Friday, May 11, 2012

Peregrine on CEO Expense Accounts

Chicago lawyer Michael Peregrine of McDermott Will & Emery has written an opinion piece in the Chronicle of Philanthropy discussing questionable spending by a top administrator of a foundation benefitting the University of Texas Southwestern Medical Center.   In Why Watching CEO Expense Accounts Matters, Peregrine argues that adopting a few procedural safeguards can prevent spending missteps:

The first task is to craft workable guidelines for distinguishing business and personal expenses and identifying the appropriate business-related expenses for the chief executive’s spouse. The guidelines should also discuss how to account for and acknowledge donations to the charity from the CEO and how those will be reported for tax purposes.

Second, the nonprofit should create a system that makes it routine and easy for the board chairman to review expense-account spending. Auditors who work for the CEO can’t be the ones to raise the questions if something goes wrong; that is a board duty, and in some cases, one for the general counsel.

Boards should take action to step up their oversight of expense accounts, not solely out of concern with the CEO’s actual practices but also because it is a smart way to protect the institution and the office of its chief executive from scandal. CEO’s deserve effective guidelines from board leaders.

Peregrine concludes, “[B]oard chairmen have no choice but to make sure they are able to raise tough questions about personal spending even when that makes things uncomfortable for an otherwise outstanding chief executive.”


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