There can be a lot involved in developing an expense management process that’s both effective and simple. Where do you start and what should you consider?
Approvals and Workflows
Different business and organisations have different ways of handling the approval of expenses.
You may find that in your organisation you have a typical layered approach along the lines of:
- Budget approval – this is a high-level of approval usually reviewed at least annually, where broad areas of expense are allocated an anticipated amount
- Officeholder approval – this is generally at the time of the expense where an invoice is received. This level of approval could be structured as:
- Pre-approval – where officeholders must approve invoices at the start of the process
- Post- approval – where payments are reviewed by officeholder retrospectively
- Delegated combination – where other a delegated to parts of the approval process within certain limits and criteria
- Banking approval – this can overlap with the officeholder approval or could be a separate process. There could be single, dual or multiple authorisations and delegations involved at this step, which is generally the final step prior to funds being released.
Given the potential steps here, it can be helpful for the whole team to have a well-documented and understood workflow, specifying who is responsible for each stage, and some agreed timeframes and confirmations. This will assist the process to run smoothly and get through to completion with reduced delay.
Suppliers and Coding
As with the data entry of income items into your accounting system, the coding of expense items is important for having good management and compliance information later on.
Some of the key information that will benefit from attention in the coding process includes:
- Supplier information – setting up good supplier records (and avoiding duplicate records) helps to collate supplier information in one place, and also helps with the consistency of information. Also establishing the payment method and details for each supplier can save time when preparing payments down the track.
- Expense allocation – each supplier payment will be coded to one or more accounts in your general ledger. Taking care to code it where you want it at the start means that this allocation will flow through correctly to your reports with the item sitting in the correct expense category
- GST – it’s also important to account correctly for GST at the point of data entry. Ascertaining the correct GST status of each supplier and each bill will increase the accuracy of your system and help avoid the need for adjustments and corrections. Note that some payments may have a combination of GST and Non-GST items, so take care to catch these as well.
Where you have regular suppliers with multiple transactions each month, it may also be a helpful process to request a statement from these suppliers on a regular basis. Then you can compare the history of transaction in your accounting system against the supplier records. This can be useful in picking up anomalies or errors before they escalate further.
Management and Technology
One of the tricky areas that you may have come across in your finances is how to manage many incidental and ad-hoc expenses that are incurred.
These types of expenses could involve a wide variety of people and could relate to a wide variety of purposes.
Managing all this can be daunting, especially when there are lots of people and lots of transactions involved.
There are a bunch of ways this type of situation can be handled, and it will be a case of working out what is effective and smooth for your team – there is not necessarily a “one-size-fits-all” solution. But when thinking through this, some of the things to consider may be:
- What will be the guidelines for individuals wishing to incur an expense on behalf of the business – who do they contact, how do they know if it’s okay or not, and how will they be informed of the process they should follow
- What options will you make available as payment or reimbursement methods, for example:
- Ad-hoc expenses be paid by reimbursement only; or
- Floats in certain situations; or (and how will you track and account for these)
- Some individuals having access to a business credit card; or
- Some other configuration
- What will be the actual reimbursement process and timeframes when individuals are out of pocket
There are also a number of ways to use technology options to help streamline this process. So, it may also be worth exploring available products that can:
- Provide virtual credit cards
- Allow categorisation and budget control
- Assist with receipt and data capture
- Integrate with your accounting system
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