White Paper

How Federal Contractors Can Navigate Complex Expense Reporting And Auditing Requirements

Best Practices for Improving Reporting and Auditing Capacity

In today’s distributed workforce, best-in-class expense management empowers companies to streamline reporting, maximize efficiency, and improve outcomes from anywhere in the world. The average company currently spends more than $500,000 and 3,000 hours correcting expense reports, costing time and opportunity. Not only does the right software offer tangible benefits, like significantly faster approval times, but it also reduces errors while creating better records that power other initiatives.

What We’ll Cover in This Whitepaper

This whitepaper should serve as a resource for federal contractors navigating complex expense reporting and auditing requirements. You will learn more about best practices for establishing an expense reporting process, specific information on how to deal with particular expense types, policy recommendations, and how the latest audit innovations solve some of the problems inherent in expense reporting.

Common Expense Reporting Requirements

Data Entry

Data and transactions are imported into the expense report system using Optical Character Recognition (OCR) on receipts or entered manually by employees with the option to attach receipts. Data can also come in through credit card/P-Card feeds and travel bookings. When determining data collection parameters, contractors should evaluate applicable government Cost Accounting Standards, which impact how contractors measure, accumulate, allocate, and assign costs.

Validation

A report undergoes automated validation based on pre-programmed rules defined by a policy engine. If the report fails, the user is notified and provided the opportunity to fix the problem and resubmit. If the report passes, it moves forward to their approver, who (upon approval) sends it to reimbursement and processing to finally land in the accounts payable inbox.

Payments

Reimbursements are disbursed and bills are paid. The reimbursement could be by ACH or by check to either the employee or the vendor (such as the credit card provider).

Reporting

Reporting tools pull together data into charts, graphs, and tables to demonstrate trends and provide insights into spending and overall process efficiency.

Auditing

This stage can fall anywhere in the expense reporting process, allowing auditors to step in for verification during any stage. Some contractors leave it for the end, while others employ auditing after each step. Regardless of the methodology, federal contractors need to meet government Cost Accounting Standards with a readily available audit trail, including “documents, papers, or records related to compliance with the requirements.”

Six Steps to Implementing an Automated Expense Reporting Process

Step 1 | Establishing Policies

The first step in the process involves developing guidelines for managing employee expenses. In this stage, you’ll consider the types of policies, the wording of those policies, and whether you want to implement travel or expense pre-approval. Federal contractors can identify common expenses and develop appropriate policies to support the end goal. Contractors should be especially mindful of unallowable expenses for federal contracts, which can be extensive and potentially disruptive to business continuity. Similarly, business travel data collection should follow protocols established by the most recent Contractor Travel Reimbursement Guidelines, and meal and entertainment expenses have their own standards.

Step 2 | Setting Up an Approval Process

Next, it is important to determine who will be processing expense reports. An effective expense reporting process requires appointing an expense report manager to oversee the approval process. At the same time, decide how many levels of approval are required and develop best practices for training approvers. Auto-approval is also an option, but you will still want a person to randomly choose and double-check reports to ensure no errors are occurring.

Step 3 | Reporting

Reports provide critical insight for making policy decisions and ensuring effective spending. Compiling, processing, and auditing expense data is meaningless without the final analysis that comes from reporting. Here are some recommended reports that many contractors find helpful:

Monthly, quarterly, and yearly expense reimbursement tracking by user, by expense or General Ledger account, by department, and/or by project
Corporate credit card transaction reconciliation and usage tracking
Approval duration by approver
Audit failures by audit reason

Step 4 | Auditing Procedures

Establishing auditing procedures to manage your company’s policies will make your internal auditing process smoother, help detect potential fraud, and improve compliance. Audits should be performed based on conditions that are important and relevant to your organization—not on canned reports. Condition-based audits can be structured around a wide range of factors, including amount, expense type, vendor, employee type, or type of approval.

Running audits against specific conditions empowers organizations with the data they need to take corrective action and improve processes and policies. Additionally, regularly reviewing and revising policies can help eliminate the causes of high audit failure rates, allowing you to adjust policies as they become unclear or outdated.

AUDITING RECOMMENDATIONS
Common audits that work well for federal contractors include:

Audit reports that exceed a set dollar amount
Audit users with the highest number of rejections to understand the cause and prevent future issues
Audit possible (accidental or intentional) reimbursement duplicates to identify potential savings
Audit a randomly selected percentage of reports to ensure the system is functioning properly
Audit all expenses within a specific department if spending appears higher than average, to determine the reason and reduce unnecessary costs
Audit the first few reports submitted by new employees to confirm understanding and adherence to policy
Audit all failed reports to uncover and correct recurring trends
Audit reports without receipts if this is a recurring issue for certain employees

Step 5 | Leveraging Automation & Technology

To minimize personnel resources, you should leverage automation and technology to streamline the expense reporting process and improve outcomes.

Expense reporting errors cost time and money, and decision-makers need actionable insights readily available. Advanced OCR enables employees to automatically import details from receipts, invoices, or hotel folios, significantly improving how companies capture and manage data. The same technology that captures expense details can also be trained to automate audits and verify compliance, drastically reducing the amount of human involvement required to process expense reports.

With today’s technology, expense reporting includes:

Auto-creation of expense reports
Reviews and audits powered by automation to reduce reliance on manual work
Matching and reconciliation of receipts and card transactions
Automated reporting with detailed insights, including hotel folio breakdowns and vendor spend analysis

Step 6 | Annual Policy Maintenance & Updates

Finally, annual reviews and policy updates allow you to improve your expense reporting and auditing process. This provides an opportunity to enhance existing policies, eliminate redundancies, and clarify areas that cause confusion. Keep in mind that it is easier to manage a smaller number of policies, so focus on refining and removing outdated ones rather than creating new, one-off policies.

Conclusion

Streamlining the expense reporting process empowers contractors to operate with confidence, knowing that they are accurately and efficiently accounting for expenses while adhering to compliance standards.

At the same time, federal contractors can more effectively evaluate spending practices, optimizing operations to maximize return on investment.

For most organizations, it will take approximately six months to streamline a newly established automated expense reporting process. After this period, it’s essential to revise, combine, and refine policies annually to maintain effectiveness.

The entire process requires close collaboration and continuous evaluation. Trust the expertise of professionals who routinely navigate this process to ensure you develop an improved system that delivers greater control, efficiency, and visibility.