Looking to streamline your business expenses? Discover the best expense management procedures and start saving money today! Click here to learn more.
Expense management is the finance process most likely to be governed by a document nobody has read, enforced by a person who does not want to enforce it, and reviewed by an approver who is looking at a total rather than at what was actually bought.
That combination is common because expenses feel small. Individually they are, and the aggregate across a year is not, and the risk attached to them is disproportionate to their value. Expenses are where fringe benefits tax exposure originates, where deductibility is either supported or not, and where the most common form of internal fraud occurs.
This article covers what a genuinely tight expense process looks like, why the usual arrangement fails, and how to improve it without turning it into bureaucracy.
It is worth being clear about the purposes, because a control that serves none of them is friction rather than governance.
The first is that money is spent on the business rather than on the individual, which is the obvious one and the one people assume is the whole point.
The second is tax. Expense treatment determines deductibility, whether input tax credits can be claimed, and whether a fringe benefit has arisen. Getting that wrong is a compliance exposure rather than a control failure.
The third is visibility. Expenses are real costs and where they sit outside the normal purchasing process they are invisible until after they have been incurred, which makes budgeting harder than it needs to be.
The fourth is fairness. Where policy is applied inconsistently, people notice, and inconsistent application does more damage to a culture than a strict policy consistently applied.
The default process is that somebody spends, keeps a receipt, submits a claim at some point, a manager approves it, and finance pays it. Each step has a predictable weakness.
Submission is late, because the claimant has no urgency and the receipt is in a wallet. Late submission means expenses land in the wrong period, and it means the approver is assessing something they cannot remember.
Approval is nominal. A manager receiving a claim for a total amount, with a description like client meeting, has no basis on which to challenge anything and generally does not.
Coding is done by finance rather than by the person who knows what the spend was for, which means the account and dimension are a guess.
And the policy sits in a document that people read once at induction, if at all, and reference only when they suspect something might not be allowed.
Expense policies fail more often through length than through leniency.
A policy that runs to fifteen pages is a policy nobody has read, which means the effective policy is whatever people assume. A policy that fits on a page is one people can actually hold in their heads.
The content that matters is short. What can be claimed and what cannot. Any limits that apply, per meal, per night, per category. What documentation is required. How quickly claims must be submitted. Who approves what. And what happens when something falls outside the policy.
That last point is the one most policies omit and the one people most need. There will be legitimate spend the policy did not anticipate, and a policy with no exception route produces either a refusal that damages goodwill or an approval that quietly undermines the policy.
Write it in plain language, keep it to a page, and put it where people encounter it at the moment of claiming rather than in a folder.
Substantiation requirements are more specific than most people assume and are commonly met approximately.
A tax invoice is required to claim an input tax credit above the relevant threshold, and a credit card statement is not a tax invoice. Businesses that reimburse against statements are frequently claiming credits they cannot support.
Records need to establish what was purchased, from whom, when, for how much and for what business purpose. The last of those is the one most often missing, and it is the one that matters most if a claim is examined.
Meals and entertainment need particular care, because the treatment depends on circumstances including who was present and where it occurred, and that information exists only if somebody recorded it at the time.
The practical implication is that the claim needs a purpose field that people actually fill in with something meaningful, and that finance needs to push back on client meeting as a description rather than accepting it.
This is the compliance area where expense processes most often create liability quietly.
Certain expenses reimbursed to employees, or paid on their behalf, constitute fringe benefits and attract fringe benefits tax. Entertainment, private use of company assets, and some travel and vehicle arrangements are the common categories.
The exposure builds through the year invisibly, because the expense is processed as an ordinary cost and only becomes a fringe benefits question when somebody prepares the annual return.
Where the categorisation happens at the point of claim, with expense types that distinguish the treatments, the annual return is assembled from data. Where it does not, somebody reconstructs it from a year of transactions coded to general accounts, which is both slow and unreliable.
The practical fix is that expense categories should reflect tax treatment rather than only the nature of the spend, and that anybody approving entertainment should know it carries a consequence.
Approval is the control everybody relies on and the one most likely to be theatre.
The failure is structural rather than individual. An approver looking at a total, weeks after the event, with a one word description, has nothing to assess. They approve because refusing would require an investigation they have no basis for starting.
Making approval real requires giving the approver something to look at. Line level detail rather than a total. The receipt attached rather than filed separately. A purpose description written by the claimant. And the claim arriving soon enough that the approver remembers the context.
It also requires the approver to be the right person, meaning somebody who knows whether the spend was reasonable for that activity, which is usually the direct manager rather than a finance approver.
And approval limits should be set so the routine passes quickly and the exceptional gets attention, rather than everything receiving the same nominal scrutiny.
Expense fraud is the most common form of internal fraud in small and mid sized businesses, and it is worth understanding why rather than assuming it will not happen.
The reason is that amounts are small enough to feel trivial, approval is weak, and detection is unlikely. Somebody claiming a personal meal occasionally is not committing a crime in their own mind, and the process does not challenge it.
