Making purchases for your company or organisation may be necessary, but sometimes, certain expense claims are inappropriate, non-essential or even ridiculous! But don’t worry — we’re here to share five ways to make sure that your company only spends on what it really needs.
What Are Examples of Inappropriate Expenses?
Inappropriate expenses by your company are exactly what they sound like: Company expenses that were spent but are not necessary or don’t fall under the company’s expense policies. Here are some examples of inappropriate expenses that you might want to look out for:
1. Novelty items
In a 2019 survey by CPA Practice Advisor, CFOs shared some examples of audacious requests in expense reports such as a bear rug and a pogo stick. These are examples of novelty items—items that don’t necessarily have a particular function and are made for uniqueness and humour—even if bought for the office desk!
2. Child care
The same survey shares another example of a ridiculous claim: Child care expenses. This includes daycare costs, children’s clothing and toys.
3. Pet expenses
Expenditures for pets are also no exception. Companies have seen expense claims on pet-sitting costs, crates and even cat litter.
This was evident in 2020, the beginning of the COVID-19 pandemic, when an employee submitted an expense claim for a $79 dog crate for crate training so that the puppy would “not run into Zoom meetings.”
4. Fine dining
While certain meals can be considered business expenses when done in the context of work (e.g., meeting with clients), extravagant meals that you have out of your desires are not.
Some employees have done the unbelievable by dining at the city’s finest restaurants and filing expense claims for it.
5. Expensive transportation
When employees travel for business, it’s common and fair that they file expense claims for transportation expenses. However, things can get out of hand when the employee chooses to take a very expensive cab ride rather than public transportation—especially when the cab fare can go as high as $500.
6. Entertainment
A 2014 infographic by Entrepreneur shares that a company has approved Cher concert tickets as a company expense. Also, according to an infographic by Certify, a company has approved a magazine subscription of $100 per month. As explained by the company vice president, “the lack of ‘dialogue’ required stimulus via publications.”
To summarise, expenses that are not necessarily for work purposes, do not qualify as a necessary work expense, are not laid down in your company expense policy or are just downright outrageous are all examples of inappropriate spending.
What Are Ways to Avoid Inappropriate Spending?
Many times, employees are not just spending too much money; they’re also spending money on inappropriate things. No matter how well we think we explain what a business expense is, some employees will always find a loophole to get their ridiculous spending approved.
Here are five ways that could help you manage this and help your employees avoid spending excessively:
1. Spell out the allowable/acceptable expenses through your expense policy
It’s easy to misconstrue company benefits when there’s no clear policy around it. Even when we have the most trustworthy employees, some may inadvertently purchase something using company finances when the guidelines leave room for interpretation.
To avoid inappropriate spending, spell out the allowable/acceptable expenses through your expense policy. For example, employees must return their unused advances within a certain number of days after they incur an expense. Be sure to also spell out the expenses that the company will not cover, such as leisure trips, home supplies and/or alcohol. You must also spell out the specific budget allowed for meals, travel, client meetings, etc.
2. Educate your staff about occupational fraud and your spending policies
Sometimes, employees tend to confidently offset their non-work-related expenses because they’re not aware that there will be consequences. Make it extremely clear to them that claiming false expenses is an example of occupational fraud.
As the employer, you must also know that occupational fraud will take a toll on you too. It impacts your company’s computations and could lead to tax implications.
3. Issue company virtual cards
The best thing about company virtual cards is that you have visibility on their usage. You can track transactions and data in real time, and you get to configure and set limits. To put it simply, you get to control the spending before it happens. You can set daily, weekly and/or monthly limits too.
Not only that—virtual cards also protect you against fraud. They offer real-time notifications and alerts so you’re constantly updated when a virtual card is being used. Plus, since they’re only used for online transactions, your finances are likely protected against identity theft.
4. Enable real-time reporting
Businesses today are lucky to have the technology to see the spending in real time. With real-time reporting, we can now see information on how our company expenses are moving.
A spend management app is the best tool to show you what’s going on with your funds and any trends and patterns that need your attention. This works through automated reports that show expense data and return on investment (ROI) on your business expenses. Real-time reporting allows you to consistently have a clear view of your company’s cash flow and profitability.
5. Continuously monitor costs
Never stop monitoring your company’s costs. This includes creating an annual budget, analysing trends and implementing purchasing controls.
When you diligently and religiously monitor your company costs, you get to take action before overspending or inappropriate spending could greatly affect your company’s profitability and cash flow. You get a move on before it snowballs into something that can ruin your company’s bottom line.
These five ways to avoid inappropriate spending may sound like a lot of work, but they don’t have to be. With expense management software, you get to manage and educate about your expense policy, issue virtual cards, use real-time reporting and monitor costs all in one platform.
Ready to take control of your company expenses and be on top of all the spending? Check out our expense management platform to know more.
