How to nail expense compliance and manage risk
The ambition for any finance department should be 100 percent policy compliance. It’s to reach a state of perfection - where each and every cost is rigorously checked to ensure it ticks all legislative boxes.
While this may be the dream, the reality is that full compliance can never truly be achieved. No matter how scrupulous your procedures are, a skilled auditor will always be able to root out areas of uncertainty.
This is why one of the toughest challenges facing today’s finance professionals is managing compliance risks. With only a finite amount of time and resources, it’s choosing where to focus.
This is one of the reasons that employee expenses pose such a potential compliance threat with the relatively small individual costs often not viewed as a priority.
In fact, the smaller the expenditures, the greater the risks are liable to be. A 2016 study estimated that UK companies are losing around £1.8 billion each year to petty cash errors and fraud.
Along with internal policy breaches, there’s the threat of audits, fines and even prosecution for falling foul of HM Revenue and Customs’ tax and VAT legislation.
This is a traditional weak-spot that technology is helping to tackle with digital systems and automated processes allowing each and every expense claim to be monitored and checked.
With paper receipts converted to a digital form via a smartphone app, it removes the laborious and error-prone tasks of having to transfer information across paper forms and spreadsheets.
Here’s a look at how digital management transforms compliance procedures:
While a digital system doesn’t eliminate compliance problems, what it can do is provide evidence to show that effective measures were taken to prevent them from happening.
It does this by monitoring and recording every stage of the expense process - from the moment a claim is made to each and every check and approval throughout the process.
This kind of detailed information is invaluable when faced with an HMRC audit or investigation, providing reassuring proof that proper procedures and adequate checks are in place.
In the past, few organisations had the resources required to properly monitor employee costs. The volume of paperwork meant that claims would often receive little more than a cursory glance.
With a digital system, each expense report is automatically checked on submittal to make sure it complies with company policy and doesn’t breach any limits set by the finance team.
Any suspicious claims will trigger an alert which allows an account professional to take a closer look at the cost and to investigate whether it’s legitimate.
One of the hardest areas of compliance to nail down has always been mileage expenses. It’s a legacy of finance professionals having been reliant on employees providing them with estimates of road journey distances.
The time and resources required to manually check the accuracy and legitimacy of claims meant that all but the most blatant breaches were likely to be approved.
A digital system tracks the exact route and distance of a road journey via a smartphone app. It removes the ability to exaggerate or falsify travel costs and allows the personal and business elements of a journey to be identified.
Petty Cash Controls
With a minimal amount of central control or monitoring, petty cash is a compliance deficiency which often catches businesses out. The imprest system typically operates outside of an organisation’s expense management set-up, without the same checks and balances.
The move to a digital system allows these petty cash claims to be treated no differently to any other employee cost with digital receipts required and automated compliance checks.
It also allows for much more accurate categorisation of minor costs. A notorious area for compliance breaches is the ‘miscellaneous’ category in which a multitude of different costs are liable to be hidden.
So while the challenge of ensuring compliance hasn’t gone away, the ability we have to tackle it has fundamentally changed. By removing the resource sapping limitations of paper-based processes, account professionals are able to treat the smallest claims with the same compliance rigour as the largest business costs.
Webexpenses provides a smarter way to manage employee expenses. Find out for yourself by requesting a free demo.