Following employee payroll and benefits, travel and entertainment (T&E) represents the second most substantial controllable expenditure for businesses. Consequently, adhering to expense management best practices—encompassing the processes and technologies that facilitate the reimbursement of employees for travel, accommodation, meals, entertainment, and miscellaneous out-of-pocket expenses—is of paramount importance.
The implementation of automated expense management can significantly streamline the report submission procedure, reduce chances of mislaid documentation, diminish errors, and expedite employee reimbursements. However, the effectiveness of these technologies must be bolstered by a robust policy framework. In structuring guidelines for expense reports, organizations—irrespective of size—should align their procedures with recognized industry best practices. The stringent expectations of the IRS and external auditors underscore the necessity of this approach.
Benefits of Robust Employee Expense Tracking and Management
Your organization may already have certain expense reporting guidelines in place. However, it’s critical to assess whether they’ve been updated to reflect evolving business dynamics. If not, it’s high time to rejuvenate them. While advocating for such an initiative, CFOs should underscore that companies can reap the following benefits from an efficient and effective employee expense tracking and management system:
- Maximizing Tax Deductions: Maintaining accurate and timely documentation enables companies to fully leverage tax deductions. This, in turn, guarantees that all deductions are legitimate, assuring companies that they can utilize all permissible deductions while maintaining precise reporting for the IRS.
- Enhancing Budgeting and Forecasting Accuracy: Travel and entertainment (T&E) expenses constitute a significant portion of a typical company’s operational budget. Any lapse in tracking and processing these expenses can disrupt a CFO’s ability to generate precise budgets and forecasts for the future.
- Streamlined Expenditure Management: A lack of knowledge about employees’ spending habits, whether they’re on business trips or working remotely, can hinder effective cash flow management. Enhanced visibility in this domain allows for a better understanding of who is spending what, resulting in superior control over these expenditures. This transparency makes it easier to prevent system abuse by employees.
- Mitigating Business Expense Fraud: Occupational fraud includes inflation of business expenses, submission of deceptive records, and other misuse that can be effectively contained with sound oversight, policies, and controls.
Implementing Six Best Practices in Expense Management
Perhaps you’ve already devised an expense management strategy and now seek to refine this pivotal business process. Conversely, you might have operated for years without a comprehensive plan and now intend to create one from scratch. No matter where your company currently stands, the following best practices can guide you towards crafting an efficacious approach to expense management.
Establishing an Expense Policy
An effective strategy to regulate employee spending involves implementing a universal expense management policy within your organization. This policy should delineate the specifics of what constitutes an acceptable expense, in accordance with both the latest IRS guidelines on reimbursements and your company’s unique culture and budgetary constraints.
A well-articulated, company-wide expense policy assists the accounting department and expense approvers in making swift decisions—along with establishing automated rules—regarding the eligibility of an expense for reimbursement. It is crucial to set budget parameters for each category; for instance, any flight costs exceeding a predetermined limit should necessitate prior approval from a supervisor.
The policy should also provide details about the timeline for expense reimbursement, typically within 30 days or less, depending on the organization. It should outline what recourse is available to employees if an expense claim is contested or rejected. Consequently, your policy becomes the standard for ultimate decisions on expense reimbursement eligibility.
So, what constitutes an effective expense policy?
Succinctly, it hinges on fairness, transparency, comprehensiveness, and clarity.
Aside from ensuring the policy is applicable to everyone in the organization, it’s important to review both state and federal laws governing expense reporting and reimbursement and craft a policy that complies with these regulations. Solicit input from employees and senior managers: Which technological tools would simplify the process for them? Which rules need clearer articulation? Utilize this feedback to construct a program that fulfills everyone’s requirements.
Streamlining Expense Reporting
The primary rule: To ensure timely and thorough reporting, provide your employees with a simplified method for submitting their expenses. The more they have to grapple with Excel spreadsheets, forms, complex interfaces, and documentation, the more they’re likely to procrastinate, leading to increased frustration and potential errors that you’ll need to rectify.
Traditional expense management often involves companies using a paper- and spreadsheet-based system to process, pay, and audit their employees’ expenses. This generally covers travel, accommodation, meals, and other expenditures associated with conducting “official business.”
