Mastering Allowable Expenses: A Comprehensive Guide for Businesses

Effective expense reimbursement makes sure your employees get paid for work-related spending while maintaining transparency and compliance. It can be challenging and labor-intensive if you do not have clear guidelines or the right processes in place.

What Are Allowable Expenses?

An allowable expense is money spent by your employees to conduct company business. These expenses are eligible for reimbursement under company policies. Examples include business travel, business meals, and purchasing goods or services necessary for work.

What Are Examples of Allowable Expenses and Non-Reimbursable Expenses?

Distinguishing between allowable expenses and non-reimbursable expenses prevents misuse and fraud. Let’s look at some examples of each.

Allowable Expenses

In general, these include expenses in the course of doing business for a defined purpose, such as:

• Travel: Flights, hotel accommodations, car rentals, taxis, and meals while on business trips
• Business-related purchases: Office supplies, software subscriptions, or equipment necessary for the employee to fulfill the responsibilities of their role
• Client entertainment: Meals, events, or activities aligned with company policies to foster client relationships

Non-Reimbursable Expenses

Personal costs are excluded. For example:

• Personal costs: Costs unrelated to work, such as leisure activities during business travel
• Excessive spending: Expenses that exceed policy limits, like luxury accommodations or first-class flights without prior approval

Why It Matters How You Classify Expenses

Distinguishing between these two types of expenses prevents employees from receiving reimbursement for personal spending. Clear guidelines will help employees understand the difference and prevent noncompliant spend and occupational fraud.

Noncompliant spend occurs when there is a violation of company policy. Without proper safeguards and audits, this can result in paying employees for expenses that are not qualified for reimbursement. It can also create bigger issues for companies, such as government contractors or publicly traded companies that have to comply with specific legal or regulatory obligations.

Unfortunately, occupational fraud is a significant problem for nearly every business. In a typical organization, the Association of Certified Fraud Examiners (ACFE) estimates 5% of annual revenues are lost to fraud; and the most common is asset misappropriation, such as padding travel and expense claims. An automated T&E solution can compare every line item against your policies to flag non-compliant spend or potential fraud for further review. 

Benefits of Reimbursing Employees in a Timely Manner

With an efficient system for travel and expense (T&E) management, you can improve:

• Employee satisfaction: When employees spend their own money for business expenses, it can create stress and, in some cases, financial hardship. Fast reimbursement relieves this burden and improves employee satisfaction.
• Operational efficiency: With an efficient T&E solution, employees can focus on their jobs without worrying about out-of-pocket expenses. Finance teams also enjoy less  time spent on manual tasks, such as reviewing and approving every expense.
• Tax benefits: Proper documentation ensures that eligible expenses can be deducted for tax purposes, reducing your taxable income and making tax time easier.

Legal and Financial Implications

There are also legal issues at play. Companies need to follow local labor laws and tax regulations regarding reimbursable expenses. Failure to comply can hurt your reputation and create liabilities, including fines or penalties.

You need strong expense management policies and an efficient reimbursement process to minimize risks.

How to Efficiently Manage Allowable Expenses

Managing expense reimbursement efficiently requires a few steps.

Develop Clear Reimbursement Policies

A comprehensive reimbursement policy is critical. Employees must know what is allowable and what is not, along with the process for getting paid. Policies should include:

• Submission deadlines: Clear timelines for submitting expense claims
• Required documentation: Itemized receipts, invoices, or other proof of payment
• Approval processes: Defined steps for obtaining managerial or departmental sign-offs

Policies should be easy to understand, but detailed enough so employees know where the line is drawn. For example, your policies should detail which expenses need prior approval and how to secure pre-approval. While the list can get long, the more detailed you are, the more likely you avoid conflicts and streamline your process.

Implement Automated Workflows

Manual expense reporting is time-consuming and can produce mistakes. Automated workflows simplify the process by:

• Capturing and categorizing expenses automatically
• Flagging non-compliant expenses or potential fraud for review
• Accelerating approvals and reimbursements

SAP Concur research shows that companies with an integrated T&E solution can increase policy compliance by 26% and save 20% in invoice processing.

Conduct Regular Audits

Regular expense audits help identify policy violations, fraudulent claims, or trends in spending. They help ensure accountability and continuous improvement in expense management.

Audits go beyond basic spend compliance and help you:

• Control T&E costs, which are often one of the largest budget lines
• Reinforce responsible spending
• Catch mistakes like duplicate expenses or missing documentation
• Provide deeper insight into your spending patterns
• Reduce regulatory risk

Employee Training

Besides simply adopting policies, you must train your employees on your organizational  guidelines and how to use expense management tools. The more comfortable they are with your T&E process and solutions, the more they will embrace them.

How Can SAP Concur Solutions Help Manage Allowable Expenses?

SAP Concur offers advanced T&E solutions to simplify the expense reimbursement process and ensure compliance.

Employees can save time by capturing and uploading receipts on their smartphones. Concur solutions will automatically extract and populate expense reports, categorizing data. Once reports are submitted, the system will review expenses against policies and flag any mistakes, non-compliant spending, or potential fraud for further review.

Near real-time spend tracking allows you to monitor spending trends and identify areas where improvements can be made.

With Concur solutions, you save time by automating your expense reporting, improve accuracy, and deliver a better employee experience. Most importantly, you save money. Businesses using an integrated T&E solution save 21% in travel booking and expense reporting.

Creating an Efficient Expense Reimbursement Process

With slowing inflation and a more focused back-to-business approach, we foresee travel opportunities growing in the year ahead. Making sure you have the right solutions and processes in place will be critical to efficiency.

Managing allowable expenses efficiently does not have to be labor intensive. With clear policies, automated workflows, and regular audits, you can reduce the administrative burden and risks to your organization. Learn more about how Concur solutions provide a seamless and compliant process to streamline your workflows and maximize savings.