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A How-To Guide to Expense Reconciliation

The only way to really stay on top of mounting expenses, is to have the right tools in your back pocket. Are you prepared for growth?

Empowering employees with the ability to gather their own resources can drive business growth. It can also complicate things, especially when it comes to expense management. Roughly 35% of companies still manage expenses with some combination of spreadsheets, paper, and manual processes. This can complicate the expense reconciliation process, making it difficult to align financial facets with budgets and policies.

In this article, we uncover the significance of the expense reconciliation process, from how it works to top challenges, automation, and more.

What is Expense Reconciliation?

Expense reconciliation is the process of comparing and matching financial records related to expenses. It’s a system a business uses to balance the books and monitor employee spend. Expense reconciliation is used to verify that all expenses incurred during a specific period align with the established budget. It’s the last stage of the expense management cycle.

Finance teams carry out a series of record checks to match actual expenses with entries in the general ledger. The goal is to identify any errors, discrepancies, or unauthorized expenses. The expense reconciliation process includes these steps:

  1. Matching Receipts and Invoices: Verify that all invoices and receipts have been accounted for in the financial records.
  2. Bank Reconciliation: Compare transactions recorded in the bank statements with those in your accounting system to ensure they match.
  3. Expense Report Verification: Check employee expense reports against supporting documents to confirm the legitimacy of the expenses.
  4. Budget Compliance: Confirm that all expenses align with the budget and company policies.

Expense report reconciliation helps a business monitor approvals, confirmations, and receipt records for every transaction.

How to Reconcile Expense Reports

Employee expense reports can be reconciled using a variety of methods, depending on the size of your business, the volume of transactions, and available resources. Here are some of the top ways, from traditional to modern, and everything in between:

Manual Reconciliation

The traditional method of bookkeeping (popular with small businesses) requires using paper records and maintaining a physical ledger of your transactions. However, this type of financial reporting is highly susceptible to human error, loss, damage, and even fraud.

Manual reconciliation typically involves the use of an Excel spreadsheet. These can be used to manually track expenses and reconcile them against receipts, bank statements, and invoices. In paper-based systems, you must manually match physical receipts with recorded expenses in the general ledger account.

Automated Expense Management Software

Savvy finance teams use a dedicated expense management system to automate the entire reconciliation process. These tools will match receipts with transactions, integrate with accounting software, and provide real-time insights. Mobile apps also allow employees to capture receipts and submit them digitally. This enhances accuracy and streamlines the expense reporting process.

Bank Reconciliation

This is when a business regularly compares transactions in their bank statements with recorded expenses. Your balance sheet should complement your bank account data. Comparing financial statements with monthly expenditures ensures consistency and helps a business identify any discrepancies.

Credit Card Reconciliation

An organization can also compare its recorded expenses with credit card statements. This is incredibly important for a company that relies on corporate cards for spend management and the pursuant data for spend analysis.

Third-Party Audits

Take precaution a step further and engage external auditors to conduct periodic reviews of expense reports. This adds an additional layer of scrutiny and ensures objectivity throughout the expense account reconciliation process. You’ll have nothing to worry about as long as you keep a diligent audit trail. The best way to do this is by automating the process with the right expense management software.

What are the Challenges of Expense Reconciliation?

Expense reconciliation can be challenging depending on your infrastructure, volume, resources, and varying factors. Here are some of the more common issues people face when reconciling expenses:

Data Management

The financial data that your finance teams have to reconcile can arise from a variety of sources. Purchase requests and purchase orders, invoices, proofs of purchase, company card statements, and approval forms are just a few examples of the diverse range of data sources that an accountant can use. The problem is that each of these sources has different formats and, thus, contains data in varying forms. It can be a time-consuming task to match each of these transactions to their corresponding records.

Managing and tracking receipts can also be challenging and will complicate the reconciliation process. It’s tough to verify expenses without a receipt to match the expense report.

