 (Ohio App. 1996)

Background. Claiming reimbursements for business miles that were not actually driven can result in a number of adverse consequences—including criminal penalties. A recent case provides helpful guidance for church treasurers.

Facts. The treasurer of a public school district was convicted of theft for reimbursing herself for mileage she had not driven. The court rejected the treasurer's defense that she had driven all of the reimbursed miles. The treasurer was sentenced to a 6-month jail term and was ordered to pay back all of the excess reimbursements.

The treasurer appealed her conviction, claiming that the state had failed to prove that she intentionally received excess reimbursements. She noted that she used her car "extensively" for school purposes—which justified her mileage claims.

The court's ruling. An appeals court rejected the treasurer's appeal and upheld her conviction. It observed:

The evidence showed that for years [the treasurer] had submitted unitemized mileage reimbursement vouchers in excess of the quarterly maximum amount payable for in-city mileage. Board policy required that mileage reimbursements claims be itemized. As treasurer [she] was responsible for approving mileage payments upon proper documentation. By virtue of her office, she was able to reimburse herself despite the lack of proper documentation pursuant to the board's policy. There was also testimony that [the treasurer] was not out of the office enough to justify the mileage claimed by her ….

[The treasurer's] testimony that she did not intend to take anything to which she was not entitled does not necessitate a not guilty verdict. There was strong evidence from which the jury could find that [she] had the required intent. As treasurer [she] was responsible for attending all board meetings and for creating and maintaining the board's resolutions. Her knowledge of the law, board actions, policy and procedure provided ample evidence that she knew that what she was doing was contrary to law.

What this means for churches

There are a couple of important lessons that church treasurers can learn from this case. Consider the following:

1. Treasurers held to a higher standard. Perhaps most importantly, this case demonstrates that treasurers will be held to a high standard when reimbursing themselves for business expenses. It is absolutely essential that church treasurers scrupulously follow applicable church policies and procedures when reimbursing themselves for any business expense. As this case illustrates, failure to do so may result in criminal liability.

Example. Gail is a church treasurer. Her church has established an accountable business expense reimbursement arrangement, which requires adequate substantiation of all reimbursed expenses. The church permits reimbursements of the business use of a car at the IRS-allowed rate of 32.5 cents per mile for 1998. Gail reimburses herself for 5,000 business miles for the first half of 1998 ($1,625). In fact, she failed to maintain any records to substantiate any of her business miles. Note the following consequences: (1) The reimbursements are all nonaccountable. (2) The reimbursements represents taxable income that must be reported on a W-2 or 1099. (3) Gail faces possible criminal liability. While the likelihood of criminal prosecution is remote, it is a possibility.

2. Handling reimbursements for other staff members. According to our research, most churches reimburse at least some of the business expenses of ministers and other church staff members. Is this true of your church? If so, the responsibility of reimbursing these expenses probably falls upon your shoulders—the church treasurer. You need to be alert to staff members who seek excessive business expense reimbursements on the basis of inaccurate or incomplete documentation. If your church has adopted an accountable arrangement, then be sure that you only reimburse those expenses supported by adequate documentation. This will reduce the exposure of staff members to the problems mentioned in the previous paragraph.

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