Wayward Expense Reports

Wayward Expense Reports

Have you ever gotten a totally unexpected, random reimbursement request? You wonder “Where the heck did this come from?” as you begin your inquiries, only to find out it was an unauthorized expense item from an employee. It’s a costly problem that can lead to confrontation, and it’s one that is becoming increasingly more common for many business owners.

One might expect wayward expense reports to be on the decline with our modern reporting and accounting methods, but recent data actually suggests the opposite. As audacious as it may seem, 56 percent of CFOs reported an increase in inappropriate expense report requests from their employees in the last 3 years, according to survey data of about 1,000 CFOs from Robert Half Management Resources.

27 percent of all the responders said they’ve been seeing a “significant increase.”

What can be done to reverse this trend?

 

Draft a Policy

If your company hasn’t specified what expenses it will and will not cover, then you’re likely going to encounter a whole lot of gray areas of interpretation about what counts. The best thing you can do first is draft up a clear policy establishing what kinds of purchases would construe a business expense.

To find some guidance as you write, you can always use the policies in IRS Publication 535 as an outline. It’s kind of a dense document, but it contains all the details you would need for expense item deductions on your tax returns later.

Publication 535 states that “you can generally deduct the amount you pay or reimburse employees for business expenses incurred for your business.” Deductible expenses are defined as being “ordinary and necessary,” or in other words, “ordinary and accepted in your industry and necessary for your business.”

It’s important to note there are no federal laws regarding employer expense reimbursements but there are a growing number of states beginning to create their own regulations. Indiana doesn’t require employers to reimburse, but many companies do.

Make sure your policy includes:

  • A requirement for receipts
  • Context details like date, location, reason, etc.
  • A timeframe for submissions (30 days, 60 days, etc.)

 

Educate

Once your policy is written you need to make it accessible to employees and educate them on its contents. Experts recommend you review this item regularly and provide reminders about what constitutes a reimbursable expense. When employees have a clear understanding about what they are allowed to claim, you’ll encounter less of those troublesome gray areas and other inappropriate claims.

Education is particularly important for companies that have long-established policies but are still encountering inappropriate expenses. Letting that policy sit in a drawer will only create more headaches. Instead, distribute that policy and give your team a refresher course.

“Even though organizations have made strides with improving expense report procedures, there may be a lack of clarity when it comes to the submission guidelines,” said Sonda Sorg, metro market manager at Robert Half in Indianapolis. “Managers should ensure their policies are readily accessible and easy to understand for employees. Companies may also benefit from updating their software to simplify the reporting process.”

 

Make Things Easier for Yourself

Accurate tracking of all business-related expenses can be made fairly simple for financial officers with a few modern tools. Among the simplest to implement and issue are app-based reporting systems. There are several different popular smartphone apps for this purpose, all of which offer real-time tracking. This provides greater accuracy and gives companies an easy way to classify expenses by type, which helps to expose fraud quicker. Snapping a photo of a receipt and immediately posting the expense is a simple process for employees – essentially, an easy habit to build.

Alternatively, corporate credit cards are another great option for simplicity. They remove the chore of reimbursement entirely and gives companies direct control measures over spending and fraud identification.

 

A Little Clarity is All That’s Needed

It’s funny. You wouldn’t think you’d have to tell your employees that a trampoline is not a business expense, but you’d be wrong. Clarity is definitely important when it comes to reimbursement expectations and can save your company money. By defining what’s appropriate, educating your staff about your determinations, and incorporating new tracking methods for spending, you’ll be able to prevent ridiculous reimbursement requests from coming across your desk. Unless, of course, that trampoline was really, really important.

 

 

 


Inappropriate (and True) Expense Report Items

These items have actually been submitted for reimbursement:

  • A pogo stick
  • Super Bowl tickets
  • A cow
  • Taxes
  • Jet ski rental
  • Traffic tickets
  • Gambling losses
  • A chicken statue with a top hat
  • 300 tacos
  • Invoices for another company
  • Animal rental

Source: Robert Half


 

Category Features, Finance