Expense reporting 101: Understanding and improving the process

An expense report is a detailed record of business-related expenditures incurred by an employee or company over a specific time period, usually a month. Expense reports are crucial tools for finance teams to track, categorize, and manage business spending. Typical expenses included in these reports range from travel costs and meals to office supplies and client entertainment.

Here’s a practical example that can help:

Imagine you've just returned from an industry conference you attended on behalf of your company. Your expense report might include:

• Transportation (e.g., flights, rideshares, car rentals)
• Accommodation (hotel costs)
• Meals ( personal and those with clients)
• Incidental charges (Wi-Fi or parking fees)

For each expense, you'd typically need to provide:

• Date of the expense
• Description of the item or service
• Amount spent
• Business purpose
• Any additional attendees (for meals or entertainment)

Here's a sample entry for a flight expense:

Date: June 3, 2024

Expense: Flight from Dallas to New York

Amount: $450

Reason: NY Tech Week industry events

Why is accurate expense reporting so vital for employees and companies? For employees, it helps them stay within budget guidelines and protect the company dollar. It also ensures proper reimbursement for any out-of-pocket expenses incurred. For companies, these reports are essential for controlling costs, maintaining accurate financial records, and ensuring compliance with tax regulations.

Some organizations still rely on spreadsheets for business expense tracking, but there are specialized and affordable software solutions that can automate much of the process, reducing errors and saving time. Let's look at traditional spreadsheet- or paper-based approaches as well as modern approaches to expense reporting from a high level.

Examples of expense reports

Here’s what your expense report may look like in spreadsheet form.

And here’s what an expense report looks like in an AI-powered spend management platform like Brex.

While both options technically work, Brex accelerates expense reporting and increases accuracy with AI. And Brex Assistant supports employees with questions and tasks so you can close the books quickly.

A platform like Brex provides:

• Automated tagging and categorization for departments, projects, and general ledgers
• Automatic addition of receipts that meet IRS or local regulations
• OCR tech receipt recognition in all languages and currencies
• Smart memo creation and autofill for form fields
• Personalized help and AI-driven automation

Here are some of the most common reasons companies use expense reports.

1. Track business spending

Expense reports offer a detailed breakdown of where company funds are going. They provide visibility into both large and small expenditures across various categories. This comprehensive view allows businesses to identify company-wide spending trends, control costs, and make informed financial decisions.

For instance, if your team attends a conference, you can add up each employee’s expensed costs, such as their tickets, travel, and meals, to see how much your business invested in the trip and then compare those expenses to any ROI metrics.

2. Organize expenses by department

By categorizing expenses according to departments, companies can maintain better budget control and gain insights into spending patterns. These departmental breakdowns enable comparisons between different teams and highlight areas of high or low spending. Such insights can help you effectively allocate resources and identify potential cost-saving opportunities.

For instance, maybe one team is spending less on meals and hotel rooms than other teams. You can then share these insights to help inform your per diem management strategy and even work with higher-spending teams to reduce costs the next time they travel.

3. Prepare for tax returns and audits

Well-maintained expense reports simplify tax preparation and ensure you’re ready for any potential audits. They provide a clear, organized record of business expenses that can be easily referenced. This level of detail and organization can save time and stress during tax season or in the event of an audit.

4. Categorize deductible expenses

Expense reports help identify tax-deductible expenses, potentially reducing a company's tax liability. They ensure that all eligible deductions are captured and properly documented. This careful tracking can result in substantial savings and improved financial planning.

For example, most work-related meal purchases are at least partially deductible. So if you take a client out for a business dinner, note it in your expense report to ensure you get the proper deductions.

5. Manage project budgets

Expense reports help you get a detailed analysis of costs for projects requiring materials and labor. They also help project managers track spending against budgets in real time, which is crucial for keeping projects within financial constraints and informs more accurate budgeting for future projects.

6. Track employee spending habits

Expense reports offer insights into individual employee spending patterns. They can reveal trends or anomalies in how company funds are being used. This info can help managers provide guidance, adjust policies, or address any concerns about the responsible use of company resources.

