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Audits, Taxes and Back Office Benefits from Better Spend Management

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How an automated system prevents stress and saves time and money with audits

Welcome to audit and tax season. It’s once again that magic time of year when offices fill with auditors and the especially unlucky get to know their accountants better than members of their own families, at least for a while.

Many execs imagine a nerdy auditor wearing thick glasses, holding a well-stained coffee mug, ready with sharpened pencils, 10- key calculators and settling in to spend long (and billable) hours pouring over the books looking for mistakes in cash activity, capitalized costs, prepaid and accrued expenses. Once they reach your cash activity, you hope you have enough information backing up those expense reports, reimbursements and invoices.

Not to be trite: Audits can create that single moment of clarity – good or bad — that many companies avoid for almost the entire year – sometimes on purpose. They can find all sorts of misstatements you never imagined, some of them potentially fraudulent. Audits are necessary to keep a company’s financials accurate, transparent and ready to be used at tax time. In fact, audits are a financial requirement for SEC registrants and most companies funded by banks and investors

A business using documented and automated financial controls throughout the year will be able to gather information quickly and share it with an auditor. This means, you can replace the nightmare images with the happier one of your accountant or auditor walking out the door after only half a day of work. Let’s take a look at what a comprehensive audit entails and how you might make the process go more smoothly in your organization.

What is a Comprehensive Audit?
A comprehensive audit verifies that estimated and actual numbers are as close to accurate as possible. It also assesses procedures to identify internal controls that should be implemented to improve the integrity of all financial data. Furthermore, an audit gives closure and sets a starting point for the New Year’s activity.

Your regular annual audit is conducted once you have closed the books on the fiscal year. Businesses can choose to have a compilation, review or audit, which provide different assurance levels depending upon various requirements. Some companies are required to conduct a review of their financial records, while others require a full-blown audit with a final assessment from their auditors.

Every day, money moves in and out of your company’s accounts. While it is likely your company’s bookkeeping staff, accountant, CFO or controller oversees this activity, at bigger companies the entire executive management team is on the hook for keep watch over the money and to ensure that it is handled properly.

Regardless of who conducts the annual audit, the first step is finalizing the year’s financial records. This can reveal areas for improvement in record-keeping and reporting, especially if you are still using paper-based processes. In fact, an audit can be a good exercise to help you assess the level of risk your organization may be taking on due to poor expense management control, management, leakage, and in some cases fraud.

How does expense management software support a company’s annual accounting audit?

Expense management software can significantly reduce the hours auditors spend analyzing your books. If your auditors already know you have a solution in place, like ExpenseWatch, then they will be able to do a spot check instead of dissecting every single document to confirm processes are in place.

Travel and entertainment expenses are a big cost area for most companies, and getting those deductions from the Internal Revenue Service for allowable expenses is important. Since there is only a 50% deduction for most entertainment expenses, this system will ensure you’re separating ALL travel expenses which are fully deductible, getting you the most tax deductions as possible. More often than not, travel and entertainment expenses are not easily separated causing businesses to not realize their full deduction related to travel. That’s why it’s not too surprising that the most common issues during tax audits are rooted in the expense reports. For companies that are not using automated expense reporting systems, this area is most often cited as one in which senior management has the least amount of visibility, and ultimately the most mistakes.

Statistics from the IRS show that since 1990, there has been an increase in the number of audits on small to medium sized businesses in the Unites States with the government recouping $702 in taxes for every hour it spends auditing these businesses.

There is no magic potion that can reveal what prompts an IRS audit, however, one red flag tends to be big numbers showing up for travel and entertainment expenses. This is why it is essential to play by the rules and keep good records proving the business purpose of these expenses.

Online spend management systems help give companies the confidence that their expense reports have been accurately recorded in the system, along with the receipts and required documentation to substantiate the expenses.

The IRS has defined legitimate business travel, but the burden is on the company to prove that it is compliant with these descriptions. As one example: entertainment expenses must include all of the specifics, including the description of the type of entertainment, cost, date, location, plus a description of the business purpose for the entertainment, and the names of who attended, as well as their business relationship, and whether or not your employee was present. In ExpenseWatch, you can build in category-specific attributes so all of the information you need is captured, depending upon the expense type.

What’s more, since every organization is unique and business rules can vary by industry, an automated expense management system will ensure that the information you capture for each expense meets applicable regulatory guidelines and IRS code section. Any non-compliance could mean hefty fines.

If you are still struggling with old legacy paper-based spending processes and extensive time with auditors reviewing your books, it may be time to consider an automated spend management system, like ExpenseWatch.

Just like ExpenseWatch customer Delta Dental of Wisconsin, you can rest assured that next year all your negative images concerning the annual audit will be replaced with an image of confidence and prosperity for the New Year.

“By automating our purchasing, invoicing and expense reporting processes, we have empowered our managers to easily track and manage spending. Everyone is on board with the system, from end users who submit expense reports and purchase requisitions all the way to our external auditors who can see, with just a few mouse clicks, the extent of our internal controls.” – Delta Dental of Wisconsin

(Posted 2-24-15)

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