Expense Approval Process Best Practices in 2023
Businesses should account for every dollar that goes out the door – especially with the bleak economic outlook.
For 2023, economic forecasts expect one of the weakest economic growths in the past decade at 2.3% growth in real terms. Rising prices, increasing interest rates, and geopolitical uncertainties make it harder for businesses to grow and stay profitable.
If you are looking for better ways to:
- Increase the productivity of your finance team without overworking them.
- Reduce wasteful and unnecessary spending to survive a potential recession.
- Improve compliance with expense policies.
- Gain visibility over expenses to find smarter ways to cut costs.
Here are nine best practices that you can implement in your company.
#1. Create a Comprehensive Expense Policy
Every business, regardless of size, needs a clear expense policy.
A clear set of guidelines and expectations eliminates confusion about the expense approval process.
With a written policy, you can improve compliance, save time, reduce misunderstandings, and improve fraud controls.
If you haven’t already, brainstorm with your team to create one.
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What Should Your Expense Policy Include?
At a minimum, your policy should include the following:
1. Who does the policy apply to
Identify whether the same rules govern employees at all levels. Spending limits for some employee expenses may be higher than others. For instance, executives may spend more on meals and entertainment than the ceiling for rank-and-file employees.
2. Valid Corporate Expenses
Identify and enumerate allowable business expenses and the expense category to which they belong. For example, airfare, cab charges, and transportation allowance should be under travel expenses.
- Disallowed Expenses
Expenses that employees can’t charge against the company account. For example, service upgrades while traveling, gambling-related expenses, and alcohol purchases.
4. Spending Limit
Expense limits for each type of expense. The policy should indicate a budget limit for spending. For instance, travel allowances for meals and entertainment charges should not exceed $500 per trip.
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5. Report Format
Format for submitting your expense reimbursement reports. Indicate whether employees should use a template or an expense management app to submit expense and reimbursement reports.
6. Details Required
Identify what details should be included in the expense report, such as:
- Expense category
- Details about the expense and whether it is billable to a client or attributable to a certain project.
7. Payment Method
Indicate the means for returning excess funds from a cash advance and claiming reimbursements. Will you pay employees who paid out-of-pocket costs or covered an expense on behalf of the company by cash, check, auto debit arrangement, or another method?
If there’s money left after the trip or purchase, how will employees return the money? Provide clear instructions on how to return excess funds.
Specify a deadline for submitting expense reports and requests for reimbursement. Indicate the consequences for not submitting expense reports on time.
Identify individuals (e.g., supervisors, appropriate managers) who should be approving expenses.
10. Other Information
Provide additional information that may be useful to employees. For example, what should employees do if a business expense does not fall under an allowable category? Who should they contact if they have questions about the expense policy? Where can they find the policy?
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#2. Make Expense Policies Easy to Access and Understand
A written policy improves the entire expense approval and management process. But it will be more effective if every employee understands which expense approval requests would and would not get approved.
In most companies, employees only read the expense policy during onboarding. Unless an employee belongs to the finance department, they will not invest time to digest expense policies.
Here are some reasons why:
- Most policies are hard to comprehend.
- Employees need to read 20-plus pages to know what to do before spending on an expense like airfare.
- It’s more convenient to ask the boss or call finance to know if they’re charging an allowable expense.
- They’re not sure where the expense policy is.
About 70% of employees comply with the expense policy. Of the remaining 30%, 25% happened unintentionally. Mistakes are more likely to happen in a company with a complicated policy.
Reduce issues in the expense approval and reimbursement process by:
- Creating a simple guide that employees can understand. For instance, a process flow for different expense categories.
- Making the expense policy accessible to employees. Let employees know where to find the policy through email, in-person, text, and meetings.
- Remind employees to review expense policies regularly.
- Encourage employees to file expense reports that comply with company policies with the help of senior employees.
- Promote in-policy spending by making it part of an employee’s key performance indicator or offer incentives for complying with company policy.
#3. Evaluate Expense Policy Regularly
The consumer price index increased by 6.4% compared to a year ago. As prices increase, so should your expense and business policy.
Every year, check if the expense policy requires updates for items like:
- An updated list of allowable expenses. Based on the changes that happened in the past year, some expenses may no longer be necessary. For instance, the company purchased a license to use Microsoft Office for everyone. Any recurring expenses related to software apps that Microsoft tools can do would no longer be an allowable expense.
- Spending limits. Review the policy and adjust expense caps based on existing prices. Average hotel prices, for instance, cost 54% higher in January 2023 compared to the same time last year. 
- Feedback from managers, employees, and supervisors. Weigh in on complaints, requests, and inputs from employees and approvers.
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#4. Use Built-in Controls to Increase Compliance
How does the expense approval process happen in your company?
In a typical company, the expense workflow process goes like this:
- The employee submits an expense approval form.
- An approver reviews the expense claim.
- The finance department verifies if the expense complies with the spending guidelines.
- If applicable, the employee receives reimbursement for out-of-pocket costs.
Checking whether every expense complies with the policy can be time-consuming for all parties involved. Supervisors have to check whether the spending is in-policy or not. The entire process can take even longer when your finance team has questions about the expense.
Many companies struggle with long approval times for expense reports and invoices. If you have the same issues, consider using smart spend management tools.
Expense management solutions increase compliance since you can code policies into the expense management process by setting up customized rules.
For instance, if the meal allowance should not exceed $60 per day, the system will flag expenses over this amount. Built-in controls speed up expense and approval workflow processes and reduce friction over expense reports.
