I'll be on assignment the next few weeks reporting on how to live well off an expense account. Expect something more than my usual $15 lunches.
VERYBODY HAS AN EXPENSE-ACCOUNT STORY. THERE WAS THE WRITER AT NATIONAL GEO-graphic who claimed expenses for sheep he bought for a sacrifice ritual in Saudi Arabia. The federal official overseeing the savings-and-loan industry who got reimbursed for more than $700 in cash stolen when he left his wallet in a Paris phone booth.
There was the CIA man who claimed expenses for vodka during the interrogation of Russian émigrés who were later discovered to be teetotalers. The network-television crew, bored by the steaks in a small Georgia town where they were assigned to cover Jimmy Carter's presidential campaign, who chartered a small plane for $600 to fly in Mexican carryout.
Expense accounts have a way of revealing human character–honesty being the most obvious value on trial. Does that nice $80 lunch with my old college roommate, during which I remember asking him about his own expense account, qualify for full reimbursement? Were all of those phone calls that showed up on the hotel bill legitimate business expenses?
Poor judgment can lead down a slippery slope: embarrassing questions from a skeptical accountant, admission of error, humiliation and disgrace, demands for restitution, even a little character-building time in prison. Just ask Webster Hubbell, the deputy attorney general
and friend of the Clintons who got caught billing his personal expenses to legal clients in Arkansas; Dan Rostenkowski, the Chicago congressman who manipulated his stamp allowance at the House post office; or William Aramony, the head of the United Way of America whose expenses included four dozen trips to the Florida town that was home to a woman he was dating.
Expense accounts expose a person's attitude toward money. Was that room at the Waldorf-Astoria a little much or just what I deserved? Should I have taken the slow train rather than the Acela? The dessert at dinner was delicious, but was it $16 delicious?
There are those who always go cheap. They skip the wine and dessert, take the shuttle bus, fly discount, and tip lightly. This is admirable in some ways, and it may be true, as the Bible says, that these meek souls shall inherit the earth, but it's a certainty they never know the pleasures of a good expense account.
There also are those types who bring attitude to filling out their expense accounts. The whole point is that it's other people's money, which makes those who skimp a bunch of chumps. They see no reason why anyone should walk a block in the rain when a cab is available–unless they can expense an umbrella. And they take pride in standing alongside George Allen, the old Redskins coach, of whom the team's owner, superlawyer Edward Bennett Williams, once said: "I gave him an unlimited expense account, and he always exceeded it."
Most people shoot somewhere between these two extremes, adapting to the norms their employers expect. For some, this means learning a new and grander style of life–as was the case for Jack Nelson, who moved from the tightfisted Atlanta Journal-Constitution to eventually become Washington bureau chief of the generous Los Angeles Times. Reporters on the Atlanta paper were given bus tokens so they would not waste money on taxis, but the Times was something else.
Shortly after Nelson became bureau chief, Tom Johnson, the president of the Times, called to say he was in town and would come by in a car to pick up Nelson for lunch. Nelson went down to the street expecting a rental car only to see Johnson roll up in a chauffeur-driven limousine. At Nelson's suggestion they went to a small Vietnamese restaurant in Georgetown, where the bill for two came to $13.
Picking up the check, Johnson shook his head: "Damn, Nelson, nobody in LA will believe I took you to lunch."
A GENEROUS EXPENSE ACCOUNT, LIKE THEbig office with the nice view and other perks of Washington, not only parcels out status. It may also do wonders for self-esteem. I've noticed, on the few occasions when I have flown first-class at an employer's expense, that I feel much better about myself. I begin to see myself as more cosmopolitan and my conversation as more fascinating. It's a kind of expense-account high.
I've also noticed, when I'm flying back in coach, that it's possible to work up some jealously toward those up front with the wide seats and bigger expense accounts. I suspect that's the reason that a big shot exposed for cheating on his expense account doesn't get much sympathy.
It's easy to be jealous of those people who find their way into jobs whose perks are legendary. Flight attendants–and their relatives–get free airline trips all over the world. Salespeople get deep discounts on whatever their companies sell. University professors and private-school teachers sometimes get free education for their kids. The deals on big-screen TVs and everything else at military PXs begin at enlistment and last into retirement. Or how about those restaurant critics, who eat out all the time on expense accounts, or the travel planners at trade associations who must junket to many resorts before deciding which one is best for next year's convention?
