WHITE PAPER

10 Expense ManagementBest Practices

When it comes to company finances, executives take special care to educate

themselves on best practices. Finances are key to ROI in a company, and managing

company spending plays a great role in a company’s overall finances. When

executives have knowledge and facts behind the best financial practices, they can

make more strategic decisions.

Where do you find expense management best practices? Sure, you can look around

you and study competitors, but you can’t simply copy their methods. Companies

need the most up-to-date, strategic guidelines in order to narrow down their

decisions into specific actions for their industry. Especially with the technology today,

companies need to know what tools are being developed in order to switch from

manual to automation. Automating expenses will save time and money filing expense

reports, organizing and fulfilling reimbursements, and importing accounts into

bookkeeping software.

This white paper is intended to help companies make strategic decisions about their

finances based on general, yet defined practices. Here are 10 of them, pulled from

and strategically compiled thanks to the experiences given in other corporations,

firms, and organizations.

Overview

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Pre-mandating approvals before employees make any purchases will lower the risk of overspend and employee fraud. Employees

should not have unlimited access to company accounts or cards to make purchases whenever they “need.” However, some

employees feel a lack of control and freedom when restricted or too closely monitored. The solution must involve a pre-approval

along with a feeling of control from the employees. Divvy created a system to provide such a solution. Divvy admins can give each

employee an individual physical card (included with our free subscription) and divvy account with access to virtual card generation.

This gives employees the control and freedom to spend when needed. However, pre-approval comes pro-actively, set up by the

admins. Admins can assign each employee to a specific budget. When employees need access to funds, they send a virtual through

the mobile app to the admin, defining the exact amount, time of use, what it’s for, and other optional notes. Admins can review the

request and accept or deny approval. The simplicity of the Divvy pre-approval process and quick access is secure and prevents

overspend and fraud without restricting freedom and control from the employee.

Companies have a difficult time determining what turning in expenses in at a reasonable period of time’ means. The amount of time

depends on the type of situation. However, if employees are taking actions within the reporting process, this qualifies as accurately

utilizing that period of time. Some of these actions include:

• An advance is received within 30 days of the time an expense is incurred.

• Expenses are adequately accounted for within 60 days after they are paid or incurred.

• Excess reimbursements are returned within 120 days after the expense is paid or incurred.

• An employee provides an adequate accounting of outstanding advances within 120 days of receiving a periodic

(at least quarterly) statement.

1 Establish pre-approval expectations

The IRS set the following rules surrounding your reimbursement or allowance

arrangement in order to be considered having an accurate accountable plan:

1. The expense must have a business connection. Deductible expenses must be

incurred while performing services as an employee on behalf of the employer.

2. Expenses must be submitted promptly. Expenses must be adequately accounted

for within a reasonable period of time.

3. Overpayment of expenses must be returned in a timely manner. Any excess

reimbursement or allowance paid to an employee must be repaid to the employer

within a reasonable period of time.

2 Create an accountable plan

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If the idea of employees carrying around corporate credit cards conjures up images of reckless spending and big-ticket liabilities,

you should take a deep breath and possibly reconsider your position. Today's corporate card programs are plentiful and highly

competitive to the point where they offer numerous financial and operational benefits.

Many corporate card programs offer several benefits, including the following:

• Financial incentives and rebates for all purchases. This can add up

• Carrying a corporate card eliminates the need for cash advances. Most merchants today accept a wide variety of card products,

making for rare instances when employees need to dig into their pockets for cold, hard cash.

• Corporate cards reduce the cost of expense report handling. By integrating credit card data into T&E systems, the need for

employees to re-key their expenses is eliminated and the accuracy of the captured data is improved.

• Many companies don’t require a receipt for anything under $75 if a corporate card is use to make the purchase. This reduces the

time employees spend creating expense reports, and the time approvers spend ensuring compliance.

• The use of corporate cards reduces the number of falsified receipts. Reports show that 25 percent of expense claims have

fraudulent receipts. An example of this is a dinner bill for $100 that includes a 10 percent tip, but the employee turns in a claim for a

20 percent tip. On a corporate card, an over-statement of an expense like this would be caught.

3 Decide on a company card strategy

If a company fails to demonstrate they have an accountable plan, employee expense reimbursements may be considered

taxable income and 1099s must be provided to employees incurring those taxable expenses. With that, reimbursements only

apply to companies that require employees to use a personal credit card for company purchases. With Divvy, such a regulation

is irrelevant since the employees are using company funds through a distributed Divvy card.

Along with the reimbursement regulation, Divvy also streamlines an additional requirement from the IRS Code Section 274(d)

states that substantiation requires an employee to submit the following items with adequate records (such as receipts):

• Amount of the expense.

• Time and place of the expense.

• Business purpose of the expense.

