What is Expense Management?

Mary McMahon
Mary McMahon

Expense management is a process for keeping track of employee expenses, or in the case of self-employment, for personally managing expenses associated with doing business. Having such systems in place is important for documenting expenses properly on filings like tax statements in addition to auditing employees to make sure they comply with company policies on expenses. A number of companies produce expense management software to assist with this process, making it easier to track expenses correctly.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

In companies of any size, employees may incur expenses on behalf of the company as part of their work. Some companies only allow employees to do this with permission, as when a small business owner sends an employee to the office supply store to meet a specific need. Others may provide employees with expense accounts, allowing them to use funds for preauthorized purposes without checking first. In both cases, expense management is necessary.

Employees submit documentation for all the expenses they incur. This includes a detailed breakdown, showing how they spent the money and how it applies to the business. Expenses can include client entertainment, food and housing on business trips, car rentals, airfare, and so forth. The company may audit expenses to make sure they are within reasonable limits, such as the company's per diem allowance for meals. People claiming excessive or unusual expenses may be subject to close scrutiny and could have privileges revoked if the company feels their expenses are abusive.

Software can facilitate expense management. Accountants or human resources personnel can set up profiles for each employee to track expenses. The software makes it easy to look back at prior history, track changes, and pull up expenditures related to particular events. In the event of an audit, personnel can evaluate employee profiles for signs of fraudulent activity, like doubled receipts, claims of business expenses when employees were on personal trips, and so forth.

For self-employed individuals, expense management is important to keep costs down and track expenses properly for taxes. These expenses can be treated as tax deductions, as long as the documentation is kept on hand and they are properly classified. Certain expense categories, like entertainment, are subject to close scrutiny on the part of tax authorities, and expense management programs can provide tips and tricks to reduce the chance of a tax audit, such as flagging expenses that seem disproportionately high in comparison to other expenses or income.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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