#5. Find a Simpler Way for Employees to Submit Invoices
Are you still requiring employees to tape paper receipts and send them to the finance team with their expense reports? What may have worked in the past could be why employees don’t liquidate expenses on time.
Compiling receipts and preparing the expense report is so time-consuming that employees try to put it off for as long as possible.
Almost 40% would rather eat a worm if they could avoid filing expense reports every day for one year. 20% are willing to squeeze lemon juice on a cut to avoid filing one.
When a pile of documents needing immediate attention sits on your desk when you return from a trip, you have more reasons to delay expense reporting. Reduce inconvenience from reporting expenses by using a mobile up to submit expense reports.
An expense management tool like Envoice allows employees to submit expenses using an app. Rather than taping receipts to paper, your employees can snap a photo of the invoice or receipt using the app and send it for approval.
Approves also benefit from using an app since they can sign off employee expenses even if they’re out of the office.
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#6. Perform A Surprise Audit to Validate Expense Reports
When was the last time you audited an expense report?
Padding expenses is one of the most common expense management issues.
In a UK study, 42% of decision-makers submitted fraudulent expense requests. Most of these individuals knew what they did was a fraud and the possible consequences of their actions.
Your employees are likely to have the same mentality, especially if they know that your finance department has too much work on their hands to focus on the expense management workflow.
An effective way to catch and prevent fraud is to perform surprise audits. According to the Association of Certified Fraud Examiners report, surprise audits decreased median loss from fraud by 50%.
Rather than wait for the annual audit, perform surprise audits. By doing this, you can identify fraudulent expenses faster. Audits will also prevent employees from committing fraud.
During your audit, look for red flags such as:
- Merchant name and type versus the expense category. For instance, receipts of a massage that employees charged under a group meal.
- Expenses with the same amounts.
- Small charges made multiple times to evade the spending limit.
- Unusual expense trends.
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#7. Automate Expense Approvals for Recurring Vendor Payments
Many companies rely on an expense approval process where managers approve claims submitted by employees.
Unfortunately, it’s not enough to improve control over expenses or prevent fraud.
Too often, a manager approves purchase requests and vendor payments without digging too deep. Some superiors have too much on their plate to perform a comprehensive check, especially for a recurring expense. There are also managers who only do a cursory review and sign the approval to comply with the policy because they trust their subordinates.
Even if managers stick to the expense policy, it’s hard to catch red flags as these employees have no time to investigate every item on an expense report.
Rather than relying on people for internal control, consider using an automated expense approval process and creating rules to pre-approve expense claims. Automation speeds up the approval workflow for expense reports and allows users to pre-approve expenses.
For instance, expenses like telephone and rent would likely stay within a range from month to month. With the right software solution, you can automate your expense approval process using customized rules if an expense falls outside a specific range.
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Suppose the estimated monthly rent is $1,200; you can create a rule to automatically approve all requests for rent payments that fall between $1,200 to $1,500. When employees send an expense claim for $1,250, the system approves the request automatically. But if someone requests a rent payment of $1,600, the system will flag the claim for manual review since it is higher than expected.
#8. Establish Accountability for Expense Approvals
Ensure that your expense approval process allows you to create an audit trail. Proper documentation is essential since you need to know vital information such as:
- Who submitted the expense report, and for what.
- Who signed the approval? Is there additional information provided about the expense?
- Which member of the finance team processed the expense report? Were there any notes?
- Other relevant details related to the expense report.
Documenting information related to the expenses ensures your business is ready for audits. If you have an expense management tool, prevent employees from using the same account for sending expense reports.
As much as possible, find an expense management solution to have one account for each employee. It’s also better to remind employees not to share email log-ins.
With these rules in place, it’s easier to determine who should be accountable for an expense.
#9. Allow Employees to Subtract Personal Expenses From Receipts
More employees go on trips that combine business with leisure. More than 70% dine, go sightseeing, and visit friends and family near the area. Many companies support “leisure” trips, but it complicates expense management.
As more employees go on these mixed trips, they want more flexibility in choosing which cards to use.
Not surprisingly, many employees swipe the wrong card when traveling. 53% of business travelers accidentally used a corporate card for personal expenses.
Make it easier for your employees to subtract personal from company expenses when you:
Build a “leisure” policy, so it’s clear what expenses are corporate and which ones are personal.
Create an expense report template that allows employees to separate personal expenses included in the same receipt as the company expense.
Use a spend management tool that asks whether the receipt includes personal expenditures and subtracts that amount from total expenses.
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Create a Robust Expense Approval Process
As companies become more agile, it’s critical to give employees the flexibility to spend company funds to accomplish their job. However, it’s equally important to control employee spending too – so, it’s vital to have an efficient expense approval process.
Sticking to these best practices should help you improve compliance within your organization. But if your company is growing, investing in an expense management tool could be the right move.
Expense approval automation could help you:
- Spend less time on data entry
- Reimburse employees faster
- Strengthen internal controls
- Reduce duplicative work with your existing accounting software
- Encourage compliance with policies
- Free up time for everyone
Automated expense approvals generate savings by eliminating duplicate charges, preventing employees from charging personal transactions as a business expense, and preventing fraud.
Modernizing your expense approval workflows with a smart software solution also helps you analyze spending patterns, so you can identify potential indicators of abuse or fraud without reviewing transactions one by one.
Automate Your Expense Approval Workflow Today
Clinging to a manual expense approval system or process could be a problem. If you’re struggling with costs and you don’t have visibility over expenses, it may be time for a change.
Try Envoice today to increase visibility, detect risks, spot patterns of suspicious behavior, and eliminate wasteful spending.
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