* Pro tip: Use Brex to run natural language queries to quickly explore transactions at a glance. It’ll also flag any concerning spend patterns to you. For example, search “sales expenses > $200 without receipts last month.”

7. Reimburse employees

For employees who use personal funds for business expenses, expense reports are key to facilitating that reimbursement. They provide a clear record of out-of-pocket expenses, ensuring fair and timely repayment. This process helps maintain employee satisfaction and trust in the company's financial practices.

8. Forecast future expenses

By analyzing past expense reports, companies can more accurately predict future spending. These historical records provide high-quality data for creating realistic budgets and financial projections. Accurate forecasting based on past expenses can lead to better financial planning and resource allocation.

You can reap some significant benefits when you manage expense reports effectively at your company. Here are a few of the top gains for businesses of any size and stage.

Control your finances

Expense reports provide a clear picture of your company's spending patterns. They allow you to identify areas of excessive expenditure and implement cost-cutting where necessary. With this level of visibility, you’ll maintain a tighter grip on your business finances and make more informed financial decisions.

Make reimbursements a breeze

Gone are the days of slow, complex reimbursement procedures. Expense reports create a straightforward path for employees to reclaim business-related out-of-pocket expenses. Clear documentation ensures that reimbursements are processed accurately, improving employee satisfaction and trust in the company's financial processes.

Improve business budgeting

Companies that analyze past expense reports can gain valuable insights into spending trends. This historical data enables you to create more accurate budgets for the future and help you anticipate expenses more reliably, allocate resources more effectively, and avoid unexpected financial surprises.

Meet your compliance obligations

Proper expense reporting keeps your business aligned with tax laws and company policies. It ensures you have the necessary documentation to support your financial claims, particularly during tax season or audits. For instance, maintaining IRS-compliant receipts is crucial for accurate financial reporting and to close the books in a smooth way.

Increase accountability

Expense reports create a clear trail of who spent what, when, and why. This transparency encourages responsible spending among employees and makes it easy to address any irregularities. This will help foster a culture of financial responsibility throughout your organization.

Simplify the tax preparation process

When tax season rolls around, well-organized expense reports can reduce the stress and workload of getting your documentation ducks in a row. A comprehensive record of business expenses makes it easier to capitalize on deductions and complete tax forms accurately.

Save time and increase efficiency

Automated expense reports or well-designed templates can dramatically reduce the time spent on manual data entry and processing, which improves accounting accuracy. This allows your team to focus on more strategic tasks, ultimately optimizing productivity.

Here’s how to create an expense report with templating or expense management software.

Create a template in Excel or Google Sheets

If you want to take a more traditional approach to expense reports, creating a custom expense report template in Excel or Google Sheets is pretty straightforward. Follow these steps to set up your template:

1. Open Excel or Google Sheets. Start by opening your preferred spreadsheet application.

2. Select a blank spreadsheet. Choose a blank spreadsheet to begin your template. This gives you a clean slate to work with. (Or download a pre-made template, edit it, and fill it in.)

3. Customize the layout and labels. Edit the layout and add labels to match your expense reporting needs. Include fields like date, description, amount, category, and other details you regularly track. You might also create tabs to separate months, quarters, or departments.

4. Add formulas for automatic calculations. Include automated calculation formulas, such as summing up total expenses or calculating tax amounts. This speeds up the calculation process and reduces manual errors.

5. Save the template use. Once you’ve built out your template and added formulas, give it a descriptive name, like “Monthly Expense Report Template,” and make a copy for safekeeping. Share it with relevant team members and teach them how to use it. Make sure they know how to copy the template and fill it in properly so they don’t edit your main spreadsheet template.

Use expense management software

If you’re ready to automate your expense reports with expense management software instead of spending hours manually doing them, you’ll need to choose a platform. We recommend software like Brex that leverages AI and can serve as a single source of truth across all of your company's spending.

