Tax season is just around the corner and this means audits! Auditing is an essential process for businesses to ensure financial compliance and accountability before critical documents are filed as part of tax return submission. In fact, all companies incorporated in Malaysia must have their accounts audited by a Ministry of Finance-approved auditor as mandated by the Companies Act of 2016.
However, auditors often face several challenges like manual processes, tracking errors, complicated policies, etc, which make their job difficult. Such challenges, if not managed, will only waste time, effort, and money for all parties involved.
In today’s blog post, we’ll explore in detail all the challenges faced by auditors and how to solve them with an expense management system.
Challenges Faced by Auditors when Auditing
Below are the top six things that make the auditing process painful for auditors.
Lack of visibility into financial documents
One of the biggest challenges auditors face when auditing companies’ financial documents and processes is a lack of visibility. Financial documents like expense reports are often submitted in different formats like in PDF and Excel. And unfortunately, these varying document formats may not always be easily accessible to the auditors. Hence, auditors can find it challenging and time-consuming to verify the expenses incurred and ensure compliance with company policies.
Duplicated financial documents
On the other hand, duplicated financial documents like expense reports is a common issue that auditors face when auditing. Employees may submit the same expense twice, leading to over-reimbursement and even fraud. Auditors must then manually verify expenses to identify duplicates, which can be very resource-intensive. Keep in mind that audits must be done within a stipulated window period and hence, every second counts.
Error-laden manual processes
Manual expense reporting processes are also prone to errors and inconsistencies. For example, employees may completely forget to submit receipts for their expense claims or auditors may have to manually sift through mountains of physical receipts with their faded ink to catch errors. In some cases, companies may even have a huge pile of financial documents to manually go through that they may just resort to random sampling. All this can lead to incorrect reimbursements, auditors finding it difficult to verify expenses, and non-compliance with company policies.
Non-compliance with company policies
Ensuring compliance with company policies is crucial when auditing. But having too many or too strict expense policies can be a source of confusion during audits. On the flip side, some businesses may not even have defined company financial policies. The bottom line is when employees don’t understand what kind of claims to submit or how to go about submitting claims according to company policy, they may inadvertently or intentionally violate policies. Errors can repeatedly occur which wastes auditors’ time.
Fraudulent expense claims are a significant concern for businesses. Employees may submit fake expenses or inflate expenses to receive higher reimbursements. Auditors will then have the tough job of manually verifying expenses to identify fraud.
Back and forth with employees over errors
So what to do with errors and missing data found? In a manual audit process, when auditors spot financial documents that need correction, the ensuing follow-up with employees can be a mess. Auditors must personally reach out to the person who filed the report, and their manager, to communicate what is wrong and how to fix it. This is often handled via email and manual tracking which can be slow and frustrating.
Solving Challenges Faced by Auditors with an Expense Management System
An expense management system is software that automates the controlling, tracking, and processing of employee expense reimbursements and employee-related expense card transactions.
A robust expense management system makes it easier for employees to submit expense claims, for employers to approve said claims and generate expense reports, and for auditors to verify these expenses as part of the audit process.
Here’s how an expense management system can help solve the challenges faced by auditors when auditing expense reports.
Improved visibility into financial reports
An expense management system provides auditors with real-time visibility into expenses incurred since most of the solutions are available digitally. This allows auditors to verify expenses more easily in real-time to ensure compliance with company policies. Instead of going through many physical files to locate the expense documents for a particular month, auditors only need to click on the software to see monthly expenses incurred and whether they’re documented properly.
Duplicate expense detection
An expense management system can automatically detect duplicate expenses, reducing the likelihood of over-reimbursement and fraud. This makes it easier for auditors to identify and investigate duplicate expenses too.
Since an expense management system automates the expense reporting process, it reduces the likelihood of errors and inconsistencies. For example, employees can submit complete and accurate expense claims via a phone app, making it easier for auditors to then verify expenses and ensure that they’re in compliance with company policies.
An expense management software can enforce company policies too and reduce the likelihood of non-compliance. For example, employers can set a budget for business expenses (e.g., setting a RM100 monthly budget to pay for an online design software subscription fee). Both employers and employees are alerted if the expense policy is violated, making it easier for auditors to identify policy violations.
When employers, employees, and auditors understand company policies clearly, it’s a lot easier to detect frauds too. Auditors can spot incorrect financial documents through the expense management solution. And since the proof will be easily available through the software, auditors can also query employers and employees should they find inconsistent financial data.
Leverage Expense Management Software to Improve Your Auditing Process
Though auditors can face difficulties during the auditing process, they can overcome them with good expense management software.
Such software can help businesses streamline their expense reporting process, reduce the likelihood of errors and fraud by employees, and ensure financial documents are accurately and quickly verified by auditors.