Do you conduct regular audits at your organization? Are you aware of the expense report audit best practices you must follow?
Audits are essential in an expense management cycle. It is usually conducted before or after reimbursements. It is a vital process as it helps highlight potentially threatening concerns that go unnoticed, otherwise. It is also a great way to ensure your employees stay compliant with your expense policies.
But how does one go about this process?
To help you navigate through your business expenses, we’ve created a list of expense report audit best practices for accountants and finance teams. Let's dive in!
Why should you audit your expense reports?
- Risk reduction - Audits make sure you are following regulatory guidelines and procedures. There are numerous consequences to not maintaining proper compliance, e.g., imprisonment, asset confiscation, and fines. Many organizations perform annual risk assessments, but it is best to perform these periodically for greater insight into potential dangers.
- Identify corrupt practices - Audits are the best way to identify non-compliant individuals or practices. It also helps organizations take action against involved stakeholders. Any spending that happens outside the bounds of the rules and policies are generally only found during audits. An important thing to note is that although it is technically not necessary for an auditor to detect fraud, it is a practice that should be done by default. In the United States, there are two organizations that establish auditing standards, the PCAOB and the AICPA.
The PCAOB can be quoted stating that:
"The auditor's responsibility concerning the detection of a material misstatement caused by fraud is an essential focus of the Board. The auditor should assess risks and apply procedures explicitly directed for the discovery of material, fraudulent misstatement of financial statements. The detection of a material misstatement in the financial statements caused by fraud is an essential element of an audit."
- Cost savings - Overspending is a common issue for companies planning to scale. Without regular audits, it becomes difficult to manage and track these employee expenses. A business may be losing thousands of dollars each year only because they have no visibility into their spends.
An Audit that is targeted at specifically reducing costs is known as a cost reduction audit. These audits are undertaken by organizations to investigate and reduce the operation and managerial expenses. The goal of these audits is to recommend case-specific procedures and systems that provide higher ROI and lesser risks.
- Tax and policy compliance - Well-crafted and transparent policies and audits ensure people are following company guidelines. It also gives businesses a chance to improve according to their business needs. The same applies to tax, as well. Audits make sure all expenses are tax compliant as per IRS regulations.
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Expense report audit best practices
Audit expenses before approvals
The accounts payable team should audit expense reports before sending it to managers for approval. It is vital to enhancing the speed at which both approvals are made. It also quickens expense reimbursement time frames. Pre-approval audits mean your managers have to deal with less rejected expense reports. It also removes the problem of trying to get back funds that were not compliant from a reimbursement.
- Many organizations prefer pre-approval audits, as approvers may sometimes not review expense claims and directly approve them.
- Reviewing expense claims before approvals give the employees a chance to correct any mistakes or incorrect information. This also means that you do not need to do a post-approval audit.
Audit every expense for compliance
Different companies audit different amounts of their expenses. It can range anywhere from 10% to 100%. Auditing 100% of costs may seem like a daunting task, but tax compliances often require it. If you cannot audit 100% of your expenses, then try a segmented approach — target particular expenses in your organization, e.g., expenses made during weekends.
Auditing every expense is the best way to know how effective your policy compliance is.
Problematic employees or departments will also learn how to follow procedures when every payment is reviewed.
Push for corporate credit cards
Initiate a corporate credit card program for your traveling employees. If most expenses are made using corporate credit cards, it becomes much easier to track, access, and manage expenses. This is arguably one of the best ways to get an unmatched amount of insights and control over your T&E expenses.
Maintain transparency and set time-frames
Ensure you consistently inform stakeholders to stick with the deadlines for expense report submissions. Leading businesses prefer having a travel manager and travel policy in place to manage business travel seamlessly. Additionally, these measures ensure a smoother flowing operation.
Make sure your policies and audit practices are visible to everyone.
Problematic employees are easier to weed out when you have comprehensive policies and audit processes.
SUGGESTED READ: An accountant's guide to auditing expense reports
Automate your expense management
Automated solutions augment your expense management process; this facilitates your requirements and is a huge morale and performance booster. With automation, businesses can also automate control on expenses and reduce errors and potential expense fraud. Multiple stage approval workflows, real-time policy compliance, receipt imaging, and corporate card integration are just some of the benefits of automation. This, in turn, makes audits a less convoluted process.
These are our expense report audit best practices. Fyle makes audits easy with features such as automated receipt management, automatic policy enforcement, expense analytics, robust T&E expense management, corporate card management, and more.
Schedule a demo and kick your expense management into overdrive!