Policy Compliance

Another top challenge is ensuring that expenses comply with company policies. Employees may inadvertently or intentionally violate policies, leading to non-compliance and discrepancies.

Transaction Volume

Businesses with a large volume of transactions may find it difficult to manually reconcile expenses efficiently. Handling a large amount of data increases the risk of oversight.

Outdated Systems

Companies using outdated or incompatible financial platforms may face problems when integrating expense reconciliation tools, leading to inefficiencies, double entries, and mistakes entering business expenses.

Timeliness and Delays

The diverse range of data sources that expense reconciliation processes comes with a large range of timelines. Each of these transactions and their sources work within their own workflows, and these typically don’t align with each other.

Company credit card statements may arrive at mid-month, while expense reports arrive at the end of the month. The books cannot be closed until and unless all transactions have closed and necessary documents have been attained.

Delays in expense reporting can also hinder timely reconciliation. Late submission may result in outdated information, making it challenging to reconcile expenses in real time.

Lack of Context

Difficulties also arise when transactions are recorded without any context or documentation. This is particularly tough when there are a lot of individuals in your company with the authority to execute transactions. Your finance team will then have to do a lot of running around to reconcile every expense.

Scalability Challenges

Growing businesses may face issues with scalability, especially if existing processes are not capable of handling a high volume of data or transactions.

Additional Challenges to Consider

  • Gaps in communication can hinder the reconciliation process
  • Resistance to new technology impedes the transition to more efficient systems
  • Insufficient documentation or audit trails can hinder the ability to trace and verify entries
  • Employees may not provide complete data or supporting documents for expense claims
  • Credit card reconciliations may be complex due to varying billing cycles and multiple transactions

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How to Make Expense Reconciliation More Efficient

When it comes to travel and expense management, reconciliation is the final step. Driving efficiency in this process will benefit every other step in the expense management cycle. The key to accomplishing a streamlined approach is focusing on decentralizing and automating your entire accounting system. Here are a few strategies to make the reconciliation process run smoother:

Digitize Documents

Digitization and automation go hand-in-hand. Tracking and verifying documents is an important part of the reconciliation process, and digitizing document management cuts down on the effort required to record and store documents. Key features include e-receipts, digital invoicing, mobile scanning, and automated expense reimbursement.

Matching expense or transaction logs with documents is a very easy task to automate. Artificial intelligence and smart tools have the ability to sift through and check mountains of data with focused precision and speed.

Offer Different Payment Methods

A business can incorporate new and more efficient payment methods to keep accounting simple. A good example of this is using a corporate card (physical and/or virtual). These cards give employees instant access to credit lines, tracking tools, and recording mechanisms, to help automate expense management and reduce manual tasks.

Consider Integrations

Decentralizing expense reconciliation starts with choosing the right ERP integrations and connecting all of your tools into a single, intuitive dashboard. You can incorporate:

  • Modern payment methods
  • Decentralized spend policies
  • Remote-friendly tools
  • Real-time access

Expense management platforms that offer integrated services are a one-stop shop for all of your accounting woes, including expense reports, approval workflows, reimbursements, corporate cards, and more. Automation will help you handle data matching, reduce manual effort, minimize delays, and flag discrepancies.

Automate Reconciliation

Look for a system that can record transactions, conduct approval checks, and then match those transactions with specific documents. These platforms are capable of handling the entire expense reconciliation cycle, while human intervention is only needed for glaring errors.

Streamline Approval Workflows

Expense approval software helps a business design efficient approval workflows with predefined paths based on the amount, expense type, and/or hierarchy. This helps to enhance visibility, reduce delays, and accelerate the entire approval process.

Go Mobile

Opt for an expense management solution that offers some form of mobile accessibility. This enables staff to submit expenses and managers to approve them from anywhere in the world. This improves efficiency and overall responsiveness.

