The Tyranny of Silly Expense Control Rules

When something goes badly wrong at an organization, the organization hopefully does a post-mortem and looks for ways to prevent it from happening again.  Unfortunately, sometimes they lose all sense of proportion:

Last night, for example, I was cleaning up my desk. I have an envelope I keep business expenses in. There was a hotel bill for a trip when my AOL issued credit card was turned off for the day. Some taxi expenses and a restaurant bill. I looked at them, thought about the process for turning those expenses in and then having to defend them via a phone call (Heather would probably save me from this, but there goes an hour of her time). So I did the rational thing. I shredded those receipts - around $1,500 - because it wasn't worth the pain.

Part of this process - at least at one point if not now - was referral of expense reports out to a third party firm who would assign you a "case number" and ask you to do things like send actual boarding passes to them to defend flight expenses. Sometimes we can't get our writers to take business trips because of how difficult it is to be reimbursed for expenses.

Then today I was talking to someone at AOL about nothing in particular, and he brought up his own troubles with expense reimbursement. I asked why the company is so crazed about it.

Enter Gregory Horton. This guy was head of HR at AOL a decade ago when the company was still part of Time Warner. His story is amazing. He apparently set up a dummy consulting corporation and was billing AOL $100,000 a month for made up work. All in all, the company lost over a million dollars to Horton, or so the story goes.

Because of Horton, AOL has for nearly a decade had draconian expense reimbursement policies.

The person who wrote that--Michael Arrington of TechCrunch--has just left AOL.

I view this as a particular problem in the way that we handle government.  The fear that some government bureaucrat, somewhere, might be getting away with a slightly too nice meal on the taxpayer dime has led us to waste time and money treating government employees like presumptive criminals.  A couple of years ago I was talking someone who had left a senior position at a bank to take up a high level position in state government.  They asked their secretary to order sandwiches so that the staff could sit down and have a welcome lunch to discuss the issues the department faced.

"Oh, no," they were told, "we can't do that.  You can only have a meal if there's overtime."

Faced with a choice between requiring the staff to work overtime so that they could eat together, or to spend hours at a conference table with no food, the former executive gave up and paid for the damn sandwiches out of their own pocket.  A little food really does lubricate a long meeting.

Expense control is important.  But audit and control systems have costs as well as benefits, which means that the optimal level of expense abuse is rarely zero.

What's really shocking is that AOL has let this go on for ten years.  I suspect this speaks to the company's larger problems repositioning itself in the marketplace.