10 August 2020

Company Expense Policy Best Practices: Laying Foundations Before You Spend Money

by Rachelle Lee

Like most things in life, when faced with competing priorities some things inadvertently take precedence over others. In running a business, that one item that usually gets pushed to the bottom of the list is the company’s expense policy. 

Ask any business owner if they have looked at their company’s expense policy since it was first drafted. Chances are they would have forgotten most of the details beyond the chapter on prudence. 

A good expense policy does take some time to develop. The simplicity and clarity of how to pay and claim for work expenses and the many unspoken rules associated with what constitutes a reimbursable expense in the first place, need to be documented right.

Volve recommends all businesses to have a clear and formal expense policy as a living document that evolves with your business. 

What exactly is a company expense policy?

At its core, the policy is a set of rules helping define what employees can do with company money. This is often found in a formal document employees sign at the same time as their contract.

While expense policies – like any policy – will vary between companies, there are three main aspects all successful policies should include:

  • A clear outline of different expense categories that can be claimed
  • A guide on how to claim for expenses
  • An explanation of the process in the case of an expenses dispute

Why does having a company expense policy matter?

Company expense policies are key to keeping the business on budget.

Not only does it outline how the senior leadership team should spend company money, but also completely eliminates any grey areas for all employees. Without clearly defined rules, spending will quickly spiral out of control and the company’s budget will be strained. 

In the worst case scenario, this could even lead to employees committing fraud, whether intentionally or not, by making unauthorized purchases with company funds.

Clear guidance on allowable expenses helps all staff understand what meets with compliance to company policy. This goes a long way in eliminating expense violations.

What goes into making a successful expense policy?

While there is no prescribed criteria for a perfect expense policy, these fundamentals should not be ignored:

  1. Clear explanations of categories and budgets
  2. Fair and consistent outlines for all teams and employees
  3. Simple, concise, and easily understandable
  4. Reviewed annually, with necessary updates made
  5. Compliant with local and national law

What are the best practices for a company expense policy?

Here are eight tips to help you get going in drafting an effective expense policy:

Keep all guidelines firm and fair

The most important best practice for any policy is to ensure it is clear, fair and unambiguous. 

During the preparatory drafting stages, it is important that expense policies are given the time and attention to ensure that it is properly aligned with the business and promotes understanding to employees.

In addition, companies should also have a clear policy to help protect themselves in the case of a dispute or inquiry. The key is to review and update the policy regularly. Based on our experience, almost half of employees say they do not understand their company expenses policy.

Keep guidelines and processes simple

When it comes to expenses, simplicity is key. The more straightforward your processes are, the more likely your employees are to comply. 

Systems bogged down with layers of admin take up precious working hours and are likely to incur mistakes. You also run the risk of employees exaggerating their expenses to compensate for the difficulty of having to claim in the first place.

Creating an effective and quick process helps ensure employees are happy, and that expenses are signed off correctly. One of the best ways to keep it simple is use a system that would automatically calculate the GST of every expense as opposed to a manual input by employees. The likelihood that employees understand this fully is also quite low. 

Only collect the necessary information

It is important that an expense policy strikes the right balance when asking for details. 

While a minute by minute run down of the expense is not required, information that goes more than just the price and purchase date of each item is necessary. 

The collection of relevant expense information helps minimise delays during administration, avoid potential compliance problems, and keep the budget on track for the current and upcoming year.

Best practice is to always ask for a receipt, keeping in mind different expenses require different GST information. Take for instance, mileage data. This is not only easy to get wrong, but also easy for HMRC (would this stand for human resource? For this article, should we keep the reporting channel as Finance?) to check up on.

Always submit and approve expenses on time

Successful policies should always have clear (and easily findable) time frames for submitting expenses. This is true for both employees claiming expenses, and for employers approving the expenses and paying their staff. The best practice is to include a clear expenses time frame outlining the length of the process, from beginning to end.

If employees delay claiming their expenses for long periods of time, it not only hurts their own finances. It also causes cash-flow and accounting problems for the company. It is also a good idea to have managers approve and review their own teams’ expenses, rather than passing them further up the chain of command each time. However, this means that controls must be in place to ensure that managers are doing expenses properly, rather than simply signing them off.

