How to Implement an Expense Management Process to Save Costs and Prevent Overspending
In the course of official company assignments, employees may incur some expenses that must be charged to the company’s account. However, although these decisions were made from the employee’s end, there are ways to strategically manage these expenses proactively to save costs while still providing employees with the ability to make their own spending decisions.
This article will highlight an example of an expense management process, the ways to best manage expenses to save time and cost for your organization, and how to get your team aligned.
What is expense management?
Expense management is the process or system instituted in an organization towards sorting, recording, processing and reimbursement of expenses incurred by their employees. Expense management can either record to the whole system in place at an organization or the software and tools used to carry out the tasks of analyzing expenses.
An effective expense management system takes the expense reporting of all company staff into consideration, audits them, to determine validity and prevent overspending. The expense reports submitted by employees are then reimbursed, if the cost was borne by the employee’s personal account, or the spending is integrated into the company’s expense account.
Ways to manage expenses
Companies employ the use of different expense management systems and different ways to manage and track expenses. The different expense management systems have pros and cons pertaining to their uses.
The use of spreadsheets for expense management has long been a popular choice in expense management. The use of spreadsheets entails the manual tracking and recording of details of paper receipts and expense reports. It is also an inefficient method as the task is not fully automated, compared to the use of expense management software.
An accumulation of receipts and expense reports. Everything is done leaving a paper trail. The accounting department has to perform a lot of manual processes and auditing.
The use of specialized tools and computer programs has made the automation of the expense management process easier. The entire process is done with the use of the software, which sorts through the expense reports and allows the auditors, either accept or reject the claims for reimbursement in cases of overspending.
The use of expense management has made the process of dealing with employees expense much easier and efficient. Rather than deal with paper trail, which can potentially lead to overpayment or loss of receipts and credit card statements, the entire expense reports are logged on a dedicated software. There are mobile expense management solutions that allow employees record expenses on the go to prevent loss of receipts and bills, such as Procurify, which allows expense tracking, sending expense requests and approvals, and can capture receipts with just a mobile device.
The expense management process
The expense management process is the procedure through which employees make claims for reimbursement or give an account of expense incurred in the course of company business. The tracking of expense claims and reports can be a time and labor-intensive process unless specialized tools are used to make the process automated.
The expense management process is as follows:
Recording expense reports
Expense reports are comprehensive documents showing the total expenses and cost incurred by employees over the course of a business assignment. The expense might have either been charged already to the company or it was charged to the employee’s personal account due to its unexpected or urgent nature. Expense reports include- employee expenses, paper receipts, hotel bills, credit card statements, plane bookings, business trip expenses, and any paper trail or proof of purchase. Reimbursement of such expenses is contingent on the provision of expense reports otherwise there is a risk of fraud and excessive expense claims. Expense reports are classed based on the nature of service purchased and usually contains general information about such an employee.
Approval of expense reports
The accounting department and managers weigh the merits of the expenses based on necessity and value. Excessive spending or expenses incurred at a noncompetitive rate will be rejected, unless it is appropriately adjusted. Managers of business are in charge of approving and rejecting expense reporting- reimbursement is delayed in cases where the report is rejected, until it is accounted for or adjusted.
The expense reports submitted may be audited to determine authenticity and prevent fraudulent claims of reimbursement. Overspending and misappropriation of funds will also be examined as expenses must not be claimed for non-compliant assignments. Expenses incurred on personal time that is not related to official business cannot be reported lest it gets tagged as fraud. Reimbursement is usually contingent on the approval or otherwise of an auditor who verifies such expense reports.
After approval by auditors and managers, the amount in the expense reports is credited to the expense account of the company. The employee is then reimbursed based on the prearranged method of payment.
Forms of expense management
The types of expenses incurred by employees in the course of business can be of different classification. Expenses can either be planned or miscellaneous expenses that had not been accounted for in the process of budgeting funds for an official assignment.
The following are some examples of expenses incurred in the course of official work:
Travel expense management
The costs incurred by employees by traveling for business functions and engagements are all managed under the business’s travel expense management.
The cost of office information technology services are all classed under the technology expenses. The use of mobile expense management software and other software for the day to day running of the business also falls under the purview of technology expense management. Technology expenses are one that is hardest to track as some software is billed per month or billed annually, and thus re-occurring expenses takes extra effort to track.
Telecommunications expense management
This may also fall under the purview of technology expense management depending on the nature of the discretion of the managers. The tools used for effective communication by employees are recorded as telecom expenses.
The cost incurred by a company to keep itself in check is also recorded as a business expense. The cost of keeping an updated inventory list and accounting for available goods and services is called inventory management.
Automation of expense management process
The use of expense management software has made the use paper trail methods, like the use of spreadsheets and other paper forms obsolete. The expense reports are entered into the software database and the tool classes it into the appropriate service it falls under. The expense report is then forwarded to a manager for approval, this check is to reduce the incidences of overspending and making irrelevant purchases, if the expense report is approved the expense management software forwards it to the audit department to ensure the reports are not intended to commit fraud or misappropriation of funds. Approval by the audit triggers a process within the software that automatically reimburses and notifies the employee of the same. Automation of the expense management process is necessary to promote time management and reduce the labor-intensive nature of manual sorting.
Procurify offers a robust expense module that allows users to submit expense forms easily by dragging and dropping receipts and invoices into expense reports. In addition, we offer a mobile app that makes scanning receipts for expense reports easy, with just a touch of a button and a camera.