Automating expense audits can help you save time, cut costs, reduce errors, and ensure compliance—with company policies, generally accepted accounting principles (GAAP), and legal requirements.
This guide outlines the four steps to every expense audit, the most common challenges you'll run into, and a simple way to automate your expense audits and improve your team's efficiency.
What is an expense audit?
Expense audits review and analyze company expenses:
- to determine whether those expenses have been reported and captured accurately
- to ensure compliance with company policies as well as external regulations
- to minimize risk and prevent expense fraud
Auditing your expenses helps maintain financial accountability and ensure that company resources are being used appropriately.
What audit procedures for expenses are there?
The expense report audit process typically involves reviewing expense reports, matching invoices and receipts, and reconciling discrepancies. The auditor checks expenses for accuracy, correct categorization, documentation such as receipts, and vendor verification.
By following systematic expense audit procedures, companies can ensure that their financial records are accurate and compliant with company policies.
How do we audit expenses?
Conducting regular expense audits can help your company keep costs in check and protect against potential fraud. At a high level, an expense audit involves the following four steps.
1. Identify and track expenses
The first step in auditing expenses is to identify and track them. If your company uses digital accounting software in your expense management system and your books are up to date, this can be as simple as pulling up an expense report.
However, if your books aren't up to date—or if your company is still using a paper-based system or spreadsheets—auditing expense reports can be a lot more complicated. Sub-tasks can include gathering receipts, combing through emails, and manually entering data to catch up on submitted expenses and get your books up to date.
Just by tracking your expenses and keeping your books up to date, you can gain helpful insights into your organization's spending patterns and identify areas where costs can be reduced or optimized.
2. Review and verify expenses
Next, review your company's expense policy and procedures. This will help you understand what expenses are allowed, what documentation is required, and any limitations or guidelines that employees need to follow when submitting expenses.
With that information in hand, you can review your list of expenses to make sure each one is permitted and that the necessary documentation is present to justify it.
This includes reviewing expense reports submitted by employees and verifying the accuracy of the expenses by comparing them to invoices or other documentation.
3. Reconcile discrepancies
It's not uncommon to discover a few discrepancies during the audit process. Auditors need to reconcile these differences by investigating them to discover what went wrong and taking appropriate action to set them right.
This may involve reaching out to employees for clarification, conducting further research, or making adjustments to the expense report. In many cases, these discrepancies are honest mistakes, such as typos during manual data entry or misunderstandings regarding the company's expense policy.
4. Document audit findings
The auditor documents their findings and recommendations based on the expense audit. This information is used to improve expense management practices and further address any recurring issues or discrepancies identified during the audit.
Based on the analysis of the expense data, your company can identify areas for improvement. This could include renegotiating contracts with vendors to lower costs, implementing cost-saving measures, or providing additional training to employees on expense policies.
What are common challenges during expense audits?
Expense audits can present several challenges. Here are four of the most common.
Lack of a clear expense policy
If the company expense policy isn't clear or isn't well distributed, employees may be unsure which expenses are reimbursable, leading to inconsistencies and errors in expense reports.
To address this challenge, companies should establish a clear expense policy that outlines allowable expenses, spending limits, and reimbursement procedures. Make sure every employee knows about the policy and where to find it for easy reference.
Also, be sure to keep your policy as simple as possible so it's easy to understand—complicated expense policies can be almost as problematic as not having one at all.
Inadequate expense controls
Without proper controls, employees may overspend, submit inaccurate expense reports, or even engage in fraudulent activities.
Implementing expense controls such as spending limits, vendor restrictions, and company charge cards can help mitigate these risks and streamline the audit process.
Disorganized or incomplete documentation
When employees fail to provide detailed receipts, invoices, or expense reports, auditors often struggle to verify the legitimacy of expenses.
To address this challenge, companies should encourage employees to maintain thorough and organized documentation of their expenses, including digital copies of receipts and invoices.
Time-consuming redundancies and manual systems
When expenses need to be entered manually, especially if they need to be entered manually in more than one place, delays and errors can easily increase costs and create inefficiencies.
By streamlining the expense management process through automation and centralized systems, companies can reduce redundancies and expedite the audit process.
How to automate your expense audits
The easiest way to automate your expense audits is to use expense management software like BILL Spend & Expense—with built-in budget and security controls, real-time expense capture, receipt documentation that's easy and enforceable, and accounting software integration.
Here's how it works.
Built-in budget limits and policies
BILL Spend & Expense lets you set budget limits and apply them automatically to keep your finances under control. You can even build in a spending policy to help you avoid surprises.
You can base your controls and policies on who the merchant is, how much the transaction is, whether a receipt is required, who should approve the transaction (and in what order), and more.
Security controls
BILL Spend & Expense is free to use with the BILL Divvy Corporate Card (issued by Cross River Bank, member FDIC). Each employee has their own card and login, making it easy to see who spent what and providing automatic audit trails for expenses.
You can also create instant virtual cards with a one-time use or limited monthly funding, minimizing your risk in case the number is ever compromised.
Real-time expense capture
When employees spend money on the corporate card, the expense pops up in BILL Spend & Expense immediately. So it's easy for an employee to add the category right away, while they're still thinking about it— that is, if our AI hasn't already handled it for them.
Easy, enforceable receipts
Employees can also snap a photo of the receipt on their phone and upload it in their mobile app, so you won't have to spend hours at the end of each month trying to track down all those tiny slips of paper from who knows how many different people.
Better yet, the policy is enforceable in the app—you can set it up not to accept employee expenses until the receipt is uploaded.
Accounting software integration
Because BILL Spend & Expense integrates with your accounting software, those expenses will sync over automatically, including the categories and even the receipts.
That makes auditing your expenses a breeze—with all your expenses and documentation up to date and your spending policies built right in.
Ready to leverage automation for your expense audits?
Audit expense reports the easy way and take your expense management to the next level with BILL Spend & Expense. Schedule a BILL Spend & Expense demo today.
Expenses audit FAQs
Here are quick, easy answers to the most commonly asked questions about expenses audits.
What are the assertions for an expenses audit?
The 5 key assertions for expense transactions and events are:
- Occurrence
- Completeness
- Accuracy
- Cutoff
- Classification
What is the expense verification audit?
Verifying expenses includes:
- Ensuring that they're validsome text
- That they really happened
- That they're permitted by corporate policy as well as the IRS and other regulations
- Ensuring that they've been recorded accuratelysome text
- Entered correctly in the accounting system
- With appropriate documentation
