Unclear travel and expense procedures, lack of expense visibility, error-prone spreadsheets, and loose policies are some of the mistakes made in corporate expense management.
Are you committing some of these corporate expense management mistakes? If so, do they pose a significant threat to your company’s financial health?
Being aware can help you design and implement an effective corporate expense management process. Therefore, in this article, we will help you identify some of the common mistakes businesses commit while managing their expenses. We will also look into how to address and curb these challenges by implementing an expense management software.
Common accounting errors in travel and corporate expense management
Most accounting errors occur due to simple human errors such as data entry, losing receipts, or forgotten expenses. Errors can also be due to faulty hardware. These accounting errors can often be overlooked as they seem minor. But the next time something doesn't add up while updating numbers, check for one of these frequently overlooked errors:
- Making mistakes while entering data
Whether you have input the same number twice or forgotten to add a zero, simple human error may be the reason why the numbers don't make sense. Errors in data entry are bound to happen after a long day at work or numerous other distractions.
- Losing record of expenses
Documenting of receipts above a specific limit is a mandate, to stay compliant with the IRS. Unreported expenses, misplacing or losing receipts, old records, and number guessing - all these factors contribute to an inaccurate view of the business cash flow.
- Forgetting to cross-check expenses and transactions with bank statements
Having an updated and accurate view of cash flows by routinely checking the account balance against your bank’s record is important. Sometimes errors in a transaction can happen as well. Hence, this step plays a crucial role in keeping track of business expenses.
- Losing data due to irregular back-up
Forgetting to back-up data can be a severe mistake if your computer crashes or in case of unfortunate events. Calculating taxes or auditing can prove to be impossible if critical data is lost. Additionally, without the numbers, it becomes impossible to take number-driven business decisions.
Unclear and ineffective enforcement of expense policies
Are you sure that expenses incurred fall within your corporate guidelines? Does your company have a process for detecting duplicate expense claims? What is your company’s method to identify and capture fraudulent behavior?
Business mandates travel and expense policies, but in reality, weak enforcement of policy guidelines may leave employees to act poorly by it. Non-compliance in an organization may also happen due to confusion in understanding the policies.
Contributing factors for poor employee compliance:
- Having a loosely framed expense and travel policy
Employees may be tempted to conjure up frauds if there is a loose policy framework. Lack of a strong enforceable expense policy allows employees to leverage their benefits for fraudulent and duplicate claims. Multiple reimbursements, fictitious expenses, and overstated expenses are some types of frauds.
- Uncertain policies
Unclear or confusing policies can lead employees to often assume or loosely skim through the lines of policies. Employees thus may have trouble understanding what categories fall under reimbursable expenses. This may further result in them reporting out-of-policy expenses. This would translate into them losing out on their money. This can take a massive hit on both employee morale and productivity.
- Improper procedure guide
An employee can cause delays in the auditing and reimbursing process if he/she is unaware of the procedure to follow. For example, when a policy is violated in an expense claim, an employee may need to provide clarifications.
Not knowing where to turn and being tossed from one desk to another can leave the employee frustrated. This will not only consume a lot of time and delay the reimbursement process, but it can also lead to unreported expenses.
Poor visibility of corporate expense management
Do you know the top-spending categories in your organization? Or the average amount of expenses your employees make on meals?
Lacking visibility into these data points can prove to be a hurdle.
If you are unaware of the specifics, there is a substantial risk of making false financial decisions. For example, allocating and splitting budgets between different departments of your business will prove to be a task.
Contributing factors for inadequate data points:
- Overlooking employee spending trends and patterns
Lacking visibility into your employee's spending trend can become a hurdle while auditing or optimizing business processes. You have no way to tell if your employees are making unexpected expenditures or its atypical of their usual pattern. This can limit you to tweak and adjust financial budgets.