Make team leaders accountable for expenses

While a quick process is important, it’s also necessary to ensure managers have the ability to push back on expenses claims they believe to be non-compliant. To ensure only correct claims are made, it is best to hold authorisers accountable for the enforcement of policy guidelines.

Engage with your management team. Take the time to explain the policy to them – from basic processes to the rationale – each time there is an update. Their understanding of the policy will promote compliance and, in the long run, a cultural shift among employees when it comes to expenses.

Facilitate the submission of expenses on the go

It is likely that a portion of your workforce is either global, remote or mobile. As such, the claiming and approval of expenses can be difficult to achieve in a timely manner. The best practice is to provide a system where employees can claim, and managers can approve, expenses while away from the office.

This will mean looking into technology enabling this in an effective manner. One that works on mobile is also a plus, as it allows adhering to the expenses policy on the go.

Audit processes and receipts effectively

Good auditing equals good practice. 

Viewed often as an unwelcoming and time-consuming intrusion, regular auditing keeps expenses procedures more effective. It helps iron out any problems or snags in the policy and keeps the system fair and up to date.

The best practice for auditing is to include receipt validation. When auditing receipts you should check that your employees are claiming correctly. For example, are employees submitting both credit card slips and receipts for the same item, but claiming for two separate expenses? No one likes to think their employees are committing expenses fraud, but unfortunately it isn’t uncommon.

Your expense policy should include a clear set of auditing guidelines, including the process around random audits. You may also choose to only audit tax sensitive items, or those over a certain value. In an ideal world it would be great to check everything; in a busy workplace that is not always possible.

Pay your employees on time

The best way to ensure your employees are complying with your company expense policy is to ensure you are complying with it. Once your staff have gone to the trouble of familiarising themselves with the policy and its processes, it is only fair to pay them as soon as possible.

However, the best practice is to issue a corporate card. This removes any out of pocket expenses being incurred by the employee. While the occasional taxi receipts may not seem significant, travel expenses can take on the magnitude of thousands of dollars each month. For companies that make reimbursements to expense payments once a month, delays in submission, approvals, finance processing could lead to employees having to front their credit card bills before they are reimbursed.

What should you avoid when it comes to a company expense policy?

There are two common aspects many businesses use for expenses that actually cause more problems than they’re worth. As you create or update your expenses policy, it could be worth taking the time to remove these two potential problems to keep up best practices.

Petty cash

Many offices use a petty cash box, which is often believed to not cause any harm. After all, it’s only small amounts of money at a time. Is there really any harm in not knowing exactly where it is going? Yes. Companies should track and account for all spent company money, especially in a new business. Having an untracked cash flow, no matter how small, is just asking your employees to take advantage. Plus, now-a-days, an expenses debit card enabling you to track “petty cash spending” online is far more efficient.

Expense claims in paper forms

Old-fashioned processes, like paper expense reports, are still widely used – even in “paperless” companies and offices. There is no reason in 2020 for your expenses not to be automated. Paper reports are easy to get wrong, lost and duplicated. They are difficult to store and monitor effectively. Paper reports take up more man-hours, as each calculation must be checked manually before approval. And in some cases, the data from paper reports is later manually uploaded onto an online system. Save your employees the hassle, and have them claim expenses online at the start.

Time to get started

These best practices in your company expense policy should help create a robust set of guidelines that will help your employees save time and your company save money.

However even the best expense policy will not alleviate the painful monotony of the claims reporting that we are all too familiar with. Having a unified spend management solution can make all the difference.

Save big on time and effort with Volve. From sales to human resources to finance operations, management can look forward to shifting resources from repetitive manual practices to realizing strategic goals that would create more value and deliver higher returns.

The Volve corporate card comes with an automated expense management and reporting tool which enables all functions of business to capture productivity growth from time-cost reductions, greater accuracy, increased visibility and control.

Test drive Volve today for 30 days FREE. Sign up here. No charges until after your free month trial; cancel at any time.

Rachelle Lee
Growth Hacker
Prior to scaling next-generation financial services, Rachelle lived out of a suitcase across Asia working on a 3-year research plan gathering customer insights and synthesising consumer decision journeys for global creative agencies, engaging with businesses on growth marketing, brand storytelling and customer engagement models for future business growth. She still drinks too much coffee, doing meaningful work with trailblazers and innovators to bring greater literacy to spend management solutions.

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