Expense Management Best Practices

(Note:  This article was written for members of the Private Service Alliance, a membership community dedicated to the private service industry.  The content addresses expense management and receipt tracking from the perspective of private residences or estates with multiple departments and staff members.  However, these best practices can apply to households of any size.)

Expense tracking and receipt maintenance are vital components of effective household financial management. Defined as the process of “tracking and recording all costs associated with operating a household,” expense management is foundational to the financial health and wellness of any organization, including private households and estates.

With proper systems in place, expense management and receipt tracking can save time, reduce errors, and enhance accountability for households of any size, especially private residences with multiple staff members with varying responsibilities.

Without those systems, tracking expenses and maintaining receipts is messy, time-consuming and can lead to significant errors in financial reporting. Furthermore, there are serious repercussions for failure to accurately and consistently monitor and track household expenses, including potential tax consequences.

Continue reading to learn how to create an expense management system that will optimize and simplify expense and receipt tracking, foster consistency, accuracy, and prevent financial reporting errors.

SYSTEMS CREATE EFFICIENCES.

Systems create efficiencies, ensure accuracy, and save time. For expense tracking to be effective, it is important to create a system that addresses the unique needs of the private residence, one that simplifies the tracking process, and one that is easy to implement across all departments.

As you design an expense system, here are examples of key points to consider:

1. Organize expenses and receipts by department. Use the organization chart to look for departments that may have overlapping expenses and consider the best way to manage.
2. Decide how you will account for seasonal expenses, seasonal staffing, and special projects.
3. Ask senior staff if there are any special expense tracking requirements. For example, tagging charitable contributions to an organization or monitoring purchases to a particular vendor.
4. Create a procedure for off-boarding staff members with purchasing authority. Prepare to gather purchasing cards and eliminate their access to financial systems and data upon their exit.

Remember that consistent expense tracking and receipt management is vital to the financial health of the private residence. To ensure orderly, streamlined, and effective recordkeeping, consider implementing these best practices.

Best Practice #1: Centralized Receipt Management. A simple strategy to streamline expense management is to create a centralized email address for collecting all receipts.

1. Create a “Receipts” email address for each department, for example “Receipts – Children” or “Receipts – Auto Fleet,” and a general “Receipts” mailbox that will serve as the collection point for all departmental receipts and various proofs of payment.
2. Instruct staff members to snap a picture of receipts received at the time of payment. Then, immediately forward the file to the appropriate departmental “Receipts” email address. Note: Many vendors offer the option to receive a receipt via email. Request that staff members with purchasing responsibilities choose this service, as it saves time and reduces the likelihood of a lost receipt.
3. Designate a staff member from each department as the party responsible for monitoring the departmental “Receipts” email address. To avoid a lapse in continuity, appoint a second staff member as back-up support.
4. Forward all receipts from the designated department staff member to the general “Receipts” mailbox on a weekly basis.
5. Each week, the staff member responsible for departmental receipt collection should match receipts to corresponding expense. Note: Most accounting software (e.g., QuickBooks, WaveApps, Xero, NetSuite) allow users to attach receipts to expenses within the software.
6. Conduct a monthly audit of expense transactions to confirm all receipts have been collected. If any are missing, speak with the department lead and ask for a duplicate receipt.

TAX TIP: Remember that all receipts, invoices, bills of sale, proofs of purchase and any other documents that reflect payment in exchange for goods or services on behalf of the household and its primaries must be tracked and maintained on file for a minimum of seven years.

Best Practice #2: Use Department-Specific Accounts and Credit Cards. For private residences with multiple staff overseeing various purchasing responsibilities, separate departmental expense accounts can improve tracking and simplify the process.

1. Set up separate expense accounts for each purchasing department. Doing so will simplify expense management, receipt tracking, and ensure spending agrees with the department budget, if applicable.
2. Each staff member with purchasing authority should be issued a credit card with a unique card number that relates to their department expense account. Purchases made with these cards automatically flow to the proper department staff member and prevent unauthorized spending.
3. Maintain a card log reflecting important data like date of issuance, card number, three-digit security number on back, department and staff member. Acquire the signature of the staff member to acknowledge receipt of the card. Obtain their signature when the card is returned.

Best Practice #3: Mitigate Fraud with Spending Controls. Private estates or households with high-value transactions need spending controls to minimize fraud risk and to ensure compliance with household spending policies.

1. Enable purchase limit and travel notifications on all spending cards. If a transaction exceeds a predetermined amount or takes place in a foreign country, a senior staff member is notified. Notifications allow for real-time monitoring and intervention.
2. Set spending limits by department or staff member. Lower purchase limits minimize the potential for excessive or unauthorized spending.
3. Review all expense accounts on a weekly basis, paying close attention for unauthorized transactions, expense duplications and unusual spending.

Best Practice #4: Organize Receipts and Store in a Digital Vault. Store all receipts, credit card logs and any supporting account documentation in a digital vault accessible by at least two authorized staff members.

1. Create folders by month and year. File receipts and other supporting documentation according to the month and year the transactions occurred.
2. Consider organizing receipts by department, property, transaction amount, or special project.
3. Keep all receipts and related documents for a minimum of seven years for tax purposes.

Bonus Best Practices:

1. Consistent expense management leads to accurate financial reporting. Set weekly reminders to gather receipts and review expenses. Set monthly reminders to audit all expenses and their corresponding receipts.
2. Use technology to simplify and streamline processes. Use accounting software that adequately supports the financial operations of the household. Try receipt snapping apps like Navan, Tiny Scanner and ClearScan that integrate with accounting software for easy tracking.
3. Create transparency and easy-to-follow audit trails by documenting everything, including explanations about unusual expenses or circumstances in which spending policies were circumvented.
4. Perform regular evaluation of all expense management systems, policies, and procedures. Recognize when process improvements are necessary.
5. Communication is key. Make sure staff members understand the policies and their roles. Answer questions as they arise.

Effective expense tracking and receipt management are cornerstones of a well-run household or private estate. With thoughtful planning and execution of the best practices addressed here, expense management can be transformed from a cumbersome task into a seamless component of estate operations, supporting the operational efficiency of the household to the satisfaction of its principals.

To learn how we can help you manage your household expenses without the time commitment, schedule a complementary consultation call today:  https://calendly.com/forecastlefinancial/complimentary-consultation.