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  • Writer's pictureYvonne Root

A Guide to Auditing Expenses – Part 2

Updated: Feb 28




Auditing Employee Expenses

In the first part of this 4-part series concerning auditing expenses in your construction business, I suggested you harness the power of your inner detective so you can find the evidence and solve the mysteries you encounter in your financial records.

 

As private investigator, Sherlock Holmes would say, “The game’s afoot!”  He stated his excitement and perhaps anticipation of what would be discovered in an upcoming investigation.   

 

If Sherlock set his attention to Auditing Employee Expenses, his magnifying glass  would reveal various aspects of the process, including:


Verifying Compliance

He would ask, “Are reported expenses in keeping with your company’s policies?” The types of things he would look for are:

  • The type of expense

  • The permitted amounts

  • The nature of the expenses

 

Authenticating Documentation

“What supporting documents (like receipts) are included?”

 

Matching Reports

“Do expense reports match with the company or general ledger?”

 

The Detective’s Tools

Sherlock used more than his magnifying glass. According to Tim Greer, writing for I Hear of Sherlock Everywhere, “At various times, from a jumble of sandwiches, flasks, cigar-cases, tobacco pouches, and pipes, the following items appear from Holmes’s pockets: a jemmy, [sic] screwdrivers, a compass, a measuring tape, a magnifying lens, and, by implication, even a can opener and a corkscrew.”

 

Pro Tool: Our office recommends using apps and software tools to aid in solving problems. Knowify is one of those tools. We recommend it for a plethora of reasons. One of those reasons is that our clients’ employees can easily capture and send verifying documents (such as receipts) in real time.

 

Solving the Case

Sherlock also knew the power of employing others – think Baker Street Irregulars, the young boys who were his intelligence agents. They knew the streets and could gather and provide the proper information.

 

Our team is “street-wise” about accounting issues. So, I asked for input from our team. Leslie, the Quality Assurance Manager for The Profit Constructors, gave me an example of how auditing for employee expenses solved a problem for a client.   

 

Leslie said, “Once while cleaning up the books for a new client, I discovered (after fully reconciling their company credit card with “x bank”) that there were monthly payments all year that did not post to their company credit card account. When I asked the client about it, I was told that those were payments to the owner’s personal credit card with the same bank. Not long after, I found payments to a second personal credit card, which the owner had given to an employee to use in making business purchases. The owner was completely unaware that all these payments to personal credit cards would need to be recorded as “owner draws” (taxable income to the owner) and that in order to reduce that “income,” he would need to provide receipts for the purchases so they could be properly recorded as expense reimbursements. Unfortunately, they saved zero receipts, mistakenly believing the credit card statement was enough. So, roughly 50k had to be counted as taxable income to the owner.”

 

“The same client had six employees with company credit cards. The employees were never told that they needed to turn in receipts for their purchases. Reviewing their credit card statements, I found that a few employees had up to 3 daily purchases at gas stations totaling $60 to $75 each. I pointed out to the owner that no matter how far apart their jobs were, using that much gas in a day would be impossible. In addition, each employee had multiple small $10 to $12 daily charges at gas stations. The owner said these were for water but was unaware that individual employees’ drinks (or meals) are nondeductible business expenses.”

 

What’s Next in This Auditing Series

Auditing Insurance Policies is the next segment of this series. It even includes an important tip concerning collecting Certificates of Insurance from subcontractors.

 

 

Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:

 

  • Clients and customers

  • Employees and subcontractors

  • Vendors and service providers

  • Governmental entities

 

Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:

 

  • Remain informed

  • Avoid hassles

  • Reduce risks

  • Be future-ready

 

Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735

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