Employee expenses, Supplier payments

Control your staff work expenses when they use private cards
Imagine you have 10 employees in your small business. These people are doing lots of things. They also traveling travel to lots of places. How can you keep your head around all the work expenses that this generates? When your staff ask to be reimbursed for their expenses that result from this, what will you […]
Wayne Merry
November 12, 2019

Imagine you have 10 employees in your small business. These people are doing lots of things. They also traveling travel to lots of places. How can you keep your head around all the work expenses that this generates? When your staff ask to be reimbursed for their expenses that result from this, what will you do? You need more control than simply approving everything from gut feel.

Expense Report Forms

Costs that your staff pay and then claim are expense reports or claims. Rather than accepting a collection of receipts, you should require your staff to provide a claim form. This form can standardize the way staff claim. Things that you should consider on your claim form:

  • The date, matching the date on the receipt/invoice
  • Nature of the expense, or classification. Examples include airfares, meals, parking fees
  • The amount
  • Tax such as GST/VAT. For US organizations, it is generally unnecessary to collect sales tax information on your expenses
  • The account that the expense should be charged to. You can prepare a template claim form as a spreadsheet, putting account codes in column headers. You may find that you need to group accounts on these forms if the number of columns would otherwise be too great
  • A subtotal for each type of expense. This can be a total of a given column
  • Subtract any advances to the staff member from the claim
  • The grand total of the reimbursement arising from the claim

You may include on the form a summary of your travel and entertainment policy. You might, for instance, not pay in-room entertainment such as cable TV charges.

Paying work expenses invoice on a phone

Expense apps

There are many expense apps that are available for iPhone/iPads and Android phones and tablets. Examples include: Expensify, Rydoo and Certify. These apps typically allow users to record work expenses as they occur. They allow users to take photos of receipts. In 2019, these apps will OCR these receipts.

For small organizations, staff may use their own categories in these expense apps. This means the reports produced from these apps are not likely to cleanly line up with the categories on your expense claim forms and with your accounting system. You may wish to develop category guidelines for staff to use within their apps.

If your staff use an expense app, them make sure they only submit claims with legible receipt photos. It the photo is not readable, then it is useless to you. This is true for tax deduction claims, and also for audit purposes. If the photo can’t be read, insist staff submit the paper receipt or a legible scan. Sometimes paper receipts from shops are long strips of paper. Your staff need to capture the whole receipt.

Avoiding work expense claims

Staff expense reports/claims represent expenditures that you have no prior control over. All you can do is restrict what you reimburse after the fact. This may be confrontational, especially if a staff member feels expenditure was legitimate. Consider alternatives to this method of spending money. Alternatives include:

  • Centralized travel booking for flights, car hire and hotels. You may enjoy corporate discounts. Your travel agent may permit you to pay on account, or at least prepay from a company bank account. Travel incidentals may still appear on expense reports. You will, however, avoided big ticket items unexpectantly appearing. You can avoid any unauthorized travel taking place.
  • Purchase orders for large expenses. For all but the smallest organizations, capital expenditure should not be occurring on work expenses claim forms/reports. You can consider a limit on operational expenditure that can be made without a purchase order. Purchase orders give you control over spending in advance of the spending occurring.
  • Many tax authorities impose restrictions on allowing deductions on travel, meals and gift expenses. For United States examples, refer to IRS documents here. For an Australian example, consider entertainment requirements or travel requirements.

You can find more information about expenses by clicking this link.

Timely claiming

You need to consider how old your staff member’s claim is when they submit. You may choose to record work expenses against the month that you receive the claim. if the work expenses are months old, then this distorts your financial reports. In some countries, such as the United States, there are time limit on staff claiming some work expenses. If they fail to claim within required time frames, the expenses are automatically deemed private.

GST/VAT

Most countries have introduced Value Added Taxes or Goods and Services Taxes. These indirect taxes may apply to some or all of your expenses. If these expenses are related to your production of taxable goods, you may be entitled to claim credits for this tax you have paid. You need to collect tax information from your staff work expense claims so you can make these tax claims.

  • Employees getting GST/VAT information correct on their claims can be a struggle. When a work expense has a mix of taxable and tax free items, getting the claim correct is more difficult
  • Expense apps getting GST/VAT right are hit and miss. You are likely to need to have processing staff review claims that have been handled by these apps

Post it notes on a wall, remember to claim your work expenses!

Reviewing work expenses claims/reports

Lets get to the point! You need to be strategic about reviewing claims. Many organizations spend large amounts of time for very little variation (or none) on claim amounts. Strategies you can use in managing expense reports include:

  • Partial reviews and sampling:
    • Rather than reviewing every report, review just a small number of them
    • If you find significant errors in a given person’s claim, then review all their future claims until they consistently get them right. You can also review their historical claims and revise if necessary
    • Let staff know that spot checks and sampling of their reports takes place
  • GST/VAT reviews: As discussed above, you are likely to require a trained person to review tax information on claims. Tax claims are hard to get right, so don’t rely on your non accounting staff and expense app machine learning algorithms to get this every time. You remain responsible when they don’t.
  • If you are a small organization, you are likely to be using spreadsheets. Your spreadsheet will work better if you lock the formulas in it down. Use conditional formatting (red/green backgrounds) to guide staff to any errors on their claim form.
  • If you are a larger organization, you can consider centralized expense reporting. Many expense apps have enterprise features. Large ERP systems have integrations with some expense apps.

Summary

Work expenses claims/reports can be complex and time consuming. If you use a standardized report template, such as a locked down spreadsheet, you’ll reduce some of your hassle. Review GST/VAT on claims if that applies to you. Otherwise, consider only reviewing some of your staff claims, but focus on ones where you find problems. You should consider requiring purchase orders for all capital spending and large operational costs. You can use expense apps, but make sure their reports work for you.

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