PE firms toughen up on T&E expenses

Private equity firms are taking the Securities and Exchange Commission’s crackdown on fees and expenses seriously, with some partners now required to justify outgoings as nominal as a cup of coffee.

Just over one-fifth of delegates polled on Tuesday at the PEI Funds Compliance Forum in San Francisco said their firm is reviewing every expenses bill that is put through by a staff member, while 85 percent said their key priority was to enhance their fees and expenditure policy, or to revise their disclosures documentation.

The extent to which expenses policies are being reviewed varies from firm to firm, but the consensus was business travel expenses in particular are being scrutinised at a more granular level.

“We’re encouraging more shared trips, and trying to economise on travel expenses. We need more documentation, we’re tracking more heavily who is paying for what on a trip,” one GP from a US-based lower mid-market private equity firm said.

Policies have also become more explicit, outlining exactly what can and cannot be charged.

“Small details such as the time after which you can expense your laundry are now included. And we also outline what cannot be expensed, massages, movies, that kind of thing,” the GP added.

A second GP said its firm had brought administrative tracking in-house, having previously outsourced it, and was currently reviewing its expenses policy.

“The most important thing is to be consistent, and to ensure that the assessment of expenses is repeatable, that the same things are chargeable or not chargeable in the future,” the GP said.

Expenses review

The largest proportion of delegates, 46 percent, said their firm ensured compliance with travel and expenses policy by reviewing a sample of expenses.

“Our team tends to highlight anything that we would consider ‘complicated’, an expense that may or may not be acceptable. We have a meeting to discuss whether or not it can be claimed before it is processed,” the first GP said.

A third GP, working for a US-headquartered growth equity firm, said its firm conducts a quarterly review of expenses, and relies on checks and balances to ensure compliance with the policy.

Regardless of how the firm tests its procedures, it is essential it keeps a paper trail, and can document how and when those procedures were tested, as is analyzing the process as and when it is being followed.

“Don’t get into a rut, question and analyze why you’re doing things. Don’t just do it, it’s a complicated procedure, you must make sure you’re asking the right questions,” the first GP said.

A fourth GP said it is important to think about how you present evidence of your testing to the regulators, if and when it is requested.

“The SEC can turn ‘round and ask you for evidence [of your testing procedures]. It’s important to think about how you will present it,” the GP said.