If you press your nose close to the windows of executive suites, you are likely to see big salaries, lavish expense accounts, and other perks that may plunge you into despair. Many of these people travel in style at company expense–the best hotels and restaurants, cars and drivers, corporate jets ready at a moment's notice, and golden parachutes in case of a crash. Less visible but nice: big life-insurance deals, free preparation of personal tax returns, free consultation with financial planners, breaks on personal legal fees.
"If a CEO's kid gets arrested in Juárez," says one consultant, "you can be sure that his cost to defend him will be zip."
EMPLOYEES WHO SEE THEIR MANAGERS AS chintzy have a way of getting back. Subversion in the form of penny-ante fudging may become the unwritten rule. A sense of entitlement develops about extracting as much as possible out of expenses, and peer pressure enforces a code that discourages skimping.
"I remember going out on a political assignment to the Midwest for the Wall Street Journal and coming back and sitting down to type out my expense account," says Paul Duke, the veteran correspondent. "Since I was a new guy in the bureau, I was being scrupulously honest about every item. One of the senior hands came over and said, 'You can't turn that in. One of the ways we make up for the wage gap is by being generous in our expense accounts.' I had to change it."
Vagueness is a friend when it comes to expense-account fudging. Good idea never to use specific terms like Dom Pérignon, Concorde, or Swedish massage. "Networking," "fact-finding," or "customer development" covers about any lunch. An accountant for the Bridge, Structural and Ornamental Iron Workers Union pleaded guilty earlier this year to covering up $1H million in spending by union officials, including golf outings and dinners at a Washington steakhouse–some of it disguised as "educational and publicity expenses."
Some people are lax about specifying whom they were entertaining, though the IRS and many companies want to know. A congressional staffer tells of the office supervisor's expressing amazement about the appetite of a certain woman: "I see she had expensive lunches with three members of our staff on the same day."
Some establishments are more helpful than others in fogging up where the money went. Drinks at a strip club are likely to be billed on a credit card as a happy lunch at some cute cafe–the equivalent of the plain brown envelope. Taxi drivers are glad to provide blank receipts, though they're also available at office supply stores. But big hotels are no help–insisting on itemizing the little extras like room service, movie rentals, phone calls, and selections from the minibar.
For all-purpose receipts, it's hard to top the wit of a magazine photographer covering the Korean War whose ingenuity is still celebrated among photographers. Arriving on the scene after a building had been bombed, he found fragments of paper with Korean script covering the ground. Scooping them up into a bag, he carried them through the duration of the war and submitted them as receipts when the real thing wasn't at hand.
A portion of the fiction that turns up on expense accounts is probably motivated by nothing worse than the desire to come out even at the end of a long day on the road. Keeping track during a hectic trip can be a hassle, complicated by lost receipts and faded memory.
Coming out even requires claiming expenses that have the smell of legitimacy but are without rigorous receipt requirements. Tips are one possibility, but they look suspicious if they run too high. Mileage is another, assuming you're supposed to be driving. For a lot of business travelers that leaves taxi fares as the solution to all deficits. Easy is the calculation: "I don't know where it went, but I'm $75 out of pocket. Must have been cabs."
I do not know if this is taught to aspiring executives at Harvard Business School, but employees who feel shortchanged on expenses tend to have long memories and an indomitable spirit. A story is told of a reporter at the old Washington Star who put in for a pair of shoes ruined while he was covering a fire only to have the claim disallowed by the city editor. Several weeks later, after subsequent expense accounts from the same reporter, the editor complimented him for not trying to put the shoes in again.
"Don't worry, Sid," the reporter said. "They're in there."
WASHINGTON'S POWER LUNCH HAS A BAD REP-utation outside the Beltway. It's easy to view it as clubby and elitist, a ritual of big-shot lobbyists and lawyers who sit there running up big tabs as they conspire to subvert the public interest. It all goes on expense accounts, which get written off on income taxes.
The first politician to turn the expense-account lunch into a political issue was Jimmy Carter, who arrived at the White House in 1977 determined to clean up the capital. He brought to the White House a cousin, Hugh Carter Jr., who was assigned to deperk the place. Hugh removed televisions from offices, rationed yellow legal pads, canceled newspaper and magazine subscriptions, and trimmed the limousine fleet–which gained him the name "Cousin Cheap."
