Choosing the right tools, systems, and software to manage employee spending can be a complex and confusing project. From T&E to one-time project expenses and office purchases to design services, employees need flexibility to spend when they need to. But poor controls can lead to inappropriate, redundant, and even fraudulent expenses. Unintentional, redundant spending on software alone can become an expensive waste of company resources.
To curb inappropriate expenses and fraud, companies put processes and complex systems in place that slow employee spend down. This satisfies the need for company control and expense tracking, but throttles company growth by making legitimate business purchasing more frustrating and less efficient.
Companies need control and reasonable oversight. Employees need to be empowered to spend appropriately.
So, what is the best system to deal with expenses and reimbursements? How does a company balance flexible spending options for employees while retaining company control? This report will outline the pros and cons of the major models to help determine which model is right for your business. We’ll cover the risks and strengths of reimbursements, the shared-card and multi-card models; patchwork systems; heavy procurement; and other software solutions that manage company spending.
The Reimbursements Model
The most basic form of employee spending is the reimbursements model, where employees pay out of pocket and then submit proof of purchase in order to get reimbursed. In this system, employees are given expectations for spending and are responsible for keeping track of their own charges.
This is an obviously imperfect system. Most simple expense systems are rife with human error and create considerable challenges for companies.
- When reimbursements are not submitted in a timely manner, monthly close will be delayed or inaccurate.
- Employees often lose receipts and forget information relevant to reimbursements, creating auditing problems.
- Processing and reconciling of reimbursements creates additional manual work for lean finance teams.
- Although reimbursements can be “pre-approved” by the company, they lack real-time-visibility and can throw off working capital ratio.
Reimbursement systems have pros and cons for employees as well. They can frustrate employees because they are fronting their own money, but some like that they personally receive their credit card’s points or rewards. They also frustrate employers who are trying to keep careful track of monthly spend. Worse, some employees look to game the system — 14.5% of all asset misappropriations investigated in 2012 involved expense reimbursements fraud.
Today, software for reimbursements and expenses has eased some of the frustrations with this system. Employees can now submit photos of receipts instead of filling out paper forms, for example. And in emergency scenarios having a reimbursement policy can empower employees to make good business decisions. But relying on reimbursements alone is too chaotic and disorganized to support most companies’ spending.
Bottom line: Reimbursements may be part of the picture, but they can’t be the whole thing.
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