Expense Policy Automation – Best practice

1. Expense Policy Automation – Best practice

a. An expense policy provides guidelines for employees for claiming business expenses. It provides employees with information about what they can and cannot claim as reimbursable expenses.  

b. It also provides the management with critical real time visibility into actuals v/s budgets. 

c. Expense policies automation is the best way to set expectations and eliminate grey areas for employees. 

d. An expense policy is also is about your company culture and values because the employees are the face of your company. Setting clear expectations and guidelines around travel and entertainment expenses is crucial to establishing a healthy company culture. Many companies like Starbucks use their company policies to reinforce their values and strengthen their company culture.

e. An effective, transparent, accessible expense policy is crucial to every business, whatever the size. A comprehensive and well-defined expense policy is imperative for every business that plans to grow / scale at a later stage.

2 . Why is it used?

a. Expense Policy, in the main, inculcates a discipline in the spend management of a company/business.

b. Claimant know what they can and cannot spend. Similarly, approvers also know what they should and should not approve as expenses.  

c. It reduces fraud.  

d. It brings human error to a naught.  

e. A clear expense policy helps keep cash flowing – the lifeline of any business.

f. Finance teams also need to make sure that all the expenses fall in line with tax rules.

g. An expense policy plays a crucial role to help streamline business processes.

3. Where is it used?

a. Expense Automation ensures that the Expense Policy is enforced at the point of entry. For example, the policy provides that “x” amount can be spent per night on a hotel room. However, if the claimant enters an expense for “x’' + (say) 5%”, then there is a policy violation. This will be IMMEDIATELY flagged at the point of entering the expense. The claimant has two choices, either to reduce the amount to a number which complies with the policy or provide a justification note. If the claimant chooses to submit an expense which has violated the policy, the Approver and the Finance manager will see the justification note and will have the choice to either Approve or Reject it. In either circumstance they ALSO must provide a justification note for their actions. Therefore, an Expense Policy is used to ensure that the claimants spend within the approved/authorised limits or provide a valid justification.  

b. It differs hugely from the manual (non-automated process), where each item must be physically checked against the expense policy. In an automated process, this checking is in-built, and takes less than 2 seconds to be highlighted. Whereas, in a non-automated process it could be hours, if not days. Because of the automation, the finance team’s productivity in most cases goes up by 1000% !! And most importantly, fraud is reduced to under 0.05% v/s 13.2% in a non-automated process.  

c. As a result, the Finance team is under less pressure. They can spend more time on tasks that add value to the businesses top-line, and less time on routine matters. That apart, even claimants get reimbursed quicker, because there are fewer questions raised on their expenses.  

d. Expense policy of a company works as the framework that underlines everything an employee must do for a seamless expense reporting experience. 

e. It brings all information around expense reporting and expense reimbursement under one roof. This makes life easy for all stakeholders.

4. Who does it apply to?

a. It applies to all people who claim and approve expenses.

b. To claimants, to ensure that they claim within policy, which they are aware of, because each expense category in ExpenseOnDemand displays the policy if the Administrator has set it.  

c. Similarly, the Approver are made aware of what the policy limits are, and what, if any, is the violation amount. Indeed, the policy documents also suggests where the approvers can apply their judgement and to what extent if an expense marginally breaches the expense policy.  

5. ExpenseOnDemand Expense policy automation module

a. ExpenseOnDemand provides a set of expense policy functions, which offer immense flexibility to an organisation in putting together a comprehensive expense policy ( Screen 1 ).

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b. ExpenseOnDemand, enables companies to set limits against one, some or all expense categories – as to what the employees can spend on account of business expenses.  

c. ExpenseOnDemand also provides a slick mechanism to set policies which will automatically kick-in on a future date.  

d. These policy limits can be described typically as:

i. Period Limit – Daily/Monthly/Yearly on some categories such as meals.

ii. Hotel rooms per night limits.

iii. Entertaining Clients – how much can be spent on per person.

iv. Overall Daily limit. These limits are overarching limits as to what is the maximum a claimant can spend each days on ALL expense types.

e. There are other policies too:

i. To capture & identify duplicate expenses.  

ii. Enforcing the submission of expense items within a prescribed time limit (say 90 days)

iii. Sending reminders and escalating them to the approver’s approver, if expenses are not approved within the time limits set.  

iv. Enforcing receipt compliance, ensures that a claimant submits an expense with a receipt. Else, they must provide a justification. Where there is no receipt or a no VAT receipt, the VAT assigned to that category defaults to zero automatically.  

f. In addition, ExpenseOnDemand also provides mechanism to ensure that claimants claim the correct mileage distance by using automated tools such as GPS or Google Maps. As a result, the claimant cannot claim more than what these tools have calculated. Else, they must provide a justification for the detour.  

