For many years, worker expense reporting has adopted a well-known path: staff submit studies, managers approve them and the accounting division performs a last overview. This workflow made sense when staff paid for enterprise bills out of pocket and reimbursement was on the firm’s discretion, however this legacy mannequin breaks down when utilized to company-paid bank cards.
When staff use a company-paid card, the acquisition has already occurred and the corporate is contractually obligated to pay the cardboard issuer. But, many organizations nonetheless require managers to “approve” these purchases by way of conventional expense studies. What precisely is the supervisor approving? There is not any disbursement pending. The funds are already dedicated.
Declining an expense report on this context would not reverse the transaction. As an alternative, it blocks the transaction from reaching Accounting — creating reconciliation points, delaying month-end shut and compromising the accuracy of economic data. The act of declining turns into a symbolic gesture with actual operational penalties.
Why managers decline studies
Managers usually decline expense studies for 3 causes: price range enforcement, coverage enforcement and accounting validation.
- Funds enforcement: In conventional reimbursements, a supervisor may decline a report back to keep away from reimbursing an unplanned or unauthorized expense. However with a company-paid card, the cash is already spent. Expense studies are poor instruments for price range management as a result of they cannot forestall overspending — the purchases are found after the very fact.
- Coverage enforcement: Many organizations have insurance policies that embrace each “arduous” and “delicate” guidelines. Exhausting insurance policies can’t be overridden, corresponding to a rule that dry cleansing is just reimbursable if the worker is on a visit of no less than three nights. Smooth insurance policies enable for supervisor override — for instance, a parking restrict of $100 per day that may be exceeded with supervisor approval. For company-paid playing cards, imposing both coverage kind requires downstream motion, not approval or denial. Smooth coverage exceptions needs to be routed for supervisor overview as a part of an audit, not within the accounting workflow.
- Accounting validation: Some corporations count on managers to confirm the accounting accuracy of their staff’ entries, corresponding to checking whether or not the appropriate expense kind or undertaking code was used. Nevertheless, this activity is best fitted to Accounting, which has each the context and the experience to make sure transactions are coded accurately.
The breakdown in reconciliation
When a supervisor declines an expense report, the related card transaction stays unresolved within the accounting system. It exhibits up on the month-to-month assertion however hasn’t been coded, posted or documented. This creates a black gap in reconciliation. Accounting cannot finalize the books and auditors are left with out a clear path.
In attempting to implement coverage or price range controls, the supervisor inadvertently makes the state of affairs worse. The corporate should nonetheless pay the cardboard issuer, however now lacks the accounting information and audit path wanted to correctly report the expense.
Unauthorized purchases belong to HR, not accounting
Often, staff make legitimate enterprise purchases with out correct pre-approval. For instance, an worker may e-book a last-minute enterprise journey for a shopper emergency with out first getting approval. If the acquisition complies with coverage, the corporate usually reimburses the worker — regardless of the shortage of prior authorization.This isn’t an accounting challenge. It is a administration challenge. Denying reimbursement for a professional enterprise expense is uncommon and counterproductive. As an alternative, a state of affairs like that is finest addressed by HR channels — corresponding to teaching or coverage reinforcement — moderately than blocking the reimbursement or reconciliation.
A more practical method is to inform managers of purchases in actual time. In the event that they determine unauthorized exercise, they’ll handle it by HR, not by disrupting the accounting workflow.
A greater mannequin: parallel workflows
The answer is to cease treating supervisor approval as a proxy for audit. As an alternative, corporations ought to implement two parallel workflows:
The accounting workflow: This workflow ensures that each one company-paid card purchases, no matter compliance, circulate into the accounting system in time for reconciliation and fee. Workers are answerable for submitting their company-paid card purchases on an expense report. This contains offering required receipts, deciding on the proper expense varieties and finishing any further reporting fields. Nothing about this step of the standard expense report workflow adjustments. What does change is the supervisor’s position. As an alternative of reviewing expense studies to approve them, managers are faraway from the workflow. This protects their time and prevents bottlenecks.
Accounting then takes over the overview perform, however solely after the worker submits the expense report. Their job is to overview studies for accounting accuracy and compliance — to not approve spend that has already occurred. As soon as accepted, purchases circulate into the accounting system.
The auditing workflow: In parallel, an audit course of critiques company-paid bank card purchases for coverage compliance, fraud and misuse. Auditing card transactions for fraud and coverage violations is a specialised activity, one which auditors and finance professionals are skilled to deal with. Not like line managers, auditors know what to search for, have expertise recognizing patterns of misuse and work with clear documentation of the corporate’s expense coverage. Shifting this activity away from managers and into the arms of auditors not solely saves managers time, it additionally ends in extra correct and constant compliance critiques.
If an audit determines {that a} transaction features a nonreimbursable or private expense, a correcting journal entry is made to reclassify half or the entire transaction and, if wanted, report an worker receivable. For delicate coverage violations, the audit workflow might route the transaction to the supervisor for exception approval.
The trail ahead
The shift to company-paid bank cards has made the outdated reimbursement-based approval mannequin out of date. Organizations want workflows that replicate right this moment’s buying actuality: spend now, audit after. With parallel accounting and auditing workflows, corporations can reconcile precisely, implement coverage successfully and guarantee compliance with out sacrificing operational effectivity.
It is time to change outdated approval processes and construct workflows that work for the fashionable finance group.
