I am struggling to deal with my CEO who has questionable expense reports. Any ideas?

Speaking from experience, I'd recommend taking a direct approach with your CEO if you report directly to him/her. If the report isn't direct, then enlist the aid of the top financial report to the CEO. Using a direct approach, explain to the CEO how the reports appear (which is why you are questioning them) and suggest options for improving them. Preface your comments with your fiduciary responsibility to the Company and its owners. The CEO's reaction will tell you whether any further action is necessary. I'm suggesting this direct approach with just the two of you because you will have to face and work closely with the CEO and at the end of the day, you need the respect of the CEO. The CEO may not appreciate the challenge initially, but he/she will come around afterwards, especially if you don't change your attitude/approach to the CEO after having such a frank conversation. Be as positive and open about this as you can be. Hopefully, you can accomplish this and leave the door open for other options. If the reaction is bad, disengage the discussion by saying something like, "look, I know this comes as a shock and I only have good intentions...perhaps we should finish this discussion after you've had a chance to absorb my stated reasons for bringing it up".

I joined a company and found one of my subordinates was playing expense games. That's not as tough as your challenge but the issues are the same.

Lots of good comments already. In addition, consider implementing a policy of regular random expense report audits, perhaps a task for the internal audit team. Such a policy is consistent with the trust but verify philosophy. Too often, unless there's a reason to examine or investigate T&E reports, they receive only a cursory (or no) review and are simply approved.

There are many excellent comments and recommendations involving speaking directly to the CEO, so i will not go over those. One other comment referenced using the internal audit department to perform reviews, and depending on the level of concern / nature of the issues you are facing (do they need to be addressed sooner rather than later ?), this could be another good option to pursue. In a former company we had a requirement for an annual internal audit of all exec level management expenses (plus those paid to the Board), with the report going to the Audit Committee. Any compliance-related concerns were highlighted (together with remedial actions already taken), and in addition the report also included metrics that highlighted who was spending excessively. The report was always discussed with the CEO and CFO prior to presentation to the Audit Committee, thus you'd not bypass the need for discussion of any concerns that might arise, but you would be doing so as part of a formal required process.

I also very much agree with the comment that doing nothing can have a detrimental impact on employees perceptions of 'tone at the top'.

At my last employer the CEO's driver submitted an expense report for the CEO EVERY Friday for precisely $1000. The CEO's secretary controlled Petty Cash. Poof $50,000 extra in comp, tax free! When we merged with another public company I used it as an opportunity to eliminate the Petty Cash account and the separate Amex cards available only to the CEO and one or two of his closest cronies. I admit I was lucky because as the merger was a merger of equals the other company's BOD and CEO stuck around for a little while and that provided a useful screen. But getting the BOD to adopt a more transparent approach and accept responsibility for reviewing the CEO's T&E made it Somewhat easier but it was still an uncomfortable time. Also discreet side conversations with the outside auditors helped.

1) Mark Hurd, former CEO of HP, resigns, the Board is highly criticized in the press, the company faces reputational damage, and share valuations are lower
2) Employee submits an anonymous tip on the company’s ethics helpline, but the claim is never adjudicated
3) Senior leadership doesn’t want to hear bad news, so lower level management buries the issue
4) Whether in accounting or internal audit, the employee is discriminated against and eventually resigns or is eventually terminated
5) The tone at the top leads to other incidents of fraud and/or misconduct by lower level employees

Warren Buffett makes a bold statement in the Berkshire Hathaway Inc. 2010 Annual Report, “Corporate Culture, not rules, determines organizational behavior.”

What does the CEO’s disregard for rules say about this company’s corporate culture?

Or perhaps your CEO has no interest in sustaining an ethical and productive corporate culture.

To add to Jim Schwartz's comment. A discrete way to bring the subordinate in line with the expense policy would be for the CFO or Controller to assign the responsibility for running and reporting on the internal expense report audit to EXACTLY the member of the finance team who is 'playing games'. It takes one to know one, and it can be a very effective reform school. . .