Carter proposed that companies be allowed to deduct half–rather than all–of meal expenses from their federal income taxes, a change that would also apply to other forms of business entertainment. His attack on the "three-martini lunch" arrived about the time everyone was drinking Perrier with lemon, but Carter pushed ahead, driven by equal parts puritanical disapproval and class warfare.
The proposal set off opposition from restaurants, country clubs, resorts, and sports teams that depended on expense-account spending, and it was dismissed on the Hill. But the idea eventually gained political traction. The tax-reform bill of 1986 cut the deductibility of meals and entertainment to 80 percent, and it was further reduced in a 1993 bill to 50 percent.
THE IRS IS THE BUREAUCRATIC HEADWATERS OF expense-account behavior, transforming the tax laws passed by Congress into detailed rules on deductibility that flow downstream to employers and on down to employees. There are rules on tipping (acceptable, with no set percentage), traffic fines (no), mileage on business trips (currently 36.5 cents a mile), and ordinary commuting (no).
About 80 percent of companies have written policies on expense accounts, and there's a tendency toward stricter enforcement when the economy goes soft. T&E (travel and entertainment) is often the largest controllable cost after salaries, so lots of companies spell things out in detail.
The strictest policies set limits on room service, dry cleaning on short trips, hotel movies, and liquor from the minibar. "A good way to go broke," says one accountant, "is to allow people to buy $5 nip bottles."
The first line of defense in discouraging unruly behavior on expense accounts is the hard-nosed supervisor, backed up by an accounting department with a show-me-the-receipts mentality and probing questions: How many people were at that lunch? Why did you take a taxi rather than the subway? Why did you send a messenger three blocks when the interns are sitting around with nothing to do?
These questions can sometimes result from misunderstandings. Jack Nelson says no one at the Los Angeles Times ever questioned renting a tuxedo for a Washington event, but after he bought one of his own, someone did question a $14 bill for having it cleaned. Another time, while the managing editor did approve reimbursement for drinks at a watering hole near the White House called the Class Reunion, he wondered why the paper was paying for entertaining Nelson's old classmates.
Being too hawkish on expenses can create resistance. The story is told of a sportswriter who bought a $300 rod-and-reel while assigned to a story about fishing. When his boss disallowed the item, he revised the mix of expenses, resubmitted a request for exactly the same amount, and attached a note: "Find the fishing rod."
Photographers may be among the most gifted at justifying expenses. A fellow from Life magazine, after a few days of shooting aboard an aircraft carrier, returned with a claim for several hundred dollars in taxi fares.
Questioned about it, he shrugged and replied: "Big ship."
THE FEDERAL GOVERNMENT SIMPLIFIES expense accounts for both civilian and military employees by giving them per-diem allowances while traveling. One figure covers lodging, and there is an additional amount for meals and incidentals. The rates vary by destination and are calculated annually–$200 a day for Washington, $258 for New York City, $209 for San Francisco, $144 for Palm Beach, $191 for Aspen, $103 for Toledo, and $101 for Des Moines. Under a new law, federal employees also get to keep frequent-flier miles run up while on government travel.
Per diem is much like the meal money that pro athletes get on road trips. Under the National Football League's contract with players, they get $15 for breakfast, $19 for lunch, and $37 for dinner.
In the government's per-diem system, questions sometimes arise about reimbursement for expenses that are on the exotic side, so agencies forward them to the General Accounting Office for rulings.
Can an employee who lives in Rockville collect for a DC hotel room where she got snowed in while representing her department at a conference? No.
Can a Foreign Service officer get reimbursed for renting white tie and tails required for attending a ceremony involving the British royal family? Yes.
Can an FBI agent collect $1,000 spent on coffee and doughnuts to feed dozens of law-enforcement officers waiting in a secret location to stage a raid? No.
The GAO is one of many Washington watchdogs on the lookout for expense-account abuse. Congressional committees, prosecutors, and inspectors general are on alert too. The GAO discovered that credit cards intended for government business had been used by 200 Army personnel to charge $38,000 worth of lap dancing at strip clubs near military bases. At the Agency for International Development, a man in charge of reviewing travel vouchers–he was noted for turning people in for expense-account abuse–pleaded guilty to embezzling more than $1 million out of the travel budget.
BEST-OF-BREED KENNEL. THREE DAYS FOR ROXY. $90. "BEEN SO BUSY I DIDN'T HAVE TIME TO WALK HER."
