A shift to working from home may have pushed expense management initiatives to the back burner. After all, we’re not hopping on planes every other week or doing team-building happy hours. But CFOs need to be cognizant that employees are still spending money. You may see more charges for SaaS tools than airport burritos, but given concerns about extending the cash runway, tracking expenses is just as or more important now.
What Is Expense Management?
Expense management not only tracks employee spending but also determines how the organization will reimburse the costs incurred. It also applies the procedures and policies used to control this type of spending. For example, if employees are given daily allowances for meals when traveling, then the expense management process accounts for those limits when generating reimbursements for workers.
Why is Expense Management Important?
The fact is, any company that has employees needs processes and software for managing expenses. Preferably, the solution will be easy to use , smart enough to spot fraud and errors and able to feed data into the reports and dashboards that finance uses to keep tabs on spending.
So how do you get started, or get your expense management initiative back on track?
13 Expense Management Best Practices/Tips
Here are best practices that companies can use to successfully develop, oversee and run their expense management processes.
1. Set an expense management policy
Develop an expense management policy for everyone to follow. Include a complete list of which expenses the company will pay for, as well as a rundown of those expenses that the company isn’t willing to cover. The IRS has rules governing expenses for tax deductibility.
Some points to consider:
- You won’t be able to deduct expenses related to regular commuting between an employee’s home and the workplace.
- Pay attention to IRS per diem rates for meals and qualified mileage rates as they affect how much you can write off.
- Many companies disallow laundry and dry-cleaning services while on the road, but these can be deductible in many cases.
Concise language will help avoid confusion over what is or isn’t reimbursable. You don’t need to reinvent the wheel; there are a number of expense policy templates available online. The key is to make the policy equitable, enforceable and apply it to everyone.
2. Automate expense management where you can
Manual expense management approaches require a lot of paper and spreadsheets. That was inefficient when people were together in an office; now it’s completely unwieldy. An automated expense management system simplifies the expense reporting process for employees, supervisors and accounting teams. Look to minimize paper shuffling and emailing of files.
3. Issue business credit cards
Corporate credit cards not only help companies monitor spending, they also simplify the reporting process for employees and remove the need for workers to cover costs and wait to be reimbursed.
For employers, credit cards help maximize cash flow by providing terms (usually net 30) before payment is required, while easing record keeping by centralizing spending data. Organizations that don’t want to give employees permanent cards, often with high limits, might consider single-use or dollar-amount cards.
4. Make expenses as easy to track as possible
Establish a reporting system that gives employees an easy way to submit their receipts and expense reports. Knowing that paper receipts fade, rip and get lost, today’s workforce is using cameras on mobile devices to capture receipt images. Many companies are using automated software that supports image uploads, tracking and submittal of expenses. With these tools, accounting teams, managers and approvers can use their own mobile devices or computers to access and approve or reject reports and start the expense reimbursement process.
Just as important, good reporting capabilities enable finance teams to spot trends; this is especially important in 2020 as work patterns have changed dramatically.
5. Audit your processes regularly
Travel and expense management is not a “set it and forget it” process. Through regular audits, accounting personnel can track spending over time, pinpoint potential problems like overspending or fraudulent receipts and make decisions on how to adjust policy going forward. Even a gradual uptick in spend for one employee can add up over time. Regular audits will help catch abnormalities early, before they become serious issues.
CFOs know there are things that make audits more difficult for everyone involved. One is purchasing software that lacks capabilities. Solid expense-tracking capabilities will make it easier for both internal and external auditors to verify the accuracy of your numbers.
6. Organize a paper trail/go paperless
Companies that are still using paper receipts are doing themselves and their employees a disservice. One of the best ways to simplify the expense reporting process is by utilizing software that supports digital collection, submittal and review of receipts.
When all documentation is stored in a centralized database, everyone from the employee to the accounting associate to the approver to the abovementioned auditors can edit as needed, ask questions or send reports along for repayment. When this can all be done from either a computer or mobile device, that makes the entire process even more accurate and accessible.
7. Regularly review expenses
Don’t wait until the end of the year to figure out that a recurring expense never should have happened, or that an employee was racking up nonallowable entertainment expenses while on the road—or an unauthorized SaaS app while at home.
During the review process, look at whether each expense was necessary and allowable, if the company is getting the best possible deal and if there are any expense categories that have risen significantly since the last review. This exercise will identify problem areas that need to be addressed.
8. Educate your employees on tracking best practices
Don’t keep your expense management process and policy a secret. Instead, get all employees involved by educating them on how to identify, establish and track best practices across the organization.
Because reimbursable employee expenses are a significant line item on most companies’ balance sheets, this is the perfect opportunity to build a cost-conscious culture. Point out the connection between frugality and the ability to invest or just save jobs.. Most businesses have been forced to delay, scale back or cancel initiatives that require capital expenditures. Cash is king right now, so every bit of liquidity helps.
9. Encourage transparency at every level
Transparency and equity lead to a culture of accountability that helps thwart fraud, keeps expenses manageable and supports profitability.
Let all department leaders read and give feedback on expense policies. Create comparisons across departments and call out and reward good cost-cutting ideas. Don’t underestimate the value of incentives—there’s a reason gamification is a growing trend for all-size businesses.
If an employee suggests a way to save $5,000 per quarter, reward that with a gift card or bonus.
Finally, empower managers to push back on whether a specific expense is necessary, and encourage them to contribute ideas to help make the expense approval process more efficient.
10. Prevent fraud
Of the internal fraud schemes reported by both small businesses (those with fewer than 100 employees) and larger organizations, the Association of Certified Fraud Examiners’ (ACFE) says 20% of small businesses and 13% of larger firms have reported fraudulent expense reimbursements.
Battle this with clarity and transparency. When the rules governing expenses are blurry or undefined, the opportunity to commit fraud increases dramatically. In some cases, simply knowing that finance has laid out the ground rules and is paying attention can dissuade someone from crossing the line.
11. Negotiate better rates on travel/expenses
When it comes to airfare, hotel, and transportation expenses, discounts are generally given to those who ask for them. The rest of us pay the published rates. To avoid falling into the second category, as employees start traveling again, companies should ask national hotel, car rental and even restaurant chains for volume discounts.
If employees will be on long-term engagements at a client’s location, consider more affordable lodging alternatives from VRBO or Airbnb. Have them compare car rental rates on a site like Hotwire before booking, and take advantage of the discounts now being offered by airlines and hotels. Again, if an employee figures out how to save a big chunk of cash, reward that initiative.
12. Sign up for rewards
Similarly, most airlines, hotels and rental car companies offer reward programs that companies can use to accumulate free or discounted stays, flights and transportation. To maximize this benefit, consider issuing employees credit cards that align with these programs, and that add even more points to the bank as people use them to pay for their expenses.
To maximize points, encourage employees to stick to a specific hotel, rental car or airline brand, but only if the cost truly justifies the loyalty.
13. Implement expense management software
A software-based receipt collection and submittal process takes the pain out of expense reporting and makes it easier for associates to submit their receipts and expense reports. Expense management software also cuts down on the time it takes for the accounting department to process these reports, enables them to readily identify reporting abnormalities and speeds up employee reimbursements.