At some organizations, the expense approval process is just something scrawled on the back of a napkin or stored in someone’s head. Documenting the approval process is vital to business expense tracking. An approach that’s too casual can lead to problems, especially if the IRS decides to disallow certain expenses it deems extravagant. But determining what’s reasonable depends on the circumstances, according to an article on Forbes.com.
Say you want to put up important clients at a posh hotel, take them out to a five-star restaurant, and end the evening with bottle service at a nightclub. As Forbes.com explains, that’s not necessarily a problem, provided your business expense reports show you paid a reasonable amount for these services. If you paid three times the going rate, however, the IRS may deem the expense nondeductible.
One way to head off any lavish and unwise expenses is to document the approval process as a key part of automated business expense tracking. For example, you could automatically require pre-approval for expenses over $100 for most employees, while only requiring pre-approval for executive-level expenses if they exceed $1,000.
First, take a step back and map out the organization’s roles, responsibilities and delegation of authority. Then you can begin to build the appropriate approval routes, which may be based upon such criteria as your internal hierarchy, the type of expense, dollar-threshold escalation and who submitted the expense.
In general, two to four levels of approval are sufficient (any more could result in unproductive complexity). For most organizations, accounts payable staff serve as the final step in the process before submitting the approved expense for payment. Once you’ve mapped out your approval routing, it’s relatively easy to automate the process within expense management software.
Documenting the approval process is vital to business expense tracking. Automated expense management makes it easy to configure standard routing and exception routing, efficiently processing itemized expenses or, in the case of anything truly extravagant, rejecting them before the IRS does.
We’d appreciate your insights. What are some effective ways to identify extravagant expenses? Let us know by posting your thoughts in the comments section!
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