Quick! What does your expense policy say?

Do you know what’s in your expense policy? Do your employees who file expense reports know what’s in there? Do you even have an expense policy? An effective, transparent, accessible expense policy is crucial to any business no matter what the size. What does it mean for the policy to be effective, accessible and transparent? Why have policies at all?  

 

An important part of the expense process

A clear, effective travel and entertainment policy helps keep cash flowing, and that’s the lifeblood of any business. Companies can completely control their finances only when they have visibility into theirspending, and that only happens if good rules are in place, and they work. Following the rules is important for many reasons. For instance, the employer and employee may stand to get a tax break on the money involved, but only if state and federal authorities recognize it as an “ordinary and necessary business expense” (as section 162 of the Internal Revenue Code puts it.)Then there’s the direct impact of the spending on the company’s survival.  

 

There’s a lot at stake

Travel and entertainment spending is significant to a company’s financial health. T&E represents 8-12% of the average company’s total annual operating expenses. That’s usually the second largest controllable cost for a company. But consider this: a 2012 PhoCusWright study found 40-50% of employee travel is booked outside of corporate travel systems. In many companies, that spending is essentially “invisible” to decision makers, at least until the expense reports come in, weeks or months after it happens.  

 

Error prone process

In many organizations, expense reporting just invites errors. Manual processes that depend on paper spreadsheets and piles of receipts mean expense reports get lost and delayed and information is miscopied from one place to another. A Concur Small Business Survey found that 59% of respondents recalled making at least one mistake on an expense report in the previous 12 months, while more than a third owned up to five errors or more in the same period.  

 

Something even worse

Then there is the risk of something even worse. The Association of Certified Fraud Examiners 2012 Report to the Nations on Occupational Fraud and Abuse says more than 14 percent of the asset misappropriation cases it looked at were expense reimbursement schemes. The average loss in those 201 cases? $26,000.  You can only plan and protect cash flow in detail if you can see in detail where the cash is going. An effective expense policy that employees actually use can help bring that spend back under the microscope.  

 

Things to remember

There are some best practices that can make the policy work and work well. They include:

  • Ditch the jargon – write the policy in clear language people can understand
  • Make the policy and its rules fair for everyone. If people believe a policy is fair, they’re more likely to comply.
  • Invite employees to participate in creating the policy. They’ll bring good ideas, and feel they “own” a piece of the final result.
  • Make it easy to find in your system. The ultimate in making an expense policy easy to find is to embed it right into expense software that automatically tags policy violations and generates alerts.

Smart business professionals tell us it’s worth examining existing expense policies to make them better. Download this guide to learn more about creating an expense policy that works for everyone.

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