Expense management software automates the following:

• Capturing receipt images: Easily snap photos of receipts using a mobile app. The software will categorize and store it digitally — no more lost receipts or manual entries.
• Generating detailed expense reports: Automatically compile and categorize expenses into detailed reports for easy review and submission.
• Integrating with accounting software: Seamlessly sync expense data with accounting software for accurate financial records.
• Setting spending limits and expense policies: Establish and enforce spend controls and manage budgets.

By leveraging a spend management solution, you’ll simplify expense reporting across your organization. This helps you promote compliance, improve transparency, and make informed budgeting decisions. And it’s all automated.

Whether you run a startup, midsize company, or enterprise, you can’t underestimate the value of expense management automation.

Delayed submissions

Employees often procrastinate on submitting expense reports, creating a backlog of unprocessed expenses. This delay can cause cash flow issues for employees and make it difficult for companies to accurately track their financial position. Lost receipts and forgotten details further complicate the reimbursement process.

How to fix: Establish a regular submission schedule for expense reports. Implement automated software that allow real-time expense submission, including mobile apps for immediate receipt capture. Set up gentle reminders to encourage timely submissions without overwhelming employees.

Incomplete or inaccurate information

Expense reports frequently lack important details like business purpose, meal attendees, or itemized receipts. This incompleteness can lead to rejected claims, delayed reimbursements, and compliance issues. Inaccuracies in amounts or dates can also cause financial discrepancies

How to fix: Create a standardized expense report template with clear, required fields. Adopt software with built-in validation checks to ensure completeness. Leverage OCR technology to extract data from receipts, reducing accounting errors and improving accuracy.

Policy violations

Employees may unknowingly or intentionally violate parts of their company expense policy, such as claiming non-reimbursable items or exceeding spend limits. These violations can lead to financial losses and create friction between employees and management.

How to fix: Clearly communicate expense policies to all employees. You can also leverage a smart spend management process that enforces your policy rules in real time, and flags or prevents out-of-policy expenses at the point of purchase. Then regularly educate employees on policy updates and provide guidance during the expense submission process.

Manual data entry errors

Relying on manual data entry increases the likelihood of errors such as typos, misplaced decimal points, or incorrect currency conversions. These errors can affect reimbursements and skew financial reports and budgets.

How to fix: Train employees on proper data entry techniques. Some of the best business credit cards for employees integrated expense reporting tools with and use OCR technology for receipt scanning to minimize manual entry. You might also try to implement automated expense reconciliation processes to catch discrepancies early.

Lack of proper documentation

Failing to keep or attach required receipts and supporting documents can lead to denied reimbursements and audit problems, especially for expenses requiring detailed documentation for tax purposes.

How to fix: Educate employees on the importance of proper documentation. Use expense management tools with built-in receipt capture and memo features for immediate attachment after purchases. Set up reminders for missing receipts and implement an easy retrieval process for audits.

Inconsistent categorization

Inconsistent or incorrect categorization of expenses can lead to inaccurate financial reporting. This makes it difficult to analyze spending patterns, allocate costs to the right departments or projects, and make informed budgeting decisions.

How to fix: Develop a clear, comprehensive list of expense categories. Use automated expense reporting software with predefined categories and smart categorization features that learn from past entries. Regularly review and update categories to ensure they meet current business needs.

Fraudulent claims

While most employees try to do the right thing, expense report fraud does occur. This can range from inflating legitimate expenses to claiming personal expenses as business-related. Such fraud can be costly and damaging to company culture if left unchecked.

How to fix: Establish a zero-tolerance policy for expense fraud. Employ solutions with built-in fraud detection algorithms to flag unusual patterns or out-of-policy expenses and that maintain clear audit trails. You can even implement random audits to deter fraudulent behavior.

Inefficient approval processes

Overly complex or unclear approval workflows can significantly slow down the reimbursement process. This can lead to frustration among employees and delays in closing financial periods.

How to fix: Simplify and clearly define the approval workflow. Use automated workflow management to improve your accounts payable process with routing based on amount thresholds or expense types. Leverage mobile approval capabilities for quicker review and approval.

