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You have expense policies in place, but how closely are you keeping an eye on what your team is actually spending? If you’re not sure, it’s probably time to audit your expenses.
Conducting an expense audit helps you analyze the actual amount you’re spending on different types of expenses and assess whether the spending is in line with company policies. If done manually, this can be a tedious and time-consuming process, but it doesn’t have to be thanks to automation tools.
In this article, we explain what an expense audit is, the steps to conduct one, challenges you might face, and how to automate the process.
What is an expense audit?
An expense audit is a review and analysis of your company's expenses to see if they are in line with your expense policies. Best case scenario: you find all expenses are justified and nothing changes. However, sometimes through expense audits, you discover inefficiencies and redundancies that can be cut back to increase your profit margin.
An expense audit is part of a system of checks and balances that should be built into any company accounting system. You should think about building one into your regular cycle, sometimes monthly, but at least once every three to six months. It’s not meant to be a full financial audit, where debits and credits are analyzed for corporate reporting, but they do include an audit of expense reimbursements.
How do you audit expenses?
The expense audit process is relatively simple. You review expense reports, match receipts, and identify discrepancies. You’re checking for accuracy, proper categorization, and complete documentation.
Let’s go into the audit procedures in more detail:
1. Identify and track expenses
The primary goal of an expense audit is to identify and track business expenses. Your first step is to review the existing expense reports. If you’re using an automated system, it simplifies the process. However, if they use a manual system, you will review reports from various sources.
Here are a few things to keep in mind for your expense report audit:
- The report is dated and listed in the correct period
- Employee expenses are accurate and matche receipts/invoices
- Submissions include all necessary documentation
- Everything is correctly categorized
- All expenses are business-related
- Vendors are verified
2. Ensure expenses are aligned with company policies
Next, check your findings against your expense policies and procedures. Ask yourself: are the expenses listed inline with your policies, and were they justified?If your policy has been created well, you will know very clearly what is allowed or not and if you have a specific approved vendor list. As you review the expenses, you also find that your policy is outdated and needs updates as well.
3. Reconcile any discrepancies
Once the matching portion of the process is complete and you’ve reviewed your policy, you need to reconcile the results. It’s not uncommon to find that everything doesn’t match up exactly.As a next step, talk to your team to get clarification. It’s possible that old expense reports need to be updated or corrected. It could just be a typo or a misunderstanding about your policies. This will help educate your employees so they don’t make mistakes on future reports.
4. Document your findings
There’s a lot to be learned when you audit expenses. In documenting the expense data and your results, you can help make recommendations to improve the expense management process and reduce future errors. For example, you may find duplication and redundancies that you can address immediately. Or, you may be able to renegotiate contracts with vendors to reduce spending.
In the worst case, you may uncover instances of expense fraud. Those cases show where you may be at risk, sometimes leading to modifications in policy or procedures.
Challenges you may face during an expense audit
While conducting your audit, there may be some hurdles to overcome. Here are 4 common challenges that could pop up during your process:
1. Lack of a clear expense policy
Every business should have an expense policy. Not having a policy in place can be the underlying cause of many external and internal audit issues. If you don’t have an expense policy, create one. If one is already in place, review it and clarify any areas that are too ambiguous to improve policy compliance.
2. Lack of expense controls
Implementing spending limits, restricting employee spending to certain vendors, and using business charge cards are just a few of the ways to implement internal controls. These can be built into an automated tool to help streamline the process.
3. Disorganized or incomplete documentation
Do you have a standard way to submit expense reports? If not, and multiple people are submitting them in different ways, it will slow down the process. And, if documentation is less than complete, there is more room for error. Focus on creating a uniform and organized system for your team to submit expenses.
4. Time-consuming redundancies
How many people review expenses before they get to your finance team? If there are redundancies in your system, it can be time-consuming and increase costs. Streamlined, automated systems which the company controls, eliminate the inherent redundancies in an employee-initiated expense reimbursement process, and can help with risk assessment.
How to automate and streamline expense audits
Once you have gone through the expense audit process once manually, you will understand exactly how challenging it can be. It takes time that could be spent on building and growing your business.
Embracing expense management automation removes the cost of teaching your team how to audit expenses, as well as the potential for human error. These are common benefits you will receive when choosing an automated tool:
- Creating a digital expense policy
- Automatically categorizing expenses in real-time
- Digitizing and matching all receipts and invoices
- Built-in expense and category controls
How Ramp can help
An expense management system like Ramp can do all of those things and streamline your expense audit workflow by automating expenses, reimbursement, and expense reporting. Here’s how:
Creating a digital expense policy
![image](https://cdn.prod.website-files.com/5f8dd056c51c1d6ddceaa499/634dbea50310cf9d8727b958_60aed7ce670683582c2e85b5_Ramp-multi-step-approval-ogimage.jpeg)
Expense policies don’t benefit you if your employees can’t see them. Generate an expense policy that’s accessible to all and can be modified at any time as the company evolves. The digital approach also removes the need for paper documentation, a cost-saving and environmentally responsible company action.
Automatically categorizing expenses in real-time
![image](https://cdn.prod.website-files.com/5f8dd056c51c1d6ddceaa499/646690c90822ae7b912985a5_27ed21af-97db-4197-989e-f50865116e3d.png)
If categorizing receipts is an area of concern for and a task that employees often struggle with, look for a solution that automatically categorizes receipts, and e-receipts, in real-time. You can also produce reports that are segmented properly for audits or quick financial reviews. And, you don’t need to wait until the end of the period to access them.
Digitizing & matching all receipts and invoices
![image](https://cdn.prod.website-files.com/5f8dd056c51c1d6ddceaa499/67a3c6cc2662bdd7093c4dd0_635be50c2c0f038517ed9711_632b1279ea36cf81780f2629_receipts.png)
Digitizing receipts and archiving them eliminates any questions on whether the expense is legitimate. An automated system will match those receipts to invoices, so you don’t need to. That’s a time and money saver for your business.
Giving all employees a company card with built-in expense & category controls
![image](https://cdn.prod.website-files.com/5f8dd056c51c1d6ddceaa499/646690c90822ae7b912985b0_0f74b335-7681-4363-9554-d8dac3d85160.png)
Istead of asking employees to use their personal credit card and submit for expense reimbursements, give them a company charge card with built-in expense and category controls. You’ll have complete control over expense reporting, reimbursements, and receipt organization.
Ramp offers all the functionality you need to start automating your expense audits today. Explore our product demo to learn more.