The management of employee expenses, once considered a rather dull and unimportant finance activity, has in recent years risen to the very top of the corporate governance agenda.
The current economic climate has undoubtedly focused management in general and the finance department in particular on ensuring that employees are not being overly enthusiastic when spending company money.
In addition, recent legislation such as the 2010 Bribery Act has focused a very particular spotlight on what employees spend (and why!) and its now more important than ever to ensure that accurate and detailed records are kept so that any future audit from compliance or taxation authorities is handled successfully.
With this in mind, when choosing an expense management system its important to ensure that adequate consideration is given to the policies and record keeping that the system must manage.
Based on the work we have done with clients implementing our own expense management system, expense@work, this is my list of 5 of the most useful and important ways organisations can manage employee expenses and ensure appropriate compliance.
1. Policy Enforcement
Don’t always rely on managers or the finance department to make decisions about whether expenses should be allowed or not (its inevitable that they will often avoid conflict by not challenging claims, particularly from more senior or troublesome colleagues).
Instead configure your expense management software so that it prohibits employees from entering claims that are clearly in breach of organisational policy or the expenses guidelines of your tax authorities such as HMRC. For certain expense type policies, where an outright prohibit is not appropriate, consider warnings, for example advising employees that Client Entertainment expenditure above £50 per head is outside policy.
2. Workflow Rules
Its important to ensure that expense claims are routed appropriately based for example on expense type, project or value. Configure your system so that claims are escalated to senior management once certain limits or rule breaches have been triggered. Additionally, consider introducing Project Manager or Budget Holder approval for certain types of expenditure.
A good example of this would be where expense claims are first routed to an employees Line Manager and then for claims above £1,000 are additionally routed to the Finance Director and perhaps for claims above £5,000 further routed to the MD. Particular line items might also require sign off by individuals such as expenses relating to Eye Tests also being routed to the HR department.
3. Capture All The Data
One of the most common problems with employee expense claims is that not all of the information necessary to prove the validity of the claim is recorded. This is particularly prevalent in manual systems but does not need to be the case with an automated expense management solution.
A good example of this is “Client Entertainment” where it is important for employees to document the number of staff members present. This is particularly useful if faced with a HMRC audit so that the ratio of clients to staff can be measured and shown to be appropriate.
Another example, (of more importance since the introduction of the Bribery Act 2010), is capturing details on the reasons and nature of the expense and specific information relating to the clients role. A third example is Taxi fare’s to the employees home where there are very particular rules relating to when these are legitimate claims and its important that the information needed to determine this legitimacy is captured on the form in lieu of future audits.
4. Publish The Data
Letting employees see details of their own expenditure, analysed by Expense Type, Client, Project etc can have a significant impact on spending behaviour and oftentimes reduces frivolous or excessive spending. In many instances, it is entirely appropriate for expenditure to take place in pursuit of a new client or the management of an existing one. However, giving employees and managers realtime visibility of the monies involved ensures that everyone can see the true cost of client acquisition or retention.
Many of our clients have reports such as “My Expenses For This Tax Year”, “My Entertainment Expenses” & “My Mileage Claims” which are available to all employees and show summary or detailed information for the individual employees but can also be grouped to shown collective information at a departmental or organisational level.
5. Keep The Forms Simple
With highly configurable software capabilities comes the temptation to over engineer and ultimately implement a system that employees find hard to use and counter intuitive. Keep to a minimum the number of fields that an employee is required to complete and instead use the backend reference data and analysis capabilities (such as Department, Account Code etc) to augment the claim.