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How would employee expenses handle an external audit?

For an experienced auditor, employee expenses provide an early warning sign for any potential accounting problems.

Any errors, inaccuracies or inconsistencies they find will serve as a red flag, indicating the possibility of ineffective financial controls and the risks of errors and fraud.

One of the biggest financial scandals in history started with an eagle-eyed auditor finding extravagant employee expenses at the American energy giant, Enron.

More typically, discrepancies are liable to trigger a more comprehensive audit with the potential for retrospective payments, fines and prosecutions.

Here’s a quick guide to an audit-friendly expense management process:

Focus on the overall process

No matter how efficient your expense process is, a good auditor will find low-level errors and inconsistencies. They are more interested in whether these are as a result of a failing process.

They will look at the checks and balances you have in place to identify problems and to ensure the accuracy of submitted claims. It’s these structural problems that send alarm bells ringing.

Be clinical about record keeping

An auditor will want to be able to follow an expense claim through, from submission to reimbursement. They will want to see everything from copies of receipts to categories, checks and approvers.

It’s when this kind of detailed information is missing or incomplete that suspicions are created. A digital process with automated data tracking allows finance teams to provide auditors with a reassuring level of detail.

Provide proof of purchase

Auditors will look for evidence that any expenses claimed are legitimate business costs. For this, they require proof of purchase, a bill or receipt for the goods or service being claimed.

A digital approach to expense management allows digital images of receipts to be easily attached to each claim. Digital copies are just as valid as paper originals, as long as they provide the same information.

Take care with categories

Auditors will look at the way that a finance team manages categories, this is particularly so with tax audits. A common issue here is with the overuse of ‘miscellaneous’ categories.

These are often used to deal with a whole range of different kinds of expenses, creating a significant risk of errors and fraud. A cloud-based system makes it simple to manage any number of categories.

Don’t forget petty cash

Another potential weak-spot that an auditor will target is inadequate accounting procedures for petty cash expenses. These are typically handled using an imprest system.

Finance teams will often keep a minimal amount of information on these costs, creating the potential for inaccuracies and fraud to remain undetected. A digital approach allows petty cash to be integrated into the main expense management process.

Make expense management digital

While the prospect of auditors digging through your accounts may be daunting, technology is making it much easier for finance teams to manage and maintain accurate expense records. A cloud-based system such as Webexpenses will track and store data on every stage of the process.

With integrated reporting tools, it allows detail records to be easily accessed. For an auditor, it provides a reassuring level of detail and proof that proper processes are in place to ensure that costs are legitimate business expenses.

Learn more about the Webexpenses expense audit service