The patterns are consistent. Personal expenses submitted as business ones. Duplicate claims, where the same receipt is submitted twice or claimed on a corporate card and reimbursed. Inflated amounts. And claims for events that did not occur.
The controls that actually catch these are not dramatic. Requiring itemised receipts rather than totals. Duplicate detection on amount, date and supplier. Periodic review of claims by category and by claimant. And genuine approval by somebody who knows what the person was doing.
The deterrent effect matters more than the detection. People who believe claims are examined behave differently from people who believe they are not.
Corporate cards change the process substantially and solve some problems while creating others.
They help by removing the reimbursement cycle, which is a genuine benefit to employees who would otherwise fund business spend from personal money, and by producing a transaction feed that finance can see before the claim arrives.
They create a different problem, which is that the money has already left the business by the time anybody reviews it. Approval becomes a review rather than a control, and recovering an inappropriate charge is harder than declining a claim.
The controls that matter with cards are limits set appropriately per cardholder, category restrictions where the card provider supports them, prompt substantiation with a defined deadline, and consequences for cardholders who do not substantiate.
That last one is where most card programmes are weak. Where unsubstantiated spend has no consequence, substantiation becomes optional, and the business ends up with a category of expenditure it cannot support.
Late claims cause problems out of proportion to the inconvenience.
They land in the wrong accounting period, which distorts both the period the spend belongs to and the one it arrives in.
They cannot be approved meaningfully, because nobody remembers the context.
They make budget monitoring unreliable, since a manager reviewing their position does not know what is still to come.
And they create a year end problem, where a volume of claims arrives at once because people finally cleared their wallets.
A submission deadline with a consequence is the fix, and the consequence does not need to be severe. Claims submitted more than a defined period after the expense being subject to additional approval, or simply being visible in a report of late claimants, changes behaviour adequately.
Expense coding is usually done by finance, which is the wrong place for it.
Finance does not know what a particular meal was for, which project a taxi related to, or which department benefited. They code by inference, and inference is systematically less accurate than knowledge.
Where the claimant codes at the point of claim, choosing from a constrained list, the coding reflects what actually happened. It also distributes the work to the person who has the information rather than concentrating it on whoever processes claims.
The requirement is that the options offered are meaningful and limited. A dropdown with two hundred accounts produces worse coding than one with twelve categories, because people choose the first plausible option rather than the correct one from a long list.
Where the business tracks projects, sites or departments, having those available at claim entry is what makes expense analysis by dimension possible later.
Expense management sits in one of three places and the choice has consequences.
In a spreadsheet and email, which is where many businesses start. It works at small scale and provides no audit trail, no duplicate detection and no visibility until claims arrive.
In a dedicated expense application, which handles capture, approval and policy checking well and creates an integration and a reconciliation with the finance system.
Or in the ERP itself, where claims are entered, approved and posted within the same system as everything else. That removes the integration, the reconciliation and the duplicate employee record, and it means expense data carries the same dimensions as everything else.
For businesses on NetSuite, expense capability is available within the platform, and using it rather than a separate application removes a category of ongoing work. Our piece on advanced NetSuite modules covers how to assess that.
Individual claim review is a control. Reviewing the aggregate is where the findings are.
Spend by category over time shows what is actually happening. A category growing faster than the business is worth understanding.
Spend by claimant identifies outliers, which are usually explicable and occasionally not.
Spend by supplier sometimes reveals that a category of expense claim is really a procurement decision nobody made, where several people are individually buying something the business could contract for.
And the ratio of policy exceptions to compliant claims indicates whether the policy fits reality. A high exception rate usually means the policy is wrong rather than that people are non compliant.
That review takes an hour a quarter and it is the step most businesses skip entirely.
The failure mode at the other end is worth naming, because over controlling expenses is common and counterproductive.
Every additional approval step adds delay, and delay produces workarounds. People who cannot get a legitimate expense approved quickly stop incurring legitimate expenses, or find another way to spend that avoids the process entirely.
Requiring receipts for trivial amounts costs more in administration than the amounts involved.
And treating every claimant as a suspect damages the relationship with the large majority who are entirely honest, in exchange for marginal protection against the few who are not.
The proportionate position is light controls applied consistently, with attention concentrated on higher value and higher risk categories rather than spread evenly across everything.
Most businesses could materially improve their expense process without buying anything, by shortening the policy to a page, requiring a real purpose description, moving coding to the claimant, setting a submission deadline with a consequence, and reviewing the aggregate quarterly.
Where the volume justifies it, moving the process into the same system as the rest of finance removes the integration and the reconciliation and makes the data analysable alongside everything else.
The useful first step is looking at a sample of recent claims and asking whether an approver could have made a genuine decision from what was in front of them. Where the answer is no, that is the thing to fix first.
Our piece on getting on top of expense management covers the improvement programme, and payroll and bookkeeping covers the wider finance operation this sits within.
If you would like a view on where your expense process is exposed, get in touch.