Essentially, this occurs while they’re away on business. Wouldn’t it be more convenient for them to snap pictures of receipts and submit them via a mobile app rather than keeping track of physical documents?
Accumulating Essential Expense Data
As your employees work offsite, they will gather receipts in varied formats to validate their expenditures for reimbursement. Given that the IRS acknowledges e-receipts, embracing the same approach will ease the accumulation, submission, and review of supporting documents.
For optimal control over operational costs and to cut bureaucratic hassles, an automated system for collecting invoices, receipts, and related documentation from employees is indispensable. Ensure this process is lucidly defined in your business expense management policy, serving as a reference guide for associates when submitting their documents for approval.
Established procedures are only as effective as the individuals who consistently rely on and refer to them. To underscore the importance of your business expense strategy and the related policy, fostering accountability among associates is vital. Initially, managers and supervisors should be apprised of the organization’s expense policies and consequently, they should ensure their respective teams adhere to these guidelines.
To promote robust accountability, provide managers with an easy method to access, evaluate, and offer feedback on their employees’ expense reports. For instance, leveraging expense management software that is accessible via a mobile device empowers your managers significantly. This aids them in steering their team members towards effective business expense management procedures.
Nobody wants to bear the burden of a significant out-of-pocket expenditure—like $1,000 for business travel costs—and then endure an extensive wait for those expenses to be reviewed, approved, and reimbursed.
Regrettably, this is a common scenario when robust business expense management policies and procedures are missing.
To circumvent this issue and prevent employee dissatisfaction, establish service-level timeframes that accommodate both the company and employees. For instance, specify that associates must submit their expense reports by a certain day each month, along with all necessary documentation, to secure reimbursement by a predetermined day. If they miss these deadlines, clearly define the extended duration required to process their reports and reimbursements.
Ensure that managers and senior leaders comprehend the necessity of promptly approving reported expenses. When everyone recognizes their individual responsibilities in ensuring the system’s smooth operation, the process of reporting, authorization, and reimbursement will proceed more promptly.
Frequent Audits to Detect Fraudulent Practices
The routine execution of audits on your expense management processes, coupled with consistent reviews for possible fraud, constitutes essential practices that all CFOs should adhere to. These audits can highlight potential areas for improvement and detect anomalies that could be significantly inflating operational costs.
The audit process also plays a crucial role in exposing expense fraud. According to the Association of Certified Fraud Examiners (ACFE), 20% of small businesses (with fewer than 100 employees) and 13% of larger organizations reported fraudulent expense reimbursements among the internal fraud schemes.
ACFE identifies the primary fraudulent expense reimbursement activities as:
- Misrepresented expenses
- Inflated expenses
- Fabricated expenses
- Multiple reimbursements for a single expense
An automated system can alert companies to irregularities, such as double filing, and consequently aid in detecting and mitigating fraudulent claims.
7 Essential Tactics for Efficient Expense Management
To summarize, here are the foremost expense management strategies that all organizations can immediately adopt to enhance their existing processes—or establish new ones:
- Draft a robust expense policy that mirrors the needs of your company, its managers, leaders, and employees.
- Ensure your policy is fair, transparent, and comprehensive.
- Facilitate a simplified method for employees to submit their expense reports.
- Collect and maintain crucial expense information as mandated by law.
- Uphold accountability across all roles—from managers to employees to finance staff—throughout the entire process.
- Ensure promptness in employee reimbursements to prevent them from carrying balances.
- Conduct frequent audits of your process, remaining vigilant for flagged irregularities that might indicate fraudulent activity or abuse.
Simplifying the Process with Expense Management Software
With 43% of companies still resorting to manual methods for managing their expense reports—and 46% of organizations failing to monitor associated costs—the adoption of automated expense management software emerges as a critical best practice for companies to contemplate.
According to 82% of companies that have either invested in or are planning to invest in technology to bolster efficient expense management, a principal incentive is to simplify the reporting process for both employees and managers.
Specifically, a streamlined process for receipt collection, retention, and submission eradicates the hassle of expense reporting, thereby facilitating associates to submit their expense reports with ease. Stored centrally, these reports can then be accessed by all authorized approvers and reviewers, accelerating the approval process, facilitating regular audits, and promoting robust compliance.