Your Finance Team

Beyond The Receipt: How To Automate Your Expense Record

How well do you know what a receipt is?

If you’re a business traveler or someone who reviews a lot of expenses, you might feel pretty comfortable with the concept: a receipt is that little slip of paper that proves a transaction took place and is required to deduct a business expense. Simple, right?

Actually, it’s not. IRS rules are surprisingly vague on what constitutes the documentary evidence of a transaction. They don’t even define the word “receipt.” They care more about the total expense record; that includes not only proof of the transaction, but a description of the business reason for the expense. In short, the IRS requires evidence like a receipt, and then some.

That means the measure of an expense solution isn’t the ability to capture, store, or generate receipts. It’s the ability to augment a receipt with all the other data it needs, in an automated way.

I just need the receipt, right?

The IRS may not define the term, but we can. To paraphrase Black’s Law Dictionary, a receipt is the written acknowledgement of a completed transaction. We all know that much. As it pertains to expense reporting, a more precise way to think of the receipt is as one potential component of an “adequate record” of an expense.

In order to deduct an ordinary and necessary business expense, the IRS requires you to prove certain elements of the expense. They’re pretty clear on the specific requirements for different types of expenses, but in every case, your record must include a description of the business context.

A receipt is a good way to prove the fact of the transaction, but other types of records also work, including bills, credit card statements, and canceled (meaning cashed) checks. Receipts are generally preferred, but they’re not essential. The IRS understands that receipts are not always available, and doesn’t even require any evidence for non-lodging expenses under $75.

Regardless of how you prove a transaction, any piece of evidence that doesn’t include a business purpose is an incomplete expense record. An entertainment expense, for example, requires you to describe any “business discussion” that took place before or after the event. You’re not going to find that on the proof-of-payment slip.

More powerful than just capturing the receipt along with an expense is the ability to simultaneously capture all the other information you need as well. According to IRS guidelines, a complete expense record proves its amount, date, place, “essential character,” and business purpose. In practice, this can be accomplished by pairing a receipt (or other evidential source) with documentation showing the context in which the expense transpired.

You could compile all of this manually: approve an expense report, store the receipts, and hope your employee wrote enough down to hold up to scrutiny. In the age of automation, however, there’s a better way.

How real time automates a complete expense record

The context you need to prove an expense doesn’t start in one place. It’s scattered across your software. Expense reporting should tie it all together.

Imagine your expense software blending CRM data with information pulled from your travel management company, credit card feed, your employee’s smartphone geolocation, and more. These are the sources of data that construct the all-important business context of an expense. Automating access to them in the expense submission process allows you, the admin, to be more stringent about the minimum requirements of each expense.

You become able to require that every time an employee submits an expense, it has to meet your pre-set policy rules in order to be accepted. Suppose you create rules that require every expense $50 and over to include a picture of the receipt — and the business purpose, and the precise location, and the attendees in the case of a client meal. The employee will not be able to submit that expense until they include these details. (Complying takes very little time on their part. They just need to take a quick picture of the receipt, or select which client they’re meeting with from a drop-down list populated by Salesforce data.)

The end result is that every expense you review arrives in your system associated with all the information you’d need to substantiate the claim. Each expense basically serves as its own dedicated, audit-ready record — painlessly, reliably, and automatically.

Don’t fabricate. Automate.

It’s easy to confuse receipts for compliance and credibility. Don’t be confused.

For example, there is software out there that claims the ability to generate electronic receipts when one isn’t submitted with the expense. Those features actually do no such thing. All they do is reformat data from your credit card feed into something that looks like a receipt. Only non-lodging expenses under $75 are eligible for this treatment because those are expenses for which the IRS won’t ask for documentation anyway.

Even above $75, a simple receipt doesn’t confer any security. Why? Because the IRS doesn’t just want a receipt in the event of an audit. They want proof of the transaction plus the reason the expense is ordinary and necessary.

Real time ensures you’ll be able to provide all this information. Data will be captured more accurately, while expense records will adhere to both IRS regulations and your internal policy. Don’t spend time worrying about gathering receipts. Automate your expense submission rules and guarantee you’ll be ready for anything.


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