6. How does ExpenseOnDemand AUTOMATE expense policy?

a. To automate the expense process, a Finance Manager can use a combination of policies.

b. Turn the Duplicate rule ON for ALL categories. This will ensure that no duplicate expenses pass through without being flagged. Hence, the checking reduces. Every duplicate expense is flagged at the point of entry (to the claimant). They can either delete it or provide a justification. This saves an immense amount of time. Only those duplicates, which have a justification, come through,. When reviewing the expense, which are duplicate and carry a justification, the Approver and the Finance Approver can check “on the fly” the receipts for all the other duplicate expense, which are linked to the expense in question, and verify the veracity of the claimants justification, and only then approve the “duplicates”. Setout below is an example of the Duplicate policy, and what the Claimant ( Screen 2), the Approver ( Screen 3 & 4) and the Finance Manager (Screen 5) view.

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c. At each level, i.e., Claimant, Approver and Finance manager, there is full visibility, with all back-up evidence, such as receipts, etc, to prove if an expense is a duplicate or not.  

d. Per Person limits are set to ensure that while entertaining external parties or taking teams out, the Inland Revenue (Tax Authorities) mandated rules relating to the amounts that can be claimed are adhered to. Else they may create a tax liability on both the organisation and the claimant. These can be combined with Expense Capping - Daily Limit, to ensure that the claimant does not spend more than a certain amount throughout the day on this category. This will ensure that there are no surprises. However, to ensure that the claimant knows what they can spend on a meal or during a day, the Pre-approval function is of great help, because it leaves no room for doubt for the claimant. The Pre-Approval ensures that the claimant has a taken permission (even if there is a policy) to spend the money, and their manager/approver is aware of the expense. The Per person limit does not include the Tips.  

e. Per night limit, applies to hotel or away from home expenses. This enforces the policy on each room night spend. Which means that if person has stayed for 4 night in one room, then they just need to make one entry versus 4 entries when they use the Expense Capping - Daily Limit function. So, the recommendation is to use the Per night Limit function when the rate per room night must be controlled.  

f. Similarly, Expense Capping – Monthly Limit can be used by companies who want to ensure that claimants, while staying within the Per night limit, do not spend more than “x” amount each month staying in hotels. This can also be used by companies who pay a certain amount each month for certain fixed benefits.  

g. The Expense Capping - Yearly Limit, can be used by companies who pay a fixed yearly benefit. If used in combination with Expense Capping - Daily Limit & Expense Capping - Daily Limit, it can prove an immensely powerful policy control mechanism, where the claimant has certain flexibility each day, each month, but can never spend more than the year limit at any point in time.  

h. Auto Approval, when used with Duplicate rule, can be a real bane for the approvers, because it saves immense amount of time. Small expenses, such as parking, toll, etc, and even mileage do not need to come to the approver for approval, because there is nothing much to see in them. However, they only come if there is a duplicate expenses, which automatically violates the duplicate policy. The Auto Approval is for convenience, where the checking is solely done by the finance team, and not the approver.  

A good expense policy document works for both the employee and the employer. This document does not have to be long, lengthy, and complicated. In fact, it should be short, simple, well-structured, and relevant. The focus should be on Adoption rather than Enforcement.

When spending on company expenses, it is imperative for employees to confirm if that expense is allowed under the company’s expense policy. If allowed they should also confirm if there are any caps placed on that expense category.

Employees must be made aware that all expenses charged to the company should all be business related (here the Business Purpose function can also be used). They should be made aware that NOT all expenses are reimbursable – for example childcare, personal grooming, traffic violation tickets, airline upgrades, dry cleaning charges etc, because these are not for the business of the company.

7. Conclusion:

Expense policies benefits both the employee and the businesses. The benefits are clear when looking at KPI’s and how best in class companies are performing as they take advantage of these policies

• 44% ROI after implementation

• 36% year on year savings

• 57% of Vat compliant T&E expenses

• 64% of travel expenses are within or below their limits

For more detailed insight when it comes to expense management, hop onto the ExpenseOnDemand website, and take a 30 day FREE TRIAL and decide for yourself.

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