DID YOU KNOW: Nearly three quarters of companies reimburse employees for business-related expenses? Due to the detailed nature, volume, and frequency of expenses, there’s lots of room for errors.
Introducing Jonas Smith, Senior Vice President, Sales
“Jonas Smith” was a Senior Vice President, Sales. His position required frequent travel. Senior management required travel booking be made in advance in an effort to cut travel costs.
The Cheque Requisition
Jonas was planning an upcoming trip to Asia and asked his assistant to book the flight. Due to the length of the flight, he was permitted to book business class. Given the flight was not for several months, he submitted a cheque requisition to cover the cost. The company’s president then submitted the requisition to Accounts Payable for processing (expense reports were usually processed through Payroll).
After his trip, Jonas provided his receipts to his assistant to prepare his expense report. He was quite jetlagged and forgot to mention to his assistant that he had received an advance for this particular flight. The expense report did not require additional sign-off and was submitted to payroll for processing.
Discovery of an Apparent Expense Reimbursement Discrepancy
Several months after being reimbursed for this trip, the internal auditors stumbled across the cheque requisition, but were unable to find the corresponding deduction on any of Jonas’ future expense reports. It didn’t matter if Jonas made the expense payment error unintentionally or intentionally; he was required to pay back the lump sum immediately.
How Can You Prevent Expense Reimbursement Errors?
1. Have a robust expense reimbursement policy
The first step is to have a strong expense reimbursement policy and to ensure that employees are familiar with its terms. If two different departments make advances and reimbursements (example, Accounts Payable and Payroll), ongoing monitoring is required to make sure errors don’t occur.
2. Train your employees
Not only must employees be trained on the expense reimbursement policy itself, but it is equally critical that supervisors and managers responsible for reviewing expense reports receive training as well. They should be aware of both the ‘unintentional’ (and ‘intentional’) errors that can occur when reviewing such reports and be vigilant for the potential ‘red flags’ of errors and illicit activity.
3. Conduct spot audits
Finally, companies need to ensure that ‘spot audits’ be performed on a regular basis that cover an extended period, say several months or multiple quarters for a single employee. This not only acts as a monitoring tool for potential errors, it inherently serves as a deterrent for employees to engage in illicit activity, particularly if the spot audits are conducted randomly throughout the organization.
For More Information:
Download the recorded webinar “Best Practices for Reimbursing Expense Reimbursements Through Payroll” here.
In the next blog post we will cover potential payroll mistakes relating to maternity leave.
Guest blogger Edward Nagel, CPA,CA●IFA, CBV isPrincipal and founder of nagel + associates, Forensic and Investigative Accountants