An accountant must keep order and hold a structure that keeps records for the company's financial well-being. They do so by accounting for all earnings and expenses flowing through the company. A successful accountant makes sure to educate employees about how to report their expenses, for accountability of all information in due timing, and transparency with honest statements.
In this article, we review some key elements of auditing expense reports. Read on for more information on guiding your clients through an expense report audit.
How to audit expenses?
An audit is a revision of proof. Businesses conduct audits to establish the existence, truth, or validity of the evidence or the logic used in the report that was presented by the accountant.
Any non-business related expenses claimed as business expenses will raise a flag. Further, it can lead to an audit investigator asking for proof related to the expense. This means you will have to show the invoices, all contracted purchases, and more to confirm the integrity of your claim.
Why is auditing expense reports important?
Your employees incur a variety of business expenses. This can include buying supplies for the company, paying for business meals, travel expenses such as airplane tickets and ground transportation, workshops, training, or any services and products requested in the name of the company.
When your employees use their money to make business-related purchases, the onus of reimbursement falls upon the business. While some employees may stay honest and report actual expenses, there are many more who may either inaccurately report or altogether misreport business expenses.
Expense fraud comes in various sorts. Be it a minor number change in the form of a manual error or an out-right submission of duplicate bills or receipts.
When a business ignores and reimburses its employee for fraudulent claims, it not only results in a reduction in revenue but also poses a threat to getting into trouble with the IRS. Hence the objective of auditing expense reports is to balance the bottom line while also staying per the law.
Auditing expense reports allow businesses the opportunity to revisit documents and receipts presented by the employee in the form of expense reports. These expense reports work as evidence to ensure all expense reports comply with your travel policies. They also ensure you always stay audit-ready!
SUGGESTED READ: How to detect and prevent expense fraud?
How to identify fraudulent claims in expense reports?
While auditing expense reports, there are some key flaggers you need to look out for. While the accurate expense claims can get a clean chit, you must identify the red flags. Here are some of the indicators of fraud you need to look out for:
- Incorrect expenses: Employees may use many tricks to misreport false expenses. Stay wary of flagging such claims.
- Inflated claims: Look into the details beyond the totals. Employees may sneak in inflated numbers in the form of manual entries.
- Falsified claims: Make sure the invoices presented belong to real businesses with proper government registrations.
- Duplicate receipts: Those misusing the money can duplicate documentation and present it more than once in different periods.
Additionally, it might be helpful to keep in mind that for the auditor, it is all about timely expenses, reasonable expenses, and accuracy of expenses.
Best practices for auditing expense reports
- Set guidelines for enhanced internal control: Establish guidelines that your employees need to follow to audit reports. The frequency of these audits can be relative to whether it is an employee’s report or a contract purchase audit.
- Ensure proper validation of submitted business expenses: This includes invoicing and all relevant receipts and audit trails that can probe the expense — additionally, document the sign-offs and approvals.
- Set regular intervals to check up on the status: Make sure everyone has clarity about the importance of presenting timely expenses within the dates established.
- Document all actions around submitted expenses: Improper documentation can reduce the accuracy of the transaction. This could further lead to a more in-depth investigation during the audit.
- Analyze if the expenses benefit the company: Use insights from the audit to probe for questions like - Was it necessary? Was it beneficial to the company? Was it legal?
- Set systematic reviews to better your business processes: Some sense of regularity and order can become a proper parameter for your team. Help them by sharing your accounting strategies to ensure everyone is on the same plane.
- Educate employees about fiscal responsibility: Make sure employees understand what the financial duties of the company are. Education is vital to awakening their awareness about how their healthy practices are critical to the company’s success.
- Ensure a flexible yet sturdy vouching process: Do be compliant with the circumstances, but be solid with the accounting details during your vouching process.
- Encourage and harbor good practices: It is very likely that if employees feel appreciated for their time and work, they will think twice before lying to you when reporting business expenses. Integrity is contagious.
How can Fyle help with auditing expense reports?
As the accountant, it is your right to establish a comprehensive expense report audit to guarantee that your company is always away from trouble. Ensure your auditing of expense reports is based on your company's financial dynamics and business goals. Also, try to be flexible within possibility and make sure you are not micro-managing people or being excessively controlling.
Education is your best advisor, but trust is your ally. People who trust are trusted in return and honored with loyalty.
A modern expense management software like Fyle is a neat and easy way to track business expenses while reducing the chances of error while auditing expense reports. We promise to put an end to all your expense management woes. To learn more about what Fyle has to offer, schedule a demo today!