Travel and expense policy best practices

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There are a number of best practices that can be applied to a company’s travel and expense policy. Doing so reduces costs and ensures that employees adhere to the company requirements for what does and does not constitute a valid expense. Here are several travel and expense policy best practices:

Require Prior Approval

Have supervisors review and approve employee expenditure requests in advance. Doing so clears up any misunderstandings before expenditures are actually made. This can be streamlined by only requiring an approval when an expenditure exceeds a specific dollar amount.

Construct an Accountable Plan

Ensure that the policy complies with the IRS requirements for an accountable plan, so that any reimbursements made to employees will not be classified as taxable income to them. The IRS requirements mandate that:

  • All expenses being reimbursed must have a business connection;

  • Employees must adequately account for their expenditures, with detailed receipts; and

  • The employee must repay the employer for any excess reimbursements within a reasonable period of time.

Related AccountingTools Course

Expense Report Best Practices

Install an Automated Expense Reporting System

Subscribe to one of the online automated expense reporting systems, into which the corporate travel policy can be loaded. Users then load their expenses directly into the system, which determines whether they qualify for reimbursement.

Roll Out Corporate Purchasing Cards

The use of corporate purchasing cards reduces the risk of fraud that is associated with employee reimbursements, since it is easier to track the nature of all purchases through these cards.

Audit Selectively

Only review expense reports in detail on an occasional basis, to reduce the auditing effort. However, when issues are found, target that employee for a more intensive review, both for prior expense reports and on a go-forward basis. Once flagged, these employees are subject to more rigorous review, since they are more likely to commit fraud.

Centralize Major Purchases

Have a corporate travel office pay for all major travel expenditures. Doing so keeps these items away from employees, thereby reducing the risk of fraud. In addition, the travel office can ensure that purchases are targeted at selected vendors, so that the company can maximize its volume discounts with these vendors.

Issue Electronic Reimbursements

Employees need reimbursement payments quickly, in order to pay the balances due on their credit card statements. The firm should assist them by issuing direct deposit payments to their bank accounts, thereby shaving several days off the payment process.

Conduct Spend Analysis

Periodically aggregate the expenses submitted to the company, to determine where the bulk of the money is being spent. Then instruct employees to target specific vendors when making travel arrangements, so that the company can negotiate volume discounts with these parties.