Expense auditing plays a crucial role in deciding your organisation’s financial well-being and profitability. Having in-depth knowledge about expense audits can make the process more efficient and less daunting for your organisation. From what expense audit is to why it is essential for your firm, here’s all you need to know.
What is an expense audit?
An expense audit is required to make sure the expenses filed by the employees comply with an organisation’s policies. What’s more, organisations can also identify and curb expense fraud by finding misleading expense reports and duplicate bills during an expense audit.
What is a travel expense audit?
A travel expense audit verifies all travel-related expenses filed by the employee in their expense reimbursement report. For approval and reimbursement, employees must file expense reports with all the receipts – soft or hard copies. Some of the most common travel expenses that employees file are: airline tickets, hotel fees, cab fares, etc.
Additionally, travel expense audits help you identify expense frauds, give you better insight into your spending, check the policy compliance rate in your firm and ultimately help you control your costs better.
In most companies, the travel expense audit does the following things:
- To find expense fraud and fraudulent bills
- To check for policy compliance in the organisation
- To find duplicates in your expense reports
Are you looking for a solution to curb expense fraud and speed up the expense audit process in your organisation? Happay’s Smart Audit feature can help you do all this and some more!
How to audit expenses?
Expense auditing is a series of steps that companies follow to ensure the money spent by their employees comply with the firm’s policies.
Most companies have automated the process of expense audits. The automation in the expense management system can instantly flag business expenses that violate the policies set by the company.
Smart Audit in Happay
With Happay’s Smart Audit feature, your finance team no longer has to spend hours sitting and manually verifying expenses filed by the employees. Happay’s AI-powered Smart Audit can make this cumbersome process a breeze by eliminating any manual effort. The Smart Audit feature of Happay can help you catch:
- Duplicate bills: The smart audit feature can easily flag invoices that have already been submitted. It can display the matched invoice with user details and transaction
- Amount Mismatch: If there is any mismatch between the amount claimed by the employee and the invoices, Happay’s smart audit feature will immediately identify it
- Date mismatch: If the date filed by the employee does not match the date of invoices, the system will immediately flag the invoices
- Prohibited items: Any restricted item that cannot be claimed according to the company’s policy will be highlighted. Your team can feed the list of prohibited items into the system, and these will be highlighted when filed by your employees
Suggested Read: Reduce Expense Verification Time With Happay’s Smart Audit
How does Happay’s Smart Audit Work?
Happay’s Smart Audit is an AI-powered feature that effectively helps you manage your employee’s expenses. The Smart Audit feature can:
- Automatically read invoices (physical and digital)
- Capture invoice data (bill number, vendor GST, amount)
- Identify policy violations and highlight them to approvers
Here is a step-by-step process of how Smart Audit works:
The expense management tool will automatically capture expense data from all the digital platforms
The AI technology will ‘read’ the receipts automatically for digital receipts. It can automatically capture bill no, GSTIN and vendor name, date, amount and others
After examining the bill, the system will automatically flag all policy violations, potential frauds and manual errors. This could be duplicate claims, out-of-policy expenses, invoice mismatches and others
Using this feature, you can now view expense analytics and policy violations in real-time
Why use Happay’s Smart Audit feature?
Happay’s Smart Audit feature can make the expense auditing process in your firm more efficient and hassle-free. Here are some of the benefits the feature offers:
- It offers a great employee experience. Your employees do not have to enter data into the expense report manually
- It saves the precious time of your finance team. They no longer have to check all the bills against the claims
- The system will automatically flag non-policy-compliant expenses. This means no more policy violations and fraud
- It offers real-time expense visibility. You can now view real-time the policy violations and budget utilisations
Schedule a demo with us today to know more about smart audit and other important Happay features.
Why is expense audit important?
When employees incur expenses for the business, you must reimburse them fairly. This expense borne by the employee could be ticket charges, hotel fees, meals, services, products, etc.
However, there is a catch here. Not all employees file the correct expense reports for reimbursement. Some employees end up filing fraudulent expense reports with fake bills and receipts.
Also, if you do not have a proper expense auditing process, you will end up approving these requests – this can gravely affect your firm’s bottom line.
Another significant advantage of an expense audit is it can help you better understand the policy compliance in your organisation. By verifying the documents submitted by the employees, you can ensure they are following your organisation’s policies.
