Every business requires auditing procedures to assess financial health. Expenses can be considered as anything that the company pays money for in return for income. These can be contractual expenses such as rent, invoiced expenses such as the cost of supplies or reimbursable expenses such as travel charges incurred by an employee. Audit procedures are designed to evaluate these expenses to make sure they are necessary and in line with internal policies.

Internal Controls

Companies have many types of internal controls related to expenses. Some invoices may require certain levels of signatures, and others may require a written contract. One of the first steps in an audit is to evaluate paid expenses against how closely they follow the internal controls. An offshoot of this step is for the auditor to recommend changes should he find loopholes within the controls that may allow an employee to abuse or misuse the process of paying expenses.


A reasonableness check involves checking expenses to see if they are in line with what is considered ordinary. For example, an invoice of $100 for a small box of pencils would not be reasonable and should raise a red flag. An additional reasonableness step is to make sure that only expenses that are necessary are incurred. Having a bill from two electric companies for one location should also cause an audit flag, as most locations only have one electricity supplier.


Expenses must be being received in a timely manner. The last thing a company wants is for expenses to be turned in for something that occurred a year or two ago. A wide time gap makes it harder for companies to make sure the expenses are legitimate and reasonable. The older the invoice, the harder it is to ensure it is legitimate.


Auditors will often randomly select invoices and ask to see all the original paperwork, including contracts if they exist, invoices and signatures. They compare all the original documentation against the amounts paid to find mistakes. Sometimes, this is a simple keying error that may require employee retraining, and in other cases, this could be a payment prior to work being completed.


A final check is to ensure that all vendors exist and are real businesses. One of the ways fraudulent transactions occur is for an employee to set up a nonexistEnt vendor and submit made-up bills. This may mean that the vendor has to exist in a business database, such as Dun and Bradstreet, or that verifiable proof of work is submitted with payment requests.



Daniel Cullinane CPA

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Daniel Cullinane CPA

25 Plaza 5 25th fl Jersey City NJ                                          phone 732-516-1648 fax 732-516-9778

MBA Taxation