Expense approvals are a necessary part of running a business. They help to ensure that company funds are being used appropriately and that employees are not abusing the system. However, expense approval policies can be complex and time-consuming to develop.
In this article, we will discuss the importance of having an expense approval policy and how to design one that works for your organization — non-profit or business. We will also provide some tips on how to implement and enforce your policy effectively.
Why is an Expense Approval Policy Important?
There are several reasons why having an expense approval policy is important.
- It helps to ensure that company funds are being used appropriately. This is important because it helps to protect the organization’s financial well-being.
- An expense approval policy can help to prevent fraud. By requiring employees to submit expense reports and have them approved by a manager, you can help to ensure that employees are not submitting fraudulent expenses.
- An expense approval policy can help to improve employee morale. By having clear guidelines for what expenses are and are not reimbursable, employees can be confident that their expenses will be approved if they are legitimate.
How to Design an Expense Approval Policy
When designing an expense approval policy, there are several factors you need to consider. These include:
- The types of expenses that will be reimbursed.
- The documentation that will be required to support expense claims.
- The approval process.
- The timeframe for submitting and approving expenses.
It is also important to consider the company’s culture and values when designing an expense approval policy. For example, if the organization is very cost-conscious, you may want to have a more restrictive policy.
Steps to Designing an Ideal Expense Approval Policy:
- Assess Current Processes: To design an effective expense approval policy, it is essential to evaluate existing expense management practices within the organization. By assessing the current processes, organizations can identify pain points, inefficiencies, and areas for improvement. Gathering feedback from employees, managers, and finance teams provides valuable insights into the strengths and weaknesses of the existing approval process.
- Define Approval Hierarchy and Limits: Establishing a clear approval hierarchy is vital to ensure a structured and accountable expense approval process. Defining roles and responsibilities for managers and stakeholders involved in the approval process helps streamline decision-making. Additionally, spending limits should be aligned with the company’s financial goals, budgetary constraints, and industry benchmarks. This ensures that expenses are controlled within reasonable boundaries.
- Develop Expense Categories and Policies: Categorizing expenses based on their nature helps establish clear guidelines and policies for each expense type. For example, expenses related to travel, office supplies, software subscriptions, and others should have specific policies defining acceptable spending limits, documentation requirements, and approval procedures. By establishing well-defined policies, organizations can ensure consistency and clarity in the expense approval process.
- Streamline Documentation and Submission: Standardized expense documentation plays a crucial role in maintaining accuracy and transparency. By establishing clear guidelines for expense submission, companies can reduce errors and improve the efficiency of the approval process. Implementing digital expense management tools or platforms simplifies the submission process, reduces paperwork, and automates data capture. This not only saves time but also provides a centralized repository for expense records and audit ready documentation.
- Implement Technology for Automated Approval: To streamline the expense approval process further, companies can leverage a business rules engine. A business rules engine is a technology component that automates decision-making based on predefined policies and criteria. By configuring the rules engine to enforce company policies, spending thresholds, and other criteria, organizations can significantly reduce manual intervention and control the approval process. This automation leads to faster turnaround times, improved accuracy, and greater efficiency in accounting process.
Tips for Implementing and Enforcing an Expense Approval Policy
Once you have designed an expense approval policy, you need to implement and enforce it effectively. Here are a few tips:
- Communicate the policy to employees and make sure they understand it.
- Provide training on how to submit expense reports.
- Set up a system for tracking expense reports and approvals.
- Monitor the policy for compliance and make adjustments as needed.
- Use automation systems like Hyphen (tryhyphen.com) to manage and automate your policy
Maximizing the Benefits
Designing and implementing an ideal expense approval policy is not a one-time effort; it requires ongoing monitoring, periodic reviews, and feedback loops. By closely monitoring the policy’s implementation, companies can identify trends, potential bottlenecks, and areas for optimization.
Leveraging automation systems enables the company to gain insights into spending patterns, identify areas of improvement, and make data-driven decisions to enhance the policy’s effectiveness continuously.
Hyphen is pioneering automation for payment operations with a simple question — What if any transaction could trigger any business operation and vice versa?
The vision for hyphen is to be the automation layer for moving and tracking money, starting with emerging markets.
To achieve this, we are building a composable system for faster payments, with less reconciliation, and zero integrations for all business payment workflows.
Reducing the manual steps involved in collecting, reconciling, and manipulating transaction data across multiple systems often disconnected from digital payment innovation because of disparate transactional data. Tryhyphen.com today, automate all the hard work.