Leverage Analytics

Utilize all of your data analytics tools to gain deeper insights into spend patterns, identify trends, and proactively manage expenses. Analytics tools will also help with budgeting and forecasting.

Enforce Policies

Your expense management and reconciliation process is only as good as how trustworthy employees are. That’s why it’s crucial to clearly communicate and enforce expense policies. Establish guidelines for allowable expenses and automate policy checks to prevent errors and ensure compliance from the start.

Additional Ways to Streamline Expense Reconciliation

  • Regular training and communication on expense policies and the use of expense software
  • Continuous monitoring and auditing to catch errors and discrepancies early on
  • Integrate corporate card transactions directly into the expense reconciliation system
  • Look for cloud-based solutions for accessibility, scalability, and remote capabilities
  • Establish a feedback mechanism for employees to report any issues or suggest improvements

By implementing some of these tips, companies can significantly improve the efficiency of their expense reconciliation processes, leading to cost reductions, time savings, and enhanced financial control.

Automating the Expense Reconciliation Process

A successful expense management automation solution will include digitizing the reconciliation process. Automating this type of finance involves a systematic approach to optimize and streamline financial workflows. Here are a few key steps to guide the automation of your expense reconciliation tasks:

  1. Find the Right Tools: Choose a robust expense management software that best aligns with your organization’s needs. Key features include receipt scanning, real-time data syncs, and integration capabilities.
  2. Receipt Digitization: Implement a mobile app to enable employees to upload and digitize receipts, ensuring all supporting documents are readily available for reconciliation.
  3. Integration with Accounting Systems: Make sure the chosen expense management software integrates seamlessly with your current accounting systems. This type of connection helps with real-time data transfers, reducing manual data entry and minimizing errors.
  4. Policy Enforcement: Configure the system to automatically enforce company expense policies. This includes validating expense entries against predefined rules to ensure compliance.
  5. Automated Matching: Leverage automated matching algorithms to reconcile expenses against bank transactions. This will help to ensure the accuracy of recorded expenses and identify any discrepancies.
  6. Workflow Automation: Implement robust workflow automation rules to streamline the approval process. Configure predefined approval paths based on specific rules or a hierarchy. This ensures faster approval cycles and reduces bottlenecks.
  7. Employee Training: Provide comprehensive training on the automated expense reconciliation platform. Effective communication ensures all stakeholders understand the new system and comply with the guidelines.
  8. Reporting and Analytics: Utilize reporting and analytics to gain greater insights into spending patterns, identify cost-saving opportunities, and manage compliance.
  9. Data Security: Implement strong security measures to protect sensitive financial data. Access controls, encryption, and regular audits will help maintain the integrity and confidentiality of financial information.
  10. Continuous Monitoring: Regularly monitor your automated processes to identify areas for improvement and optimization. Ask for feedback and use it to evolve the system. Continuous monitoring and improvement ensures ongoing efficiency gains.

By following these steps and customizing them to fit your business needs, you can successfully automate the expense reconciliation process, leading to reduced errors, greater efficiency, and enhanced financial controls.

Summing it Up

Expense reconciliation has become an increasingly complex process as modern payment methods and transaction volumes increase. Yet, it plays a pivotal role in ensuring financial transparency and control within an organization. As more companies empower their employees to manage expenses, the need for an efficient reconciliation system becomes paramount.

To make the entire process more efficient, businesses should leverage technology, particularly automation, to streamline workflows and enforce policies. The further adoption of mobile capabilities and analytics tools further contributes to enhanced financial control.

Choosing the right software, implementing receipt digitization, integrating with legacy accounting systems, and enforcing compliance are crucial steps. As a company evolves, continuous monitoring and adaptation of these strategies will be the answer to sustaining efficiency gains in the ever-evolving ecosystem of expense management.

Today, the finance function has more responsibilities than ever. What’s the best way to forge an accounts payable path and automate expenses? Dive in and get the answers to your questions by exploring Tipalti Expense Automation

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