In the 2018 report to the nation, the Association of Certified Fraud Examiners’ (ACFE), found that Expense Reimbursement fraud accounts for 21% of fraud in small businesses and 11% in larger ones.
A lack of internal control and poor policy placement can fester dangerous employee habits. When employees know that there are no repercussions for mistakes or intentional devious behaviour, this opens up a Pandora’s box. Claiming multiple expenses, overstating expenses, and mischaracterising expenses are some examples of expense reimbursement fraud at most organisations.
Your finance team may be continuously making efforts to detect and prevent fraud, but having an accountable plan can maximise these efforts. If you are a business looking to build a roadmap to success, having a coherent comprehensible policy might be just what you need.
In this article, we will look into
Running a business can be expensive, and expenses can go beyond essential operational costs. To add to the trouble, travel costs, meals, transportation, mileage, etc. easily add up as company expenses.
As part of the finance team, you need to track and manage multiple employee expenses. You also have to make sure all the expenses fall in line with IRS rules. This not only costs you productive hours but also causes frustration with the entire ordeal.
This is where an Expense Reimbursement Policy comes into play.
An Expense Reimbursement Policy works as the framework that underlines everything an employee has to do for a seamless expense reporting experience. It brings all information around expense reporting and expense reimbursement under one roof. This makes life easy for all stakeholders.
On the one hand, employees do not have to lose out on personal money for business expenses. On the other hand, businesses do not need to get penalised by the IRS or have to deal with unhappy employees. (This is a win-win situation for everyone!)
How to create an IRS compliant expense reimbursement policy
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Challenges finance teams face with travel and expense management
When you don’t have a solid expense policy, your employees are unaware of how much they can spend. They are also unclear on what type of business expenses are reimbursable or not. If not addressed, this can easily translate into extra work for your finance team.
The absence of policies leads to frequent inquiries and multiple violations.
But when you have a well-defined policy, it can answer doubts employees may have regarding the expense reporting process. As a result, the finance team does not have to spend hours explaining the policies to employees and correcting violations.
Most expenses incurred by an employee are reimbursable and tax-deductible. But to get this deduction, the company has to keep the right records per the IRS rule.
An internal reimbursement policy can help everyone to be on the same page.
Additionally, employees are made aware of deductible business expenses and the time periods in which they must submit expense reports. Therefore, the reimbursement process becomes less taxing.
When your employees are unclear about the company’s expense reimbursement policies, they can intentionally or unintentionally overspend and commit fraud.
Loose policies allow room for assumptions and miscommunications.
A well-crafted reimbursement policy helps employees understand the whys and hows of company rules. The policy also highlights the consequences of breaking company policies. This ensures employees are careful with their expenses and expense reports, thus, increasing compliance.
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Control employee travel and business costs with Fyle’s expense policies
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Now that we understand why it’s beneficial to have expenses policies, how can we craft an effective one? Going forward, we will discuss some of the best practices when it comes to expense policies. This will help finance teams resolve issues quicker, have a better turnaround time, and gain greater control over compliance. Let’s dive in!
A clear procedure of the process is needed to make sure your employees understand the value of your policy. This will also ensure employees do their tasks on time and don’t go long without being reimbursed.
An employee may also put off reporting expenses on time because they find it either confusing, tedious, or an anxiety-provoking task. This can lead to last-minute submissions and additional tasks for the finance team.
But when an employee understands what comes next, it leads to a smoother and on-time expense reporting process. The employee is also more confident about timely reimbursements. This also motivates employees to take on tasks that require business travel.
When you’re entrusting employees to spend money on behalf of the company, it’s important to layout guidelines that set limits. Use policies to define the duties and responsibilities of both employees and employers.
Doing so allows the finance team to take action quicker in case of any issue or dispute. Also, employees can understand what’s expected of them, thus increasing compliance.
The policy that worked a year ago might not work the same way today.
Expense policies should be tweaked and updated per the need and the nature of your business. The IRS also updates its standard rates and guidelines for reimbursement every year. Ensure your company is aligned with these new rules and laws to avoid unnecessary taxation on business expenses.
Make sure you have a centralised tool to check all information related to travel and expense reimbursements. This allows for:
SUGGESTED READ: How to create an IRS-compliant expense reimbursement policy
After putting your time and effort into making an expense policy fit for your company, choosing the right way to enforce it is just as important.
This is where you can leverage technology.
Your finance team, as well as your employees, no longer have to memorize all the policies. Finance teams can simply feed in this data into an Expense Management Software. This eliminates the tedious job of manually checking for policy violations and enforcing policy rules.
For example, if an employee fyles a report with an expense amount greater than what he/she is allowed to spend, the software notifies the employee about the violation. Additionally, the employee understands that the company has set certain spending limits to particular expense categories. Thus, moving forward, the employee is aware of the spending limits set by the company.
Fyle comes with real-time compliance and policy violation checks. Our features also notify users in the case of duplicate submissions, lack of receipts or expenses made on holidays, and more.
All our features ensure your company minimises violations, and employees stay accountable. If you’d like to know more about Fyle, schedule a demo with us today!