Companies Beef Up Audit and Control Policies for T&E Reports

Under the harsh glare of today's intense scrutiny of corporate financial controls, AP departments must make sure their own internal controls are rock-solid-especially for employee expense reimbursements. Executives have been sent to jail over expense account abuses. Plus, the IRS recently issued new training materials to agents on how to ferret out reimbursements that run afoul of the tax law. What's more, corporate T&E operations must pass tough Sarbanes-Oxley audits.

How have AP departments responded? IOMA recently surveyed readers of its Managing Accounts Payable newsletter and found that companies are doing more in-depth checking of expense reports, requiring high-level approvals, and penalizing employees for abuses or for not filing reports on time. To control costs, companies are using year-to-date spending amounts to negotiate discounts with travel suppliers. As a result, almost all (91%) of the companies we surveyed say they are now in compliance with the Sarbanes-Oxley Act's requirements for strong internal controls.

More Auditing Now Done

Five years ago, companies told us they do in-depth checking on 20% of all expense reports. Today, companies that audit based on the number of expense reports say they audit 68% of all reports. Some companies audit based on a percentage of expenses. For them, they typically audit 44% of expenses.

What percentage of your expense reports or total expenses should you audit? Answer: It depends. A key variable here is corporate culture-what percentage will your company feel comfortable with? If your expense reports typically contain high amounts, the potential exposure is high. In this case, you may want to choose a high percentage. On the other hand, if you have a large volume of small-dollar reports, you may feel that it's appropriate to choose a low percentage. If you're picking up a lot of errors currently, you may want to keep the percentage on the high side.


Other Key Policies

To increase internal control and reduce costs, companies are also using the following policies and procedures:

o 87% of companies require either a supervisor or department head to approve an expense report;
o almost all (92%) of companies do not limit how many reports an employee can submit, but some (21%) penalize employees for submitting them late;
o about 60% of companies have a policy for terminating an employee for inappropriate use of a corporate credit card;
o almost three-quarters (74%) of companies have ready access to year-to-date spending information; and
o negotiating discounts with travel-related suppliers is most prevalent for hotels (cited by 48% of companies), car rentals (44%), and airlines (32%).

(Source: Managing Accounts Payable April 2006)