Brex offers a comprehensive solution that addresses the most common challenges in expense reporting, providing a streamlined, efficient process for businesses of all sizes. Here's how Brex fixes the issues we've discussed:

Real-time expense submission

Brex's mobile app enables instant receipt capture. For example, an employee at a business lunch can snap a photo of the receipt, input the meal details, and submit the expense before leaving the restaurant. The app automatically detects and extracts key information like date, amount, and vendor. Additionally, the Brex credit card also automatically generates receipts for charges with thousands of merchants, which means you don’t need a physical receipt at all.

Smart data capture and validation

Brex's OCR technology can read receipts in multiple languages and currencies. It can distinguish between subtotal, tax, and tip amounts on restaurant bills, ensuring accurate categorization. Brex can even flag discrepancies, such as a mismatch between the receipt total and the entered amount, prompting immediate correction.

Policy enforcement

Brex allows companies to set granular policies. For instance, you can set different meal allowances based on city tiers (e.g., $100 for tier 1 cities, $75 for tier 2). Brex will automatically flag expenses exceeding these limits and can even require additional approvals or justification.

Integration with corporate cards

When an employee uses their Brex corporate card, the transaction appears in real-time on the expense management dashboard. For example, a $500 flight purchase will instantly show up, pre-categorized as "Travel," ready for the employee to add trip details. It’s a seamless transaction-to-expense report process that vastly reduces manual data entry.

Digital receipt management

Brex sends smart reminders for missing receipts. If an employee has a card transaction for $100 at Office Depot but hasn't uploaded a receipt within 24 hours, they'll receive an automated reminder. All receipts are stored securely and are easily searchable by date, amount, or vendor.

Intelligent expense categorization

Brex's AI learns from your company's spending patterns. If employees frequently categorize Uber rides as "Travel," Brex will automatically suggest this category for future Uber expenses. It can also distinguish between similar vendors, categorizing Starbucks as "Meals" but Office Depot as "Supplies."

Fraud detection and prevention

Brex can identify potential duplicate submissions. For example, if an employee submits the same $50 dinner receipt twice, even weeks apart, Brex will flag it for review. It can also detect unusual patterns, like a sudden increase in taxi expenses for an employee who typically doesn't travel.

Automated approval workflows

Brex allows for multi-level approvals based on amount or expense type. Expenses under $500 might require only manager approval, for example, while those over $500 need both manager and finance team approval. Approvers can receive notifications via Slack, email, or text, and can approve or reject with one tap.

Comprehensive reporting and analytics

Brex provides customizable dashboards to help you understand your overall spend. A sales manager could quickly view a breakdown of client entertainment expenses by team member, helping to correlate spending with sales performance. The finance team may generate a report showing travel expense trends over the past 12 months to aid in budget planning.

Seamless integrations

Brex integrates with popular accounting software like QuickBooks and NetSuite. When an expense is approved in Brex, it automatically syncs with your accounting software, creating the appropriate journal entry. This accounting automation eliminates manual data entry and ensures your books are always up-to-date.

Brex’s automated expense reporting capabilities, turn a traditionally cumbersome procurement process flow into a smooth, automated workflow. Its cutting-edge features, including AI-powered categorization and real-time policy enforcement, not only improve operations but also unlock valuable financial insights. By increasing data accuracy and freeing up time for strategic tasks, Brex empowers businesses to make data-driven decisions and maintain tighter financial control.

Expense reporting doesn't have to be such a headache. The shift from manual processes to automated expense reporting solutions has transformed this essential business function into an efficient, user-friendly operation.

Brex stands at the forefront of this transformation, offering a comprehensive solution that addresses the common pain points of expense management. From real-time submission and smart data capture to policy enforcement and fraud detection, Brex's spend management platform is designed to make expense reporting faster, more accurate, and less burdensome for everyone. The results — time saved, improved visibility, better compliance, and more informed decision-making — will help your company gain a competitive financial advantage.

Ready to overhaul your expense reporting process and free up your team to focus on strategic initiatives? Schedule a demo with Brex today and see firsthand how Brex’s innovative platform provides the financial tools you need to drive your business forward.