Guide to a Sure-Fire Expense Policy

Here’s the bad news first: Just over half of CFOs say questionable expense filings have increased in the last 3 years, according to a Robert Half survey. The good news is that the more you understand about employee spending habits, the better equipped you are to write an expense policy that’s clear for everyone.

>> Related: The Ultimate Business Travel Policy for Streamlining Business Travel Expenses <<

Problematic Spending Patterns

Misuse of company resources comes in many different forms. While every employer dreads finding out that an employee is trying to swindle the company, a questionable expense isn’t automatically malicious.

The Grifter and the Payback Artist are two profiles of employees who misuse expenses, according to a Wall Street Journal article. When workers feel entitled, or resentful and undervalued, those emotions can lead to nickel-and-diming every possible expense or trying to get away with almost anything on the company’s tab.

What you might be even more likely to see, however, are Rookies. Younger workers who haven’t absorbed the norms of workplace culture may over- or underestimate what’s appropriate to expense. Can they expense a taxi that saved an hour of public transport time, even though the cab was pricier? If the guac is extra on a lunch on the go, should they cover the add-on from their own pocket? If their manager advised them to “spend company money like you would your own,” naive employees might decide that since they’d treat friends to a round of drinks with a $200 windfall, it’s okay to spend lavishly on a business outing.

Another expense issue to look out for is employees who don’t submit expenses often enough. Sounds almost like a good problem to have, right? Employees who pick up the check themselves or “forget” to submit a report do save the company some money—at first. You’ll lose out in the long run on morale and employee burnout. It’s also more difficult for your finance team to estimate budgets accurately when expense reporting is inconsistent.

The bottom line is, when you’ve been in business for a long time, judging “reasonable” expenses feels like common sense. But everyone has to learn what the standards are, and your expense policy is the best guide to teach that.

How Do Expense Policies Go Wrong?

An expense policy should provide a roadmap for employees, especially business travelers, to understand which expenses are or are not reimbursable. In practice, this doesn’t always play out. If you’re noticing questionable expenses, look out for these red flags in your policy.

Your Policy is Too Old

One in four businesses haven’t updated their expense policy in two years or more, according to a ChromeRiver survey. An outdated policy might not cover increasingly common business travel practices, such as sharing economy transport and lodging. It also might not reflect any changes in your overall organizational budget.

Your Policy is Too Vague

Netflix manages to succeed with a bare-bones, “Act in the company’s best interest” policy. Extreme simplicity doesn’t work everywhere, though. Employees’ varied backgrounds and values can lead to drastically different interpretations of a one-sentence policy substitute. Worst-case outcomes include cases where employees have racked up thousands of dollars of personal debt on a company card, or resorted to hunger strikes to save the company a few dollars.

For most companies, having a clearly outlined expense policy will help managers, accounting staff, and traveling employees agree on which costs really do represent everyone’s best interest.

Your Policy is Too Difficult

No one wants to add tedious or unnecessary work into their day. If you’re struggling to get employees to comply with expense report filing, it could be that your process is too difficult or confusing. An employee who has to fill out Form 3C, Subclause 11, Paragraph 19(ii) to expense a $4 cup of coffee might decide it’s not worth it!
Automation and integrated solutions are your friends here. Ditch manual filing and policy sub-sub-subclauses, and choose a tool that makes expense reporting as simple as snapping a photo of the receipt on a phone and adding it to an interface that’s easy to use and share.

Benefits of an Effective Expense Policy

Giving your expense policy an update, especially if that task is overdue, can lead to worthwhile benefits.

Catch Bad Actors

Don’t wait until you suspect expense fraud. Create a solid, easy-to-use policy so you catch questionable expenses or suspicious activity early.

Improve Communication

Road warriors and finance team members who don’t travel may have different expectations about what corporate travel costs are typical. Sometimes this leads to overspending, or micromanagement from well-meaning accountants trying to trim the budget. Clarify your company’s standards in writing to avoid an inter-office culture mishmash.

Improve Budget Compliance

Ultimately, an expense policy exists to keep spending at a level that’s right for the company. Setting clear guidelines is one part of creating a (nearly) foolproof policy. Technology that makes expense reporting convenient and seamless strengthens the system even further.

Wondering where to start your policy makeover? Register for our webinar and learn how to create a policy that will serve your whole company.