An IRS regulation as a catalyst for change? How Berkeley reduced red tape for mileage reimbursements.

• Author: Rabkin, Anna
• Position: State of the Art

It is unusual for a new IRS regulation to act as a catalyst for cutting red tape and avoiding unnecessary costs. In the case of employers' mileage reimbursement to employees using their private cars for business, however, an IRS regulation spurred the City of Berkeley, California, to change for the better.

Prior to the change in regulations, employers were required to calculate mileage reimbursement based on a formula in which the top reimbursement rate of 26 cents per mile applied only to the first 15,000 business miles per year, and 11 cents applied to all miles over 15,000. Effective July 1, 1990, the IRS collapsed the rate structure creating one standard reimbursement rate of 26 cents per mile regardless of miles driven; however, if the employer allowed a rate higher than 26 cents, the difference had to be reported to the IRS as additional income and was subject to income taxation.

Berkeley's Pre-1990 Policy

Berkeley, a city of 103,000 people, has 1,344 full-time and 71 part-time employees. To integrate the IRS' new regulation into the already cumbersome reimbursement system in Berkeley would have required costly and time-consuming procedures. The existing system had been established to feed a 1970s, semicomputerized accounting system, ensure internal controls and maintain an audit trail, especially for grants accounting.

The negotiated union contracts of the City of Berkeley include a reimbursement rate for mileage of 34 cents, a rate that is used for all staff. A costly, paper-intensive and mostly manual system had to be maintained to reimburse employees for their mileage, and employees complained frequently about the length of time it took to receive a reimbursement check. The reimbursement system required the following steps.

Step 1. Employees receive authorization to use their private vehicles by completing an "Auto Allowance Application" form which requires proof of valid driver's license and proof of financial responsibility (insurance). A department head and the city manager certify the form.

Step 2. Employees fill out an "Application for Use of a Privately Owned Vehicle for City Business" form which explains city regulations about car use. The immediate supervisor and department head must sign to approve.

Step 3. Employees make an entry on the "Daily Auto Record for Auto Allowance" form, providing origin and destination of trips, miles driven and various other information (tolls, parking).

Step 4. Supervisors sign the "Daily...