Automating expenses can reduce risks of an ATO audit

Content from our Australia office from our Australia office

With the ATO committed to closing a $2.5 billion tax gap, more resources are being poured into company audits. While the Australian Taxation Office (ATO) has previously focused on large corporations, the number of checks on smaller companies has been on the increase. This increases the need for companies of all sizes to have their expenses in order.

An ATO audit will cover all aspects of tax compliance and that includes the complex area of business expenses and employee reimbursements for out-of-office costs. For each deduction claims the ATO will want proof that:

  • The expense incurred was spent on your business
  • Only the business portion of a cost is claimed
  • There are records to prove the legitimacy of the cost

The challenge facing SMEs is how to ensure that accurate records of all these expense costs are stored, managed and maintained. While large corporations can afford finance teams, it’s a luxury that many smaller businesses don’t have.

The time-consuming, manual process

For more than a third of Australian businesses, expenses are still managed with traditional manual methods. Typically, this will involve employees submitting reimbursement costs via claim forms with paper receipts attached as proof of purchase.

These details will then be input into a spreadsheet and then manually processed. It creates a slow and inefficient system in which human errors are inevitable as finance professionals struggle to keep up with the monthly flood of paperwork.

It’s an approach that becomes particularly problematic whenever a business comes under the scrutiny of ATO inspectors. Before an audit is triggered, inspectors will generally carry out a risk review.

This will involve them taking a general look through your tax affairs to identify any areas they’re unsure about or have suspicions about. This will include missing, incomplete or ambiguous expense related deductions.

An opportunity will often be provided during this risk review stage to provide ATO with any additional information that can help to resolve the issue. If this isn’t available, it’s likely to lead to a full audit.

Fast, automated expense management

Having access to the kind of information the ATO wants to see is one of the major benefits of a digital expense management system. These digital solutions use cloud-based data to transform the way businesses are able to handle reimbursements.

A system such as Webexpenses uses an expenses app and ACR (Automatic Character Recognition) scanning to allow claimants to instantly convert any paper receipts into a digital format.

This allows the whole process to be handled paper-free with manual tasks able to be replaced by simple, fast and efficient automated operations. The system automatically tracks, collates and stores every aspect of expenses – creating a compliant audit trail for every cost.

Webexpenses includes an integrated reporting tool to allow this data to be easily accessed and manipulated. The information which would take hours or days to put together using a traditional approach can be created in minutes.

It’s a particularly powerful tool when it comes to working with the ATO. By providing them with full, accurate and detailed records of reimbursement costs it helps to allay fears. A more efficient system, with better checks and robust data control, will decrease the chances of the dreaded audit being triggered.

Webexpenses provides a smarter way to manage employee expenses. Find out how it can help your business control petty cash by requesting a demo today!

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