{"id":18148,"date":"2024-03-22T11:50:44","date_gmt":"2024-03-22T10:50:44","guid":{"rendered":"https:\/\/www.n2f.com\/blog\/?p=18148"},"modified":"2024-10-18T15:02:03","modified_gmt":"2024-10-18T13:02:03","slug":"what-are-expense-claims","status":"publish","type":"post","link":"https:\/\/www.n2f.com\/blog\/en\/what-are-expense-claims\/","title":{"rendered":"What are expense claims?"},"content":{"rendered":"\n

Do you frequently reimburse employees for business expenses paid on personal cards? It\u2019s not uncommon for employees to grab lunch with a client, travel to meetings, and purchase company supplies using personal funds.<\/p>\n\n\n\n

Reimbursing these expense claims isn\u2019t always as clear-cut and streamlined as business owners would like. In fact, the threat of fraudulent expense claims poses a serious concern, as a recent study uncovered that nearly 1 in 4 employees have committed expense fraud.<\/p>\n\n\n\n

Bolstering your expense claim function relies on understanding the basics, like how expense reports work, the associated challenges, and how to implement an efficient claim process. This is exactly what we\u2019re going to cover in this article. Let\u2019s dive in!<\/p>\n\n\n\n\n\n\n\n

What is an Employee Expense Claim?<\/h2>\n\n\n\n

An employee expense claim is a reimbursement request for business-related expenses that were purchased using personal funds. Most employee expense claims will be related to travel costs, such as airfare, lodging, meals, and auto expenses. However, eligible expense claims can cover a wide variety of costs depending on your industry. Ultimately, the cost needs to be related to conducting business. A meal with a friend that is unrelated to the business would not constitute an eligible expense claim. Qualifying costs should relate to conducting business activities, be reasonable, and be substantiated<\/p>\n\n\n\n

Expense Claim Example<\/h3>\n\n\n\n

Let\u2019s go through an example. Sam has an upcoming work trip and ABC Inc agrees to reimburse him for all eligible expenses. Sam uses out-of-pocket funds for the following transactions: $25 for parking, $150 for a hotel room, $50 for meals with clients, $30 for admission to a museum, and $15 for dry cleaning.<\/p>\n\n\n\n

Since expense claims are only applicable to business-related items, Sam will be reimbursed for $240, which covers the parking, hotel room, client meals, and dry cleaning. Visiting a museum has no underlying business purpose; therefore, it is not reimbursable.<\/p>\n\n\n\n

How Do Expense Reports Work?<\/strong><\/p>\n\n\n\n

Thorough expense reporting procedures require due diligence from employees and the team members approving the expense claim. Here\u2019s the general process for an expense claim:<\/p>\n\n\n\n

  1. Employee Pays for Business Expenses \u2013<\/strong> The first step in the expense reporting process is the transaction. The employee will pay for an expense that is related to conducting business activities.<\/li>
  2. Documentation \u2013<\/strong> The employee saves the receipt or invoice to substantiate their purchase. The employee might also need to fill out a formal expense claim form.<\/li>
  3. Approval \u2013<\/strong> Now, the employee will take the documentation to their manager for approval<\/a>. The manager will evaluate the type of expense, the substantiation provided, and the amount for reasonableness. If everything looks legitimate, the manager will approve the expense claim.<\/li>
  4. Upper Management Approval \u2013<\/strong> In some cases, there will be another level of approval from the finance team. These individuals will also verify the authenticity of the claim.<\/li>
  5. Submittal \u2013 <\/strong>The packet of information will then move to the individual paying the reimbursements,  usually the payroll department. The payroll department will do a quick run-through of legitimacy and reasonableness before adding the reimbursement to an employee\u2019s paycheck.<\/li>
  6. Review \u2013 <\/strong>On a regular basis, the finance team will review the expenses paid during the prior period, such as last month or last quarter. Here, they will be checking for illegitimate or unusual expenses.<\/li><\/ol>\n\n\n\n

