Best Practices for Business and Travel Expense Policies

iuTime for Travel and Entertainment
It’s that time of year when there is lots of travel and entertaining taking place. Probably more personal travel than business but certainly business entertaining is happening. Businesses need to establish, monitor and enforce employee travel and entertainment guidelines. Some employers think that controlling expenses, too much, can risk talent recruitment so finding the optimal balance is key.

Is the misuse of Company funds by employees a widespread issue? Various estimates put the average of travel and entertainment expenses between 6% and 12% of an organization’s expenses. Employee abuse of travel and entertainment expenses appear to remain an issue for many organizations. A 2016 report by the Association of Certified Fraud Examiners estimated that employee fraud in this area accounted for 15% of all the misuse of corporate assets in the United States.

While there may be no perfect solution for preventing this misuse, it can hopefully be mitigated by establishing some best practices.

Policy: Establish a formal policy and training process. Provide a copy of the policy to all employees. The policy should include a section on how to handle instances of noncompliance and the measures to be taken in the case of fraud.

Train employees on how to conserve expenses. Review with the employees the travel and entertainment policy on a point-by-point basis, as opposed to, handing them a wordy policy for them to follow.

There should be continuous discussions with employees about the purposes of the organization’s travel and entertainment policy. Communicate the organizations expense management goals and the employee’s role in helping meet those objectives.

Approvals: Approvers need to be cognizant of the policy and which details they are required to verify and why.

Immediate managers should oversee the expenses charged by the employees under their supervision. Managers have an immediate impact on controlling employee expenses and keeping them within budget. It is also an easier process for an employee to explain a particular expense to someone who is already familiar with their specific job responsibilities.

Monitoring: Establish two controls at different stages of the expense reimbursement process. First control, at time of receipt submission and the second control could be performed during month end closing and analysis.

In addition, technology can also aid in creating a balance between monitoring and trust. Data management tools are available to detect possible fraudulent activity. This can be utilized for overall expenses or for established thresholds, as many organizations may not require receipts for expense under an established threshold. These tools usually apply Benford’s Law which analyses the frequency of digits to determine possible abuse. To prevent fraud and the appearance that noncompliance is accepted, policies should be firmly and consistently enforced.

Terry Ann Wheeler, CPA