8 tips for designing an effective expenses policy

An expenses policy is not a one-off “tick and forget” exercise in corporate governance

A properly implemented and well-defined expenses policy can save time and resources, as well as protect against fraud and compliance breaches.

An expenses policy sounds straightforward: a document that outlines how business-related expenses are handled, gives employees guidance on what can and cannot be claimed, the process for making claims, and what happens if there are disputes.

However, a recent study by PayStream Advisors found that more than half the employees surveyed didn’t understand their expenses policies. This confirms that making claims is not just a concern for politicians such as Australian government MP Sussan Ley, who resigned as health minister after questions were raised about her travel expenses.

Australian Human Resources Institute chairman and national president Peter Wilson says the nature of competition and the economy today is such that people have to be vested with the right to spend quickly and effectively on behalf of their organisation. For example, if a laptop breaks on a business trip, they need to either buy a new one or waste time and productivity by waiting until they are back in the office.

“Problems arise from the level of accountability and the obligation that flows from that,” Wilson says. 

“It’s where a blurred line has occurred in cases like Sussan Ley’s – between what’s in an individual’s personal interests and the public or organisational purpose.”

Clearly, an effective expenditure policy is an issue for everyone.

1. Make it transparent

A 2014 survey by expense management software provider Webexpenses found 43 per cent of employees felt an unfair expenses policy justified fraudulent claims. Little wonder the Association of Certified Fraud Examiners says expense reimbursement fraud accounts for 14 per cent of all asset misappropriation at companies.

Not everyone may agree with the rules and limits, but allowing employees to have input into a policy can help them to understand why the rules exist, identify grey areas and engender buy-in.

2. Keep your expenses policy simple

No one wants to navigate the length of War and Peace before making and claiming a legitimate expense.  A best practice expenses process hinges on an unambiguous policy. Too much complexity can be demoralising, lead to unintentional compliance breaches or even exaggerated claims to compensate for lost time and inconvenience.

Avoid jargon, ask claimants to provide only required information, communicate in a tone appropriate to your organisation, and make it readily accessible via the company intranet.

3. Review and update your expenses policy

An expenses policy is not a one-off “tick and forget” exercise in corporate governance; it should be a work in progress. Senior managers need to regularly update it to reflect changes in legislation, the business environment, inflation and, ideally, advances in technology.

4. Automate your expenses compliance

Many organisations still sift through a paper trail when processing expenses, increasing costs by 23 per cent for small business and 43 per cent for large corporations, according to PayStream.

It suggests that companies can potentially save time, money and goodwill by automating processes, such as with cloud-based software, to simplify reimbursement policy procedures, implement clear expense policy guidelines, and communicate policy changes to employees.

Instead of being a static document, such tools allow policy to be seamlessly integrated into the day-to-day life of an organisation, setting spending limits, flagging areas of special interest, using GPS technology to track travel accuracy, and even enabling real-time confirmation screens to ensure users are aware of tax and other obligations when making claims. 

Further, claimants can lodge digital or photographed receipts from their mobile devices, giving finance teams visibility over spend as and when it occurs.

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5. Ensure fairness in how you handle expenses

Wilson says classic areas for expense disputes involve travel, accommodation and hospitality. As they’re open to interpretation, guidelines around them must be clear (don’t travel business when economy is the norm or stay at the Park Hyatt if standard practice is three-star, or rack up a $500 meal with a friend instead of a customer).

According to travel management firm Concur, managers are more likely to submit higher “out of policy” expense claims but only half as likely to have them rejected. Remember that the tone is set from the top.

6. Open disclosure in expenses policies

It’s not a widely adopted policy, but some advocate making everyone’s expense reports public on the company intranet. 

The rationale is that people will be less likely to splurge if colleagues find out about it and, more importantly, those who make poor decisions will see their numbers compared to peers who accomplished the same or more without breaking the bank.

7. Conduct expenses audits

“Telling people you’re going to make regular checks through spot forensic audits is probably the most effective way I’ve seen to avoid abuse,” Wilson says.

“In a world of big data, patterns of spending either by volume or nature will usually show up. 

“Calculate simple averages and standard deviations to work out where the hot spots are. If people know they’re being watched, they’re less likely to offend, especially if you take action that shows they’re being checked.”

8. Submit, approve and pay expenses on time

Best practice dictates expenses – regardless of whether employees paid out of their own pocket or on a corporate card – are reimbursed according to a published timeframe. Equally, because it can create serious cash flow issues and accounting nightmares (especially for small to medium enterprises), claimants should be warned against delaying the filing of their expenses.

Read next: ATO cracks down on work-related expenses

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