Examination of operating expenses – 4 questions for which you should get answers

One of the professional activities I enjoy most is to go over a pile of invoices. Yes, you may find it funny. But I enjoy getting a feeling of the type of expenses a given company had and the amounts paid. It’s extremely important to wonder if such amounts make sense and if such expenses are really necessary, and select items for which clarifications shall be provided. Such an act maintains employees’ awareness of the periodical audits being held. When findings come up, a clear message is delivered: They should care about Company resources as if it were theirs. When I leave, I know they will keep that in mind, until we meet again.

There are four basic questions, for which many managements require answers:

• Is there any evidence of non-business expenses?
• Are there any business expenses that should be reconsidered or avoided, looking forward?
• Are we doing all we can, to get good prices for a given spec, scope or quality?
• Are there any expenses that require a different approval process?

Geographically spread corporations will generate higher benefit from such inspections, by covering most of their geographies once every two years or so. The primary purpose is to get answers to the questions listed above. The secondary purpose is to deliver a message, that company resources should be handled responsibly, and that misuse of company resources is often inspected rigorously, and likely to be detected.  On top of those, such inspections create a major opportunity to identify types of expenses that could be reduced by consolidating purchases. Do not overlook such opportunities.

Such a process is of great importance to companies experiencing a declining profitability. In such cases, it is possible that expenses-approval processes are too liberal, or that the level of expenses has not changed since the past, higher-margins periods. Such cases require occasional adjustments, and such an inspection process can trigger one.

The opinions expressed on this website are not suitable for all business circumstances.

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