- No real-time monitoring and reporting
A manager may approve an expense claim made by employees without knowing whether the claim made is fake or real. Further, a delay in submitting expense reports or incorrect expense reports can lead to lost receipts and errors needing special approvals or handling. Lack of promptly monitoring the process can encourage inefficiencies in the travel and expense process.
Results of poor corporate expense management
- Inaccurate representation of company expenses due to unreported expenses, manual error, and limited view
- Time-consuming process due to untimely reporting, unclear procedures and guidelines, and manual entries of transactions
- Loopholes for employees to make fraudulent and multiple claims due to inadequate monitoring and loose policies
- Poor financial decisions costing the business highly due to the absence of a bird’s eye view on the entire process and outdated records
- Loss of crucial expense data such as receipts and forms due to untimely reporting and lack of centralization
- Increase in processing costs due to multiple errors in accounting, poor reporting, fraud, and delays
How to avoid common mistakes in corporate expense management
For decades, the entire process of corporate expense management has been tedious and cumbersome. For employees, they had to save receipts of expenses, tape them to sheets of paper, photocopy them, and then submit them just in time. For the finance team, this meant going through every physical receipt and making sure that every receipt and expense tied to the bank transaction.
The next ‘advanced” model was doing it in on an Excel Spreadsheet, but this proved to be inefficient as well.
The introduction of an automation solution has enabled companies to remove paper and spreadsheets from their corporate expense management system. While some still run on the traditional manual method, many have recognized the benefits of digitizing and automating their expense management.
Benefits of using a corporate expense management software
Missing documentation or proof of expenses can lead to the finance team chasing down employees to provide missing details. This would further translate into your employees scrambling through their belongings to find proof of their business expenses. All these attributes lead to a delay in expense reporting, processing, and reimbursement of expenses. This is one of the driving forces behind businesses rapidly adopting automated expense management.
Here are some other benefits:
- Effective receipt management
Receipt management is made easy with an expense management software. An employee can scan physical receipts or upload them directly via a mobile app or web. They also have the option of reporting expenses from their mail. All this makes tracking, organizing, reporting, and viewing of expense reports by both parties convenient. Additionally, having proper documentation also means staying audit-ready and complying with tax laws.
- Automatically track corporate credit card expenses
A corporate expense management software extracts data from receipts, emails, and corporate credit cards. Once done it directly feeds it into the expense tools. This data is automatically organized and stored in an integrated centralized storage in the software. Expense data are also matched automatically to the respective transaction. This eliminates the chances of duplicate or multiple claims. This also makes auditing and reconciling corporate credit cards faster and less challenging for your finance and accounting team.
- Know spending patterns with data analytics
All expense reports, pending approvals, approved expense reports, and reimbursement can be viewed all under one standardized system. This creates visibility into your employee spending and transparency across your organization. With the power of data analytics, finance teams can gain insight into spending trends, frequent spend categories and employees, and more. This can further help understand your employee preferences while on business travel. This can help finance teams contact frequently associated vendors for discounts. This helps you optimize business expenses for your traveling employees.
- Configure and enforce policies within the software
A corporate expense management software enables finance teams to customize policies as per the business needs. Automated synchronous policy-checks ensure claims abide by the policy guidelines. This means employees don’t have to remember all the policies and your finance team won’t have to go looking for reasons behind violations. This plays a crucial role in increasing employee compliance and reducing expense fraud.
Does your business need a corporate expense management software?
Businesses lose billions of dollars in the form of expense fraud. This happens because most companies still use traditional means for managing business expenses. This not only burns a hole in your pocket but can also take a significant hit on your company's financial and productive health.
Investing in a quality corporate expense management software is imperative for running your business smoothly. Automating error-prone manual tasks also means less misreporting, reduce accounting errors, which can result in accidentally overstating tax reductions. Additionally, it helps completely streamline all processes that revolve around expense management. This allows you to stay audit-ready at all times. Schedule a demo with Fyle today and put an end to all your expense management woes!