WASHINGTON MAY NOT BE THE capital of the lavish expense account. Hollywood producers, Manhattan advertising executives, and Houston oil moguls all do well at it. But Washington has a few institutions that have achieved legendary status.
Congress ranks near the top, though the largess is no longer quite what it was.
Until 1995, congressmen were allowed to dip into their campaign war chests to pay for about anything their hearts desired. Among the items: tickets to Broadway shows, airplane charters to inspect flood damage, a portrait of a congressman's father, a Lincoln for cruising around the home district, football and baseball tickets, country-club dues, tuxedos, a fire engine for hometown parades, legal expenses, babysitting, flowers for a mother-in-law, a fee to a clergyman for the blessing of a campaign headquarters, and a $100,000 donation to name a university chair in a congressman's honor. Best of all, when they left office, they were allowed to pocket anything left in their campaign tills–amounts reaching into the hundreds of thousands of dollars.
The good life in Congress also has been affected by a change in ethics rules limiting how much politicians and their staffs are supposed to accept from the city's army of lobbyists. The basic rule in both the House and the Senate sets a $50 limit on any single gift, meal, or entertainment from an individual lobbyist, with a $100 yearly limit from that source. Items under $10 don't count toward the annual limit.
This has led to dozens of pages of guidelines, along with loopholes that may be exploited. It's possible to buy somebody several drinks and have each one billed separately or to split checks among several lobbyists in creative ways, says one lawyer, who claims you can go into any watering hole on the Hill and watch the rules being violated. One device used in some restaurants is the corporate wine locker, which allows a meal to come in under $50 because the wine is billed separately by the month. Another end run involves club seats to Wizards and Capitals games, which are valued at just $49.50, following a lobbying campaign by Abe Pollin.
The World Bank, which has 8,000 employees conducting business from its headquarters complex just west of the White House, has always had a reputation for generous expense accounts and benefits. There was a time when everyone flew first class on long flights to remote parts of the globe, settling in upon arrival at the very best hotels. That made it easier to sleep while on the road, but it didn't help the image of an organization dedicated to alleviating poverty in the Third World. "I was always embarrassed," says one employee, "by cut flowers waiting in hotel rooms."
In the mid-1990s, the bank trimmed these expenses. Employess were required to fly "business class," not as fine as first class but far better than coach, and nearly 60 of the world's most elegant and expensive hotels from Rome to Tokyo were put off-limits. But World Bank benefits are still enviable. Annual leave is 26 days, the European standard. Non-Americans working in Washington, including people from 140 countries, can get reimbursed for up to 75 percent of college and private-school tuition for their children.
Before the bubble burst, Washington's high-tech companies also generated a few legends of wretched excess, none more awesome than those of Michael Saylor, the founder of MicroStrategy. In the late 1990s, when MicroStrategy was riding high, Saylor threw splashy events for his employees, renting out such venues as the Corcoran Gallery of Art, the club level of FedEx Field, and Constitution Hall, where the entertainment included the Temptations and the Supremes.
Then there was Saylor's annual Caribbean cruise. The entire company was shut down for a week in January, and more than a thousand employees boarded chartered planes to Florida, where they climbed aboard a cruise ship for several days of island hopping, morale boosting, and team building. "It wasn't as pleasant as it sounds," remembers one participant. "You had to sit some of the time in a windowless auditorium bobbing up and down and listening to Mike Saylor speak. All the doors were closed so you could not get out."
CLASSIC LEATHER. BRIEFCASE. $250. "LOST MY OLD ONE–A GIFT FROM MY FIRST WIFE. REALLY MISS IT."
MEDIA COMPANIES WITH BIG BUREAUS in Washington have been famous for grand expense accounts. At the television networks, allowances for clothes and hairstyling, limousines, first-class air travel, and top-flight restaurants were norms for the top talent. Producers had no qualms about chartering airplanes or spending anything else it took to get a story.
Diana McLellan, who wrote a gossip column at the old Washington Star, remembers the change in attitude when it was purchased by Time, the New York-based media conglomerate. "Somebody said to me, you have to turn in a big expense account or they won't respect you. So every day I went to an elegant cafe on Pennsylvania Avenue, took somebody along, and ordered Champagne. Not to have done that would have been letting the side down. After a while you're able to do this with enormous gusto."
In flusher days at National Geographic, when photographers shot up to 1,000 rolls of film on a single story, the gold-plated expense account was the norm. Everybody flew first class and could take the spouse along at the magazine's expense if he or she was on the road too much. Bob Madden, a photographer who spent 35 years at the Geographic, remembers being urged to stay in the best hotels to keep up the reputation of the Geographic for class and quality.
