9.3 Managing Expense Policies: Categories, Rate Determinants and Enforcement

The published objective is Manage Expense Policies. Policies turn a written travel and expense policy into checks that run while employees enter expenses.

Where policies live

Use Manage Policies by Expense Category (Offering: Financials, Functional Area: Expenses) and choose a category from Create Policy:

• Accommodations
• Airfare
• Car Rental
• Entertainment
• Meals
• Mileage (section 9.4)
• Miscellaneous
• Per Diem (section 9.4)

Three further policy options are set elsewhere:

• receipt required rules on each expense type (section 9.5);
• corporate card usage cash limits (section 10.2);
• conversion rate policies (section 9.5).

Building a policy

Most category policies follow the same pattern.

1. Rate definition.
   • Choose the limit type the category supports, such as a single instance limit or a daily sum limit. Entertainment also offers a yearly limit. Miscellaneous offers monthly, yearly and lifetime limits.
   • Choose single currency or multiple currencies. If a conversion is needed to check a limit, the conversion rate must exist in General Ledger.
2. Rate determinants. These are the variables the limit depends on:
   • Role, using a role type such as Job (Oracle's examples) or Grade (entertainment);
   • Location, using geographical locations;
   • category-specific determinants: attendee type for entertainment, gender for miscellaneous, and flight duration or domestic versus international for airfare.
3. Policy enforcement:
   • Policy violation warning, with a Warning Tolerance Percentage and an optional Display warning to user;
   • Prevent report submission, with an Error Tolerance Percentage.
4. Rates.
   • If you selected determinants, download the predefined rate spreadsheet, complete it and upload it.
   • Without determinants, enter rates in the Create Rates dialog box.
   • When the rates upload successfully, the policy status becomes Valid.
5. Activate the policy on Manage Policies by Expense Category.
6. Assign it to an expense type. Use the Policies tab of the expense type in Manage Expense Report Templates, with a start date and optional end date.

A policy that is Valid but not activated or not assigned checks nothing. This is a frequent scenario question.

How warnings and errors are calculated

Oracle's formulas are the same for every rate-based category:

• Warning amount = Policy Rate × (1 + Warning Tolerance / 100)
• Error amount = Policy Rate × (1 + Error Tolerance / 100)

• Warning: the employee sees it if Display warning to user is selected. The approver always sees it, either way. Warnings are tracked on the report.
• Error: the employee can't submit until the amount or the expense changes. Errors aren't tracked, because the report never gets submitted.

In the mobile app, some miscellaneous policy breaches ask the employee for a justification, so test both channels.

Category examples from Oracle

Accommodations