Also, Read: Types of Expenses in Accounting
Audit procedures in expense auditing
There are multiple procedures in the expense auditing process. Here are some of them:
1. Completeness checks:
The expense balance must detail all expense transactions over time. To ensure there are no missing transactions in the accounting documents.
2. Occurrence checks:
In this procedure, all expenses are recorded as and when it happens. That is because there are high chances of errors if you do not file expenses in real time.
Auditors ensure all expenses are classified correctly according to accounting standards.
4. Accuracy checks:
As the name suggests, this procedure ensures all the expenses are recorded accurately.
5. Cut-off assertion:
The cut-off assertion is an audit procedure in which the auditors check if all the expenses recorded are within the accounting period.
Quick Read: 4 Ways to Simplify Your Expense Approval System
How to find fraudulent claims in expense reports?
Here are some of the signs of expense fraud you need to look out for when auditing expenses:
1. Inflated claims:
Ensure the claims mentioned by the employee are adding up. Do not just look at the total
2. Incorrect expenses:
Some employees add false expenses to the report. Meticulously go through the report to flag such expenses
3. False claims:
Employees can submit fake bills and receipts. Check for their authenticity
4. Duplicate bills:
The same bills can be submitted multiple times by some employees. Beware of duplicate bills in your organisation.
Suggested Read: Why Does Your Business Need Automated Expense Reporting?
What are the challenges in the expense audit process?
Finance teams, in most organisations, find expense auditing daunting and stressful. Here are a few challenges that arise in the expense audit process:
1. Manual reviewing process
Undoubtedly, manually reviewing all the expense bills and receipts submitted by employees is a tiresome task for the finance team. This could work well for small companies, but what about companies with hundreds of employees?
Now imagine the time your finance team must spend to check and verify all the documents. It is a time-consuming and cumbersome process.
2. Complicated travel and expense policies
Let us accept it; all companies are not the same. Companies have their own set of travel and expense policies which are often very complicated. Complicated expense policies translated to error-filled expense reports and poor policy compliance.
To avoid this, make sure the policies set by your organisation are easy to understand. This will help your employees understand the policies and file correct reports.
3. Bulk submission
The bigger the company, the higher the amount of expense report submissions. Your finance team will be flooded with submissions, and efficiently performing expense audits can be difficult. The process can become excruciating if your finance team still follows manual methods for expense auditing.
4. Employee disputes
When the receipts submitted by the employees do not match with the reports the finance team then has to reach out to the concerned employee and sort the issue out.
5. Volume increases
Expense of audits can take up a lot of time. An increased number of expense reports can tire out your finance staff and affect their efficiency.
Also, Read: 7 Top Expense Management Challenges
Best practices for auditing expenses
1. Conduct the expense audit before approval
It is always best to audit the expense reports before they are sent for approval. This way, you can prevent non-policy-compliant expense reports from getting approved.
2. Audit all your expenses
Most companies do not audit their expenses completely, do not be one of them. Always ensure to audit 100% of your company expenses and financial statements. This way, you can understand your firm’s total effectiveness of business travel and expense policies.
3. Use a corporate credit card
Implement a corporate credit card program in your firm to track and effectively manage expenses. What’s more, the expense audit process is a breeze when your employees start using credit cards.
4. Automate expense management
By automating your expense management, you can simplify the expense audit process and make it more efficient. What’s more, expense management software like Happay can make the entire expense management process easy and hassle-free.
5. Set guidelines for audit
Create a set of guidelines that your employee must follow while auditing reports
6. Set systematic reviews
Make sure your team has a sense of regularity. You can also share your accounting strategies to bring everyone on the same page.
7. Encourage good practices
This can be achieved only through your company culture. Appreciate the integrity of your employees. This way, they will be motivated to be more honest.
8. Use data wisely
Use the data you obtained from the audit to check if the expense was necessary and beneficial to your organization.
Suggested Read: 9 Expense Management Best Practices for CFOs
Expense audits are done to ensure the employees’ expenses comply with the company’s policies. Companies audit expenses manually and through expense management software.
Expense audits are done by checking the expenses made by the employees and checking if they match the internal expense and travel policy guidelines of the company. Expense report audits can easily help you find out of policy expenses, personal expenses, duplicate expenses, overstated expenses, and other expense frauds.
The three main types of expense audits are:
a) External audits
b) Internal audits
c) Internal Revenue Service (IRS) audits
The finance department in a company or an auditor usually audits the expense reports. You can simplify the process by using expense management software like Happay, that Smart Audit feature.