    Small businesses and those in the growth phase will usually not have the manpower to separate each of the above functions. In fact, it\u2019s not uncommon to have one individual serve as the payroll processor and the finance team. <\/p>\n\n\n\n

    This doesn\u2019t mean your expense claim function can\u2019t have the proper controls. Instead, be sure that you are prioritizing documentation and claim substantiation.<\/p>\n\n\n\n

    \n
    Read also: <\/strong>Per Diem allowances for business travel in the UK (HMRC)<\/a><\/div>\n<\/div>\n\n\n\n

    Expense Claim Process Challenges and How to Overcome Them<\/h2>\n\n\n\n

    The claims process isn\u2019t without challenges. Your business is bound to encounter a few of these challenges, regardless of whether you\u2019re a small mom-and-pop shop or a large enterprise.<\/p>\n\n\n\n

    Error-Prone<\/h3>\n\n\n\n

    Working through stacks of expense claims is a tedious process that is prone to errors. After hours of going through receipts, your finance team might let their guard down, increasing the risk of errors.<\/p>\n\n\n\n

    One of the ways you can combat the risk of undetected errors is to utilize software programs such as N2F. There are programs that automatically scan receipts, compile information, and double check the authenticity. All that\u2019s left for your team to do is a high-level review, saving time and reducing the risk of human error.<\/p>\n\n\n\n

    Time Intensive<\/h3>\n\n\n\n

    The expense claim process can also be time intensive. What employee tasks provide the most value to your company? Is it sifting through dozens of expense claims or finding new opportunities to grow the business?<\/p>\n\n\n\n

    Employees that are tied up with the expense claim process lose the ability to work on other high-value projects. Just like errors can be reduced with the right software, manual and mundane procedures can also be overhauled with expense claim programs designed to free up time in your employees\u2019 busy schedules.<\/p>\n\n\n\n

    \n
    Try our expense report software free of charge<\/strong><\/a><\/div>\n<\/div>\n\n\n\n

    Lagging Policies<\/h3>\n\n\n\n

    Without well-defined policies and procedures, your employees could test the waters with ineligible expense claims. If you don\u2019t have clear guidelines, employees can also start spending frivolously, impacting your bottom-line profitability. <\/p>\n\n\n\n

    Your expense policies<\/a> need to be clear, concise, and easily accessible. Employees shouldn\u2019t have to ask dozens of questions to get an answer on if parking fees are reimbursable. They should have all of the resources to determine the eligibility of expenses, such as in an employee handbook.<\/p>\n\n\n\n

    Additionally, defined policies can substantiate your business position in the event of an audit or inquiry from a regulatory agency. If regulators find that you\u2019ve been reimbursing ineligible expenses, your business could lose the tax deduction and employees might be required to report the reimbursement as taxable income.<\/p>\n\n\n\n

    Fraud Opportunities<\/h3>\n\n\n\n

    Unfortunately, employee expense fraud is common, especially when the proper controls aren\u2019t in place. Every expense claim that is submitted needs to be thoroughly vetted and backed by receipts or invoices. That is why it\u2019s important to set rigid policies to avoid fictitious expenses.<\/p>\n\n\n\n

    Minimal Visibility<\/h3>\n\n\n\n

    Another challenge associated with expense reporting is visibility. In many accounting standards, there is a matching principle, which requires revenue and applicable expenses to be reported in the same period.<\/p>\n\n\n\n

    If your employee took a client out to lunch in May, but doesn\u2019t submit the expense until November, you aren\u2019t fully abiding by the matching principle. Not to mention that delayed expense claims can hinder your cash flow, impact your budgets, and cause poor transparency into the financial health of your organization.<\/p>\n\n\n\n

    How to Implement an Efficient Expense Claim Process<\/h2>\n\n\n\n

    Overcoming the above challenges is important to implement an efficient expense claim process. Here are some top tips to streamline your expense claim process:<\/p>\n\n\n\n