• Business relationship of the employee to the persons receiving a gift, being entertained, or utilizing a facility or property.

When employees spend money on the Divvy app, the transaction, along with the amount, time and place, business purpose,

and business relationship are pre-recorded and automated into the web app in real time. This way, instead of each employee

filing a report with the above items, Divvy admins in charge of bookkeeping simple import the Divvy data into their generic

accounting software.

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The top corporate card programs are offered by familiar credit card providers, including American Express, Visa, Citi, and

Capital One. However, in order to fully gain the benefits listed above regarding reduction in expense reporting, many programs

need additional expense management software to streamline the expense reporting process using automation. Such software

providers include Expensify, Concur, Certify, etc., however, adds additional steps and monthly payments.

Divvy is a corporate card program that provides an all in one, card provider and expense management software. Working with

card provider, Wex, Divvy provides the benefits and rewards you would find from using a generic corporate card program,

along with real-time automation software that eliminates the expense reports process for employees entirely.

A common concern of employers in support of corporate cards is employees that rack up charges on their corporate card

(company liability), then take their time submitting the expense reports associated with those charges. Companies originally

solve this problem by using both a ‘carrot’ and ‘stick’ to keep employees motivated to submit expenses promptly. For example

the carrot could represent convenience aspect, while the stick represented the strict liability to accept only legitimate business

purchases in the reports. However, Divvy eliminates this concern since each card is assigned to a categorized budget with

limitations. In addition, employees must request access to funds and wait for approval from admin. Approval is given in a

process similar to Venmo, where only specific amounts are transferred.

A recent industry survey on corporate card programs cited the #1 reason for implementing a corporate card program was to

increase the convenience for employees. When employers were asked the same question one year later, the #1 reason shifted

to cost control. Divvy provides both.

Before automating expenses, many professional services firms use an intensive

‘audit’ process to review each accounts payable manually. This takes extra precaution

to make sure each report is accurate. Such a process usually requires up to three

full-time employees who could be adding much more value to the organization in

other ways. By applying expense policy compliance rules through the use of a ‘rules

engine,’ all expenses are validated upfront against corporate expense policy,

governmental policies, and even client billable policies.

With an automated process, when an employee (or their delegate) enters an expense

that is not compliant with policy, the expense item is immediately flagged. Depending

on the type of infraction, the employee may be asked to provide an explanation.

Approvers determine the outcome or may remove the item from the expense report

altogether. If personal items are charged to a company paid corporate card, expense

4 Build policy automation

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owners can mark the item as personal, in which case the expense is automatically

deducted from their out-of-pocket reimbursement.

Such an experience occurs after expense reports are entered. However, Divvy flags

such purchases as they happen using real-time transaction tracking. Divvy users can

prevent infractions by monitoring employee spending in real-time.

Some companies keep a mental documentation of an approval process. Employees

just “know” who to go to for approval with funds. However, it is always best to take a

step back and discuss roles, delegations, and responsibilities when it comes to who

approves funds for specific areas of spending, especially when talking about larger,

more sophisticated corporations that must maintain professionalism and

organization.

Approval routes can be built based on hierarchy (e.g., manager, director, VP), dollar

threshold escalation, expense allocation coding, attributes of the expense owner,

and many additional criteria. Typical approval routing should have between

two-to-four levels of approval. Too few approval levels and firms may not be

adequately reviewing their expenses. Too many, and it becomes complex to execute

and maintain. Most companies prefer accounts payable staff serve as the final step

in the approval process before the approved voucher is exported to the financial

system for payment. Divvy allows for quick approval through the mobile app, and all

expense approvals are archived in the Divvy web app for analytical purposes.

5 Develop an approval process

Many companies rely on careful audits from accounts payable staff. However, this can require meticulous work from full-time

employees who have better things to do. Accounts payable staff should not spend the majority of their time ‘babysitting’ employee

spend to make sure no one misuses company funds. However, fraudulent spending is becoming easier accomplish and increasingly

justified by employees for reasons such as “it was just some extra cash left over from a tip.” Here are some common areas of fraud

professionals must look out for:

6 Eliminate any all forms of fraudulent or wasteful spending

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Expense fraud costs the U.S.

economy $2.8 billion per

year, and 76% of all expense

fraud is committed by those

using manual expense

submission processes.

- Chrome River 2016

• Laundry expenses are submitted for three-day trips when corporate policy allows reimbursement only after five days.

• Excessive tipping

• Hotel expenses include an in-room movie, which is not reimbursable under company policy.

• International expenses are reported at inflated exchange rates.

• Meal/entertainment participants include the expense owner’s boss, who also approves the expense.

• Imposed per diem limits based on statutory or corporate requirements are difficult to validate.

