Your travel and entertainment (T&E) policy shapes the guidelines for effective management of spending and expense reporting. A strong T&E policy enables efficient spending activities by bringing awareness to employees of the proper procedures for managing business-related expenses, incentivizing them to adhere to these rules and outlining the appropriate tools and processes to help them do so.
If you have a weak or non-existent T&E policy, it’s almost certainly costing your business in a number of ways beyond simple inefficiency and confusion in your accounting department. It’s costing you money, too.
Failing to Follow the Rules of an Accountable Plan
As defined by the IRS, an accountable plan gives you rules for how expenses should be reported and how reimbursements should be issued. The rules of an accountable plan are simple. Expenses must be business-related, and employees must be able to substantiate that in the form of receipts, invoices or other proof of purchase. They must be able to prove the actual costs of the expense. This can differ depending on the expense. Miles traveled in a personal vehicle must be logged, for example. Meals, lodging and other expenses require an itemized receipt that indicates all the items included in the total cost. The final stipulation of an accountable plan is that employees must return excess reimbursement payments in a timely manner.
If your business is not following the rules of an accountable plan, then all reimbursements become taxable wages. Per the IRS, “Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to the withholding and payment of income, social security, Medicare, and FUTA taxes.” Your T&E policy can easily lay out what responsibilities employees have in ensuring that the rules of an accountable plan are being met, and that the expense reimbursements they’ve earned are not being treated as wages, costing them and your business money.
Lacking a Clear Approval Process for Reimbursements
One area that deserves its own section in any T&E policy is the expense reimbursement approval process. Every week, your employees may be submitting dozens of reimbursement requests, and without clear guidance, they could be submitting to the incorrect people, or those in the approval workflow may be unaware of what their role actually is. This is likely causing serious roadblocks in the process – or at the very least, confusion – that are costing employees time and efficiency.
Employees expect to see follow-through when they have completed their part of the process, and significant delays in receiving payments will result in employee unhappiness and frustration. If they think you aren’t fulfilling your responsibilities as their employer, they’ll be less likely to follow T&E guidelines.
A confusing or unorganized approval process also makes it much more difficult to detect instances of fraud. Without systematic review and clear reporting protocols, instances of duplicate reimbursements, false or inflated expense reports or unauthorized purchases could slip right past you. Typically, expense fraud is not a one-time occurrence, but a long-duration event, lasting 24 months on average before detection. Cumbersome review and approval processes for expense reimbursements allow fraudsters to continue freely siphoning funds from you.
Having an Unspecified Audit Process
T&E is a huge expense for any business. The only place you’re likely to spend more money is payroll. That means auditing this area is absolutely a must, but without clear audit process, it can be excessively confusing. In fact, if you aren’t currently auditing expense reports, you aren’t alone. 37% of businesses fail to specify and undergo an auditing process, according to Aberdeen Group.
Neglecting to implement an auditing process leaves you at risk of mismanagement of funds, lingering errors and mistakes and violations in protocol. Audits help you verify internal controls for documentation, sign-offs and approvals for reimbursements, and by helping you spot trends over a period of time, you can catch and correct long running issues. Most successful companies make expense auditing a priority, and if your T&E policy doesn’t provide action on audits, you’re likely missing several issues happening right under your nose.
Not Outlining Proper Booking and Reporting Rules
One thing you should always keep in mind about people is that if you don’t tell them not to, they will. This is true in all parts of life, including booking business travel and reporting expenses. If your T&E policy fails to set clear expectations on how travel arrangements should fit into your work culture and budgetary goals, then employees will set these boundaries for themselves.
Your policy should contain a lot of information regarding travel bookings such as approved vendors, guidelines for choosing flights, transportation such as rental cars or ride-share services, per diems for accommodations and much more. Leaving this up to employees to decide for themselves isn’t always the smartest call; what is best for your budget is not always what they want, after all. Along with guidance on booking travel, you should also define what you will consider authorized and unauthorized business expenses. Employees can easily take advantage of your lack of clarity on the matter.
You’ll also want your T&E policy to cover proper expense reporting procedures. This can include saving receipts, keeping a mileage log or using an automated expense tracking software solution. If you do want your employees to use some kind of technology, that information should be included in your policy along with how you would like to see them use it.
Strengthen Your T&E Policy with CompanyMileage
Create a more accurate, organized and cost-efficient system for managing T&E expenses with CompanyMileage. SureMileage allows employees to quickly calculate trip mileage and submit expense reports automatically. Rather than verifying the miles driven, our software determines the mileage between the starting and ending points of a trip, eliminating occurrences of mileage padding, side-trips and inaccurate odometer readings. With SureExpense, employees have a convenient way to submit and manage expenses wherever they are in the field.
CompanyMileage gives you a straightforward, orderly approval process. Supervisors can review and approve expenses and send them to Accounting for reimbursement all within our system. Be smart with your T&E expense management, and utilize the technology available to businesses today. Schedule a demo with CompanyMileage to learn how we can automate and streamline T&E expense reimbursements.