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 behavior, this opens up a Pandora’s box. Claiming multiple expenses, overstating expenses, and mischaracterizing expenses are some examples of expense reimbursement fraud at most organizations.
Your finance team may be continuously making efforts to detect and prevent fraud, but having an accountable plan can maximize 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
- Should finance teams focus their efforts on crafting an expense reimbursement policy?
- What are the benefits stakeholders receive with a well-crafted expense reimbursement policy?
- How can you create an effective expense reimbursement policy for your employees?
Why do businesses need Expense Policies?
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 penalized by the IRS or have to deal with unhappy employees. (This is a win-win situation for everyone!)
Benefits of having a well-crafted Expense Reimbursement Policy
- Cuts off the repetitive back and forth
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.
- Increases compliance
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.
- Curbs potential fraud
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.
Top 4 expense reimbursement policy practices
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!
- Clearly outline your reimbursement procedure
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.
- Set clear rules and responsibilities
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.
- Constantly update your policy
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.
- Adopt a mechanism for expense reporting
Make sure you have a centralized tool to check all information related to travel and expense reimbursements. This allows for:
- Visibility into metrics around category-wise budgets and corresponding spending trends of your traveling employees.
- Once the finance team understands the spending patterns; the company can make tweaks and changes to their policies accordingly.
- Both the employees and employers can view the changes in the reimbursement status once an expense has been fyled. This keeps all stakeholders in the loop.
- Employees are encouraged to be more accountable as all their spending is reported and recorded.
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 fraud-check 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 minimizes violations, and employees stay accountable. If you’d like to know more about Fyle, schedule a demo with us today!