Requiring hours of auditing gives financial staff a false sense of a job well done. You are not paying them to watch out for these

types of risks. Regardless, most companies go through the process of hiring financial personnel just to account for accuracy in all

employee expenses. Whatever your system is, the entire process can be avoided with softwares offered by Divvy.

Divvy securely monitors all of employee spending in real-time. Employees can only spend the allotted amount on the budget. Also,

since budgets are run by company funds, employees never have the need to file an expense report or file for reimbursements.

Therefore, the incentive to fraudulently take rations from company funds is non-existent since Divvy makes it impossible.

For companies who don’t have access to Divvy, they are left to create an auditing process, which involves meticulous work, risk

categories, and email system to inform expense owners the result of each audit--either to congratulate them for being compliant

with policies, or to discuss results and penalization.

When you ask employees if they submit accurate expense reports, 94 percent say

yes. However, almost 6 percent admit to deliberately changing the reports in their

favor. The annual amount of fraud adds up to $2,000. Many employees involved in

fraud blame the inconvenience of travel while others say they didn’t think it was

fraud. However any justification, unless approved by company policy, is defined

as fraudulent.

The above statistics are relevant to so many companies today. These companies need to educate employees about company

policies and provide them with boundaries. Companies can go the route to create specific policies and train employees with

incentives; however, most of them are unaware of the new process Divvy created to give control to employees without the risk of

fraud. The following are ways to provide this value:

• Card limits and budgets. Assign employees to specific budgets that are linked to their individual spending card. Employees cannot

access these budgets without approval.

• Real-time transactions. Each employee transaction is recorded in real-time where admins can see spending as it happens.

• No expense reports. Since all spending happens on the Divvy card, which is linked to a mobile and web app, the transaction data

will automate into an accessible report prepared for accounting software.

7 Educate employees

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Without automation, the amount of manual work that goes into intervening with

pre-approvals, expense, and company policy in order to manage employee spend in

monumental. The larger the organization, the larger capital required to support the

process. Especially when it comes to business travel.

Establishing an expense management automation system will ease this manual

process and replace substantial human efforts. Companies can accomplish the

following through automation:

• Expenses that are not validated by policy will be flagged.

• Once an approved purchase occurs, the employees is prevented from making any

more purchases without re-approval.

• Any duplicate expense reports will be flagged. In the case of using Divvy, expense

reports are not filed by the employee, so duplicating them would be impossible.

• Admins have full and easy access to approve or deny funds requested from

employees.

• Accounts payable and financial professionals can spend the time they would

auditing expense reports by accomplishing more important, relevant work for the

company.

• Expenses are automatically tracked in real-time, recording relevant information

required for proper bookkeeping. This eliminates the responsibility for employees to

file expense reports, let alone adjust them for personal gain.

8 Streamline travel and expenses

When kids these days growing these days don’t even know what a hard-copy check is, companies should have come up with a better

way to approve funds and/or reimburse. Especially if you have spent your efforts automating expense reports, you shouldn’t switch

to manual when it comes to reimbursements. Best practices for expense management eliminate any hard copy forms of payment

for the following reasons:

• Improve analytics by using online payment methods and virtual receipts.

• Save the time and money it would take to print and write out checks and reports.

• Become more professional and up-to-date in your company practices. This will improve company image and credibility.

• Streamline the expense management process. Keep it consistent on the playing field by automating each step.

• Decreases the risk of fraud and compliance breaches.

9 Become paperless

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The easy way to go is to look at what everyone else is doing and copy them. However, most companies are not utilizing the best

expense management process. Companies shy away from using software that automates and streamlines all of your expenses into

one provider such the way Divvy operates. A lot of feedback from people who choose to stay with their corporate cards, expense

reports, and third-party expense management vendors instead of innovating towards an all-in-one software comes from their

leverage in rewards points and incentives.

Each company must base expenses on raw data and compliance. Even if you trust your employees, as your business grows, you can

never be too careful. Expense management is key to saving and utilizing your company's funds in the best way possible. So rather

than trusting on manual processes, trust your gut when you learn about the new expense management and automation software.

10 Trust your gut

Summary

1. Establish pre-approval expectations

2. Create an accountable plan

3. Decide on a company card strategy

4. Build policy automation

5. Develop an approval process

6. Eliminate any and all forms of fraudulent or wasteful spending

7. Educate employees

8. Streamline travel and expenses

9. Become paperless

10. Trust your gut.

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Divvy is a secure financial platform for businesses to manage payments and

subscriptions, build strategic budgets, and eliminate expense reports. By integrating

real-time tracking for every transaction, Divvy provides organizations with instant

insight into their spend. With Divvy, you can make informed cash flow decisions,

curb losses before they happen, and never have to save a receipt again.

For more information, visit getdivvy.com

Get a free demo to learn more.

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