Sage advice for any company looking to strengthen their cost controls and budget discipline. Managing spend effectively starts at the very onset of an expense — the beginning — with customizable, automated request and approval workflows. With a well-thought-out workflow, corporate expense policy enforcement happens up front, and information regarding every transaction, including the owner, what it’s for, and who approved it, is instantly available to finance teams and budget owners. When these operations are part of a robust spend management system, the settings can be configured to reflect and enforce a company’s spend policies. And, an audit trail of the approval is available to anyone wishing to verify a specific transaction, without having to chase down additional documentation.
Creating an effective approval workflow is not a one-size-fits-all process, and policies should be configured to accommodate the structure and needs of a particular company. Even then, as a company grows, and its organizational structure becomes more complex, more exceptions can appear in existing approval chains.
Airtight approvals are an important safeguard against fraud. Organizations need to recognize that the risk for employee fraud is rising. In a recent report, the Association of Certified Fraud Examiners states that businesses lose an average of 5% of their total revenue every year to occupational fraud, and that fraud cases continue for an average of 14 months before they are noticed The Association also warns that the COVID-19 pandemic is creating more opportunities for fraud, in part due to the movement to remote workplaces and our increased reliance on technology. It’s not surprising, therefore, that respondents to The Airbase Annual Benchmark Survey of Finance Professionals said addressing security concerns is one of their top priorities for 2021.
Employees appreciate the transparency of clear approval policies, as well as the fact that the system ensures compliance, so they never have to worry that they might make a noncompliant purchase. For many businesses, improving their approval processes leads to what they describe as a culture shift towards greater accountability and ownership when it comes to employee spending. In order to continue this goodwill, however, approval policies must respond to change and reflect organizational changes.
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Three best practices for an effective approval process.
1. Ensure that the process is fast and simple. When approvals for spend must be obtained up front, the process must move quickly so employees aren’t held back. An expense request should be easy to submit, and it should automatically route to the correct approvers. It should also be easily handled on the approver’s side, so that a request can be quickly approved (or rejected) via Slack or email, without any disruptions to the workday.
For even greater efficiency and to remove bottlenecks, use approval groups. A group could be defined so that employees can get the approvals they need from any member of the approval group, so they spend less time waiting for a response. This is especially useful for when an approver in the group may be on vacation or out of office. If multiple people must approve an expense, decide if the approval should be sequential, wherein it moves down a chain of approvers, or parallel, wherein all approvers view the request at the same time. The best approach could depend on the expense and the organizational structure.
2. Create an approval chain that reflects how work is done. An approval process should be flexible enough to span departments. For example, if a software program is used by multiple departments, and the cost is divided among them, each department head may want to approve a request, even if it is initiated by an employee who doesn’t report to them. This process could also be defined so that certain expense categories are always routed to certain approvers, no matter which department the spend owner belongs to. Certain dollar amounts may require different approval chains. For example, a request to spend less than $500 may only need to be approved by an employee’s immediate manager, but the department head may need to approve higher amounts. Or, for all IT purchases (or those above a certain threshold), perhaps the IT director needs to be added into the approval flow to ensure they are aware and approve that system.
3. Have a strategy that allows for complexity. As approval chains become more complex, a company could run into instances where the chain isn’t always clear cut. An employee could submit a request that would trigger a certain sequence of approval according to her role, but a different approval sequence for the dollar amount, for example. A smart system can be adjusted to determine which approval policies override other policies.
With multi-level approvals, a specific condition can trigger the appropriate workflow. To do this, approval policies could be based on:
- An employee’s manager
- Their department
- Spend thresholds
Ultimately, flexible approval policies form the backbone of effective spend management. They provide a point of control over company funds, allow for better management of the budget, and protect company and employee alike from compliance violations. When you come to the end of the spend approval process, you can stop and rest assured that policies — even complex ones — are being followed, and oversight is in place. To learn more about our approval policies, including the flexibility of Advanced Approvals, contact Airbase today!