Many of these answers assume a very hierarchical corporate structure. For many many small to mid-sized business this just isn't the case. There is no internal audit function and the CEO is the President and (partial-)owner.

It comes down to two things, a) taxes/legalities and b) cash flow/bank/investor. Approached in this manner, relating the non-business expenses flowing through the business most (unfortunately not all) CEO's will stop.

I find (B) to be more effective strategy than (A), but they both have worked.

I've had several situations like this in my career and handled the three specific instances differently.

1) One was when my dotted-line boss (CFO) asked me to sign his expense report after a trip to Asia. He had purchased books to read, all new luggage and other questionable items and charged them to the company. I felt that was not acceptable under our written expense policy and I myself had had legitimate requests denied. As I was "sitting in" for my boss, the CEO during a business trip, I sent the CFO's expense report back and told him that I thought it more appropriate if the CEO reviews and signs his expenses. Now, whether or not he was pulling stuff like this all the time, I don't know, as the corporate group's expense reports were filed in a different building. I always seemed to get this guy's expense reports the second the CEO left town...

2) Another example is a CEO of a company I was working for had relocated from southern California to the Bay Area. Well, not really. He left early on Fridays and came in late on Mondays, flying down and back to L.A. to his house. While up in the bay area, he stayed at a (nice) hotel and charged this and all his meals, including cocktails, wine, etc., to the company. He did have a very nebulous relocation agreement in place, but this went on for over 18 months. I asked him the usual who, what, when and where about the agreement and he said that it was supposed to be good until he found a house in the bay area. After outside auditor questions, I was compelled to kick it up and notch. I e-mailed the CEO first and told him that the auditors want a copy of his relo agreement before they sign off on the financials. I told him I had to copy the COB, who called me later to get the full extent of what was going on and how much was spent over this period. After that, the COB decided to have a written agreement drawn up to give the CEO a weekly fixed stipend to stay and eat where he chose, but it had a definite termination clause only allowing for six-months more of any ongoing relo expenses; also, the stipend was much less money, so the company was on the hook for only a set amount of expenese. He finally bought a house up here and that settled the issues in short order.

3) Then there was the case of the spend-thrift (also the founder) CEO who would only eat in fancy resaurants and stayed at four and five star hotels, Ritz, etc. Dinner usually included several $300 bottles of wine. Since this was a start up, I commented to him jokingly that maybe I should choose the wine, since it was nearing our capital expense policy. He laughed, but the next dinner we were at, I went ahead and chose, instead, a $50 bottle of wine that they all loved. Since these Board meetings were a regular occasion, I made a point of giving some weekly cash flow trends to the CEO and Board, which heightened their awareness to the cash situation of the company.

I chose not to go head to head with any of these CEOs, as the attitude was "my way or the highway", especially with a founder-CEO, and this type of stuff had happened to me even in large companies

Make sure you have a crisp and easy to interpret reimbursement policy that conforms to all IRS guidelines. Then follow it unemotionally and consistently. I am old enough to have seen all kinds of characters and regrettably, those with ethical challenges rarely (never) change behavior. Your only recourse short of changing companies is to stick with the rules.

It is a question of context, the answer provided will apply depending on: CEO of ....(public/private company). Family/private/public business? Your position in the totem pole (AP clerk/Controller/CFO) and (part owner/majority equity-stock holder/employee)?

Then, one would be able to apply the responses accordingly...

In our organization, the CFO approves the CEO's expense reports in accordance with the company's expense reimbursement guidelines. Every quarter, a summary of those expenses (each separate expense is a line item) is sent to the COB for his/her signature acknowledging they are in accordance with the company's policy.

There are some really great comments here and I'm frankly glad to see the topic being discussed. However, as Wayne mentions, many of the comments assume a corporate structure. My experience with these situations has involved smaller companies where the CEO is also the owner and your boss. Unfortunately, I've seen situations where the CEO/Owner spent money so much (for his personal gain) that the company itself suffered and struggled to pay it's vendors.

