Thanks to the IRS, when people hear the word “audit” they tend to get sweaty palms and their heart rate goes up, fearing the taxmen might be on their way. But in reality, for a business, audits can help you understand how your company spends its money and where you might be at risk of loss through poor expense management control and leakage.
If you decide to take a more pro-active approach in identifying expense report misuse and abuse, you might be wondering how auditing can help. Let’s look as some helpful things you can do to quickly reap some benefits.
Do It Yourself Plan
The activities around performing the audit function are the way in which you can really dig in and inspect what you expect. This takes ongoing commitment, resources and time. It’s a financial commitment as well. If you have experienced any losses to fraud in the past, this is most likely an easy decision to make. But if you’re one of the lucky ones who has never encountered an episode of fraud—or you’re just hoping fraud isn’t occurring in your organization, you might find making that commitment difficult.
Depending on the size of your organization and the volume of expense reports your employees create, the audit function could represent eight hours per month or could be a full-time role to effectively perform the audit review. The average cost for the audit role in any organization is upwards of $65,000 to $90,000 annually. Of course, there are many organizations who take a different approach and simply create the audit role and function as “other duties as assigned.” Like many decisions, however, sometimes you get what you pay for.
An effective audit review should perform a couple of key functions:
- Verify the expense report has been accurately recorded in the system
- Ensure that any required documentation has been provided to substantiate the expense
This is typically a visual verification. In many organizations, the audit review is also the point at which the reviewer validates expenses according to corporate business rules. These vary by industry; however every company is tasked with ensuring expenses meet applicable regulatory guidelines. This might include tax implications, Sarbanes-Oxley Act, Sunshine Act (pharmaceutical industry), DCAA for government contractors, and the Foreign Corruption Practices Act, just to name a few. If you conduct business outside of the United States, specific country requirements might also need to be addressed.
Some regulations come with pretty hefty fines if non-compliance is discovered. For example, for just the Sunshine Act alone, the single occurrence fine for failure to report or even knowledge of failure to report can range from $1,000 to $10,000 or $10,000 to $100,000 respectively.
It takes quite a bit of expertise to perform an audit and while any given company’s effort is well intentioned, the ability to be truly effective can be a challenge. When the task seems overwhelming, many companies just turn a blind eye and hope for the best. Is this really a risk worth taking?
If your organization has already committed to performing a monthly or even bi-monthly audit with the help of a dedicated resource or an experienced employee, we commend you. As you already know, it can be a cumbersome, time-intensive, and high-pressure job. The alternative, however, of not committing to a regular audit might mean merely that you’re missing out on some helpful reporting data on how money gets spent in your organization. But it could result in something much more financially disastrous: fraud.
Tomorrow: We look at how Concur can help take the auditing stress away.