Travel on the magazine's dime was often to exotic parts of the world, which required unusual expenditures. Until the early 1980s, the expense-account form included a line for the "gifts to natives" that were often needed to ingratiate a Westerner with residents of the Third World–a category that included everything from a Buddhist prayer wheel to a baby camel to be roasted for a group of sheiks.
Proper outfitting and transportation were critical. Special boots to protect against jungle snakes, a dugout canoe to negotiate the rivers of the Amazon basin, a custom-made helmet for an assignment on Mount St. Helens, helicopter charters for aerial shots, even a little Cessna 180 that somebody bought in Alaska for $25,000. A Geographic accountant once remarked that he believed writers and photographers always left the office naked and stopped at Eddie Bauer on the way to the airport.
The money was so free-flowing that it led to practical jokes, like the one played on photographer Steve Raymer. After booking his first flight aboard the Concorde, Raymer made the mistake of letting his colleagues know how much he was looking forward to the gourmet meals and fine wines. A couple of days before the flight, somebody called British Airways with a special request: "This is Rabbi Raymer, and I just wanted to make sure that you know that I keep kosher and am on a diet."
End-of-the-earth expense accounts are a specialty of war correspondents and others who operate on the edge. Guides and interpreters, aircraft and all-terrain vehicles, flak jackets, bribes and protection money, tires to replace those destroyed by shrapnel–they're all part of the game. A Washington Post reporter once got reimbursed for hiring a platoon of South Vietnamese soldiers to escort him to My Lai.
But reporters don't have to go abroad to need a little bribe money. The story is told of a television reporter, needing silence to do a Christmas story at a shopping mall, who turned in an expense account that included $20 paid to a Salvation Army band to stop playing for five minutes.
MR. KIM'S. DRY CLEANING. $10. "SPILLED WINE ON SHIRT COVERING GALA."
THOUGH CREDIT-CARD RECEIPTS OFTEN provide the self-incriminating evidence to catch an expense-account abuser, people get caught in other interesting ways. A board member of the United States Postal Service was caught exchanging first-class airline tickets for coach class and pocketing the difference because a low-level postal employee on the same flight was suspicious to see him riding in the cheap seats.
Before credit cards, a couple of producers in the Washington bureau of one of the television networks got caught putting in phony claims for meals with sources at an expensive Georgetown restaurant because an alert accountant noticed that their receipts–stretching across many months–were stamped with sequential numbers.
Regardless of how perpetrators are nabbed, this sort of thing looks bad. You tend to look piggish, something the press never lets anyone forget. When the Washington Post once got access to Marion Barry's credit-card charges, the mayor quickly paid back just over $1,000 that he'd charged the city for out-of-town vacations and trips to family reunions.
It's all the worse if you're the leader of an organization with an image of high virtue. That was true in one of Washington's most sensational scandals, which involved William Aramony, head of the Alexandria-based United Way of America, whose jet-set lifestyle on the charity's tab resulted in a seven-year prison sentence. Though Aramony maintained his innocence, a report detailed spending habits that must have astonished the director of any homeless shelter desperate to receive United Way donations. Aramony spent $92,000 over four years on chauffeured limousine service in New York City, where he also stayed in a United Way-owned apartment; charged nine trips to Europe aboard the Concorde; and took repeated trips out to Las Vegas as well as those visits to a girlfriend's hometown in Florida.
Other abuse cases get handled more quietly but with devastating effects on careers. People who have a record of fudging on expense accounts may be confronted with the incriminating evidence if a company wishes to fire them or avoid costly severance pay.
The dreaded question has only one answer, says a business consultant: "Do you want to resign, or do you want a public battle over the negligee charge at Saks?"
An executive at a well-known professional firm tells of the ruination that lies in wait: "We had a guy who headed our international division, one of the most respected people in the firm. He traveled all the time and kind of went off the edge. Started putting several thousand dollars of personal stuff on his expense account. I don't think he considered it stealing but more of an entitlement–a little extra compensation for the being gone all the time.
"Somehow this was picked up in an audit. Everyone was shocked, and the board decided to fire him. He was brought back to headquarters by one of the directors, and I was asked to meet the plane and take him home for fear he might harm himself."
Expense-account indiscretion–like an inflated résumé or an overheard ethnic joke–can be a big setback for someone in the fishbowl of Washington politics. No one is bashful about trying to embarrass a political opponent. Democrats in Congress asked the GAO to investigate Kenneth Starr's reimbursement for rent on a Washington apartment while he was serving as independent counsel investigating Bill Clinton; the conclusion was that there was some innocent misunderstanding of federal expense-account rules, and Starr repaid about $10,000. When Dick Morris's sessions with a call girl at the Jefferson Hotel were exposed, the damage-control experts in the Clinton White House announced an immediate investigation into whether he'd expensed the toe-sucking; the conclusion was negative, though he was asked to pay back about $50 in personal phone calls.
Once an expense-account scandal gets on the record, it can stay with you for life, even ending up in your obituary. That's what happened to Herman Talmadge, the senator from Georgia who died earlier this year at the age of 88. In the late 1970s, Talmadge was denounced by his colleagues in the Senate after testimony that he kept large sums of money from supporters stashed in an overcoat and he failed to justify more than $43,000 in expense money. In his memoir, he allowed that he ought to have been more careful: "I wish that I'd burned that damn overcoat and charged everything on American Express."
PLEASANT VALLEY GOLF CLUB. GREENS FEES. $175. "GOT GOOD STUFF HERE. THESE GUYS REALLY LOOSENED UP."
ONE OF THE TIME-HONORED WAYS OF abusing an expense account is to find ways of converting legitimate-sounding charges for goods or services into cash. Several National Basketball Association referees were caught trading in first-class airline tickets, which their union contract allows on flights of two hours or more, for coach seats and pocketing the difference. That's okay, but the IRS accused them for not reporting the savings as income.
Congressman Dan Rostenkowski, the burly Ways and Means chairman from Chicago, lost his seat and went to prison for various transgressions, including hiring ghost employees and misusing official vehicles. But one of his trickiest schemes involved taking some of the free stamps allocated to his office back to the House post office and getting cash in return–which made him seem petty and greedy at the same time.
A Food and Drug Administration official used the old double-billing strategy, collecting expenses both from the government and the sponsors of a pharmaceutical convention where he spoke. An investigation discovered that members of special Army units assigned to guard American ambassadors abroad were getting hotel clerks to issue them inflated bills. Several unit managers at NBC, including three in Washington, were fired or resigned after being accused of buying extra airline tickets for correspondents and producers, returning them unused, and getting the refunds credited to their personal accounts.
If you're short of cash, access to an expense account can be tempting. Webster Hubbell–who was a senior partner in the same Little Rock law firm as Hillary Clinton–ran up charges for personal items on ten credit cards, then turned them in to the firm as business expenses, which the firm either paid or billed to clients. The prosecution charged that he made more than 400 of these charges, worth at least $394,000, including purchases at a clothing store in Dallas and at a Victoria's Secret in Little Rock. To make matters worse, he tried to make the phony expenses seem legitimate by padding his billable hours. He went to prison.
In a world with so many perks, business and personal expenses may get mingled in ways that are hard to sort out, especially if it's in someone's interest not to do so. An executive's full-time use of a company car may cause anxiety among by-the-book accountants, who know that the IRS demands that any personal use of the car qualifies as a taxable benefit. There is lots of room here for fudging–like forgetting to note in a log that the trip to the beach house is personal use.
There's danger, too. One business consultant tells of a case where a young man had his father's company car at college and killed someone in an accident driving back to his parents' home. Big trouble: The insurance company refused to pay when it found out the son was the driver.
When Edward Bennett Williams fired George Allen as coach of the Redskins in 1978, the owner billed the coach for more than $14,000 in expenses he considered unjustified, including pajamas Allen bought at training camp and flowers he gave his secretary. Jesse Jackson got his organization, Rainbow/PUSH, to pay $40,000 in relocation expenses for a staff member who was the mother of his illegitimate child. And William Sessions, a former FBI director, was fired after a long-running dispute over using government money to build a security fence around his private home and using a government car and driver to take his wife to shop and get her hair done.
Abuse is hardest to control in closely held companies where an egocentric founder uses his company's money as a personal piggy bank and ignores the potential tax liabilities. "You're always on the lookout for cases where a loser brother-in-law who has never worked a day in his life gets his health coverage through the company," says one tax accountant.