For me, the question has always been "Is it worth risking my job?". Maybe I shouldn't look at it from that viewpoint, but it's always been a concern. It's honestly a constant battle between whether to "do the right thing" and talk with the CEO or (as Laura mentions) "suck it up".

For the current situation, I'd recommend discussing with the CEO. In my experience, most people are reasonable if presented with the information and the reasons why the expenses may be invalid. To many non-financial staff (if the CEO came from operations), financial controls are a foreign language, but once they learn them, you usually don't have any more problems.

For the future, make sure you write a system of approvals in your corporate policy manual. The CEO should have to submit an expense report to someone. Ideally, the Board would review at their periodic meetings, or at the very least the CFO, or another officer in the C-suite.

In one of the companies I have served, ALL CEO expenses are reported to the Board and included in the board documents/agenda. It is up to the Board is they want to go through it with a fine tooth comb or just parse through it (Usually the latter). There are dollar limits and expense classification criteria and requires preclearances (from at least one Board Member, which can be via email, in person or via telephone) if it is outside set policies. I earmark expenses (in the Board report) that are outside/against policy and without preclearance.

The main point here is that there ARE set policies approved by the board, the necessary approving/pre-clearance authorities are set and the reporting structure. I do NOT have to "struggle".

I have a similar scenario with a private startup firm, whose CEO is the 2nd largest shareholder and has lost his board position, however acts as the firms bank account is their own (even though all the current cash on hand is from a venture fund). There are many questionable expenses, that as above mentioned would have tax implications for the CEO, as a benefit, which I have communicated as an issue even for the firm. Thus as Controller I have stopped signing off on all expense claims due to the fact of non-direction from the CFO (Controller signoff required per accounting policy).

The CFO brought it to the attention of the Chairman (my suggestion was the compensation &/or audit committee review and sign off the CEO's expenses) however the CFO only brought it to the Chairman (who is a significant shareholder, getting their shares from the CEO, thus they back the CEO), who stated they would review for material &/or unusual items. CFO has not defined these to me, despite repeated requests for clarification, thus I will not sign off on any expense claims. The Chairman has not reviewed &/or signed off any of the CEO expenses claims over the past 6 months, and the issue has not been addressed purposefully (at least this is my belief).

I understand there are larger issues at hand here, however how does one continue through this issue knowing that it is a risk to the company. There is no way to speak to the Board or committee members directly, especially as this would be going over the CFO's head).

You need to be direct with the CEO. First, establish the legal / ethical issue as a basis of standards. Once achieved, then discuss how the questionable spending is not in agreement with those standards. This separates the people from the issue as you are discussing activities against a standard regardless of who is initiating the transactions.
As an example; say the owner is paying a family member (income splitting to lower taxable incomes or a lower tax rate) who is never present, nor has provided any contribution to the company. First establish the principle that this is potentially off-side to tax law - you can't deduct an expense that was not incurred to earn revenues. Review the potential penalties associated with the transaction. Next state how the expenses are being processed and deducted for tax purposes.
At this point you need to offer options on how to deal with this, such as i) do not deduct for corporate tax purposes thereby not avoiding the payment of taxes, or ii) get the family member to actually earn their income based on a fair pay principle, iii) some other options. This puts you into problem solving mode as you should both have an interest in keepin on-side with the law.
If there are no legal or regulatory standards being violated, the owner has the option to do with the company funds as they wish - no laws against bad management.
So I would say 1) establish the applicable standards by which questionable activities are being conducted, 2) assess activities against those standards in an objective way, 3) discuss and gain agreement on how how activities do not match the standards, 4) explore options to resolve and get agreement.
As a final thought, recommend that corporate stewardship principles be implemented via a board and that audit committees be established to assure shareholders and other stakeholder interests are being protected.