Publicly traded companies aren't immune to personal looting by executives, as the latest round of corporate scandals attests. The Wall Street Journal reported that L. Dennis Kozlowski, the deposed and indicted CEO of Tyco International, used company loans to acquire a personal estate (nearly $20 million, later forgiven), part of an art collection valued at $13 million, and a birthday party for his wife on the Italian island of Sardinia.
BLOOMS ON K STREET. DOZEN ROSES. $85. "THANKS FORALL THE GOOD WORK BACK THERE IN ACCOUNTING. YOU DESERVE THE BEST."
EXPENSE-ACCOUNT ETHICS OFTEN START at the top, with a tone set by the CEO, and trickle down. "If an executive vice president sees the CEO taking his spouse on trips and expensing it, he does it too," says one consultant. "If the CEO always travels first class, it's harder to make people down the line who are out on the road all week ride in coach. That's why you see some CEOs who come in and get rid of the stretch limos. That's the tone they want to set."
There are executives who run off the deep end. Edwin J. Gray, chairman of the Federal Home Loan Bank Board in the 1980s and the man who lost his wallet in Paris, sat atop an organization where the tabs included five-star hotels, expensive meals, beauty-salon appointments, limousines, massages, dinner cruises, and golfing at resorts.
The Blue Cross and Blue Shield Association, which administers health insurance for federal employees, got in trouble with Congress for some of its spending habits. The organization paid for a wardrobe bag and the preparation of personal income taxes for CEO Bernard Tresnowski, though he later agreed to pay the money back. The group held meetings at a resort in Palm Springs and another in New Orleans where it spent $285,500 for a stage production in which performers sang, "Blue Cross finds out what it takes, and then they put it in their rates."
Mixing business with pleasure is another gambit. Taking loved ones along on trips–spouses and children, or even cronies and pets–is one version that gets murky when executives have access to corporate jets. Some companies ask them to pay the equivalent of a coach airfare for their fellow travelers, but some let it slide.
Tacking a personal holiday or private errand onto an official business trip is another practice that is ambiguous. The late Les Aspin, Secretary of Defense in the Clinton administration, once delayed returning from a European conference to spend a few days in Venice with a girlfriend; he paid for his own five-star hotel, but the added days abroad cost taxpayers about $36,000 to put up the crew of his jet and the security people who had to hang around. Thomas White, a former Enron executive who is Army secretary in the Bush administration, got lots of bad press when his military jet stopped off in Aspen, where he settled on the sale of his $6.4-million ski house.
Partying is another of life's pleasures made all the sweeter if it's on other people's money. There's something liberating about those long wine-filled dinners after signing a big deal, about golf-packed conventions in Hawaii or Palm Springs, about the languid retreats from the office at the Greenbrier or the Broadmoor, or about those fact-finding government junkets to Tokyo or Paris.
Things can get out of hand, as they did at the Navy's Tailhook convention in Las Vegas in 1991, which became infamous for Navy pilots groping women running a hotel-corridor gauntlet. Less known, as reported by the Los Angeles Times, was that defense contractor McDonnell Douglas submitted a bill to the Defense Department for golf outings, a tennis tournament, X-rated movies, and employee salaries for the four-day event, only to withdraw it when questions were raised.
The ultimate irony of living well on an expense account is that it is possible to use company money to create an image of selflessness. The gracious host who gives such fabulous parties, the political activist willing to contribute to a campaign, the board member of the museum or orchestra who is tireless in attending charity balls–all appear to be some of life's most generous creatures. But if the money trail is closely checked, some of them turn out to be laying off most of the cost on their employers, some of whom encourage it as good public relations and networking.
One example is Kozlowski of Tyco–being investigated for directing more than $40 million in corporate money toward his favorite charities, including Seton Hall University, his alma mater, and a building named for himself at a private school attended by his daughters. Juan Antonio Samaranch, the Spanish aristocrat who headed the International Olympic Committee for nearly two decades and boasted of never accepting a salary, turned out to have collected $204,000 in one year in untaxed expenses.
But remember that expense accounts have a history. George Washington, much admired for refusing any salary as commander of the Continental Army during the American Revolution, did turn in detailed expense accounts, written in his own hand and preserved at the National Archives.
His eight-year total came to about $160,000–in 18th-century dollars. You almost can see him sitting there in his tent at Valley Forge with his quill pen writing it all down at the end of the day: glasses, maps, saddles, horses, guns, tin plates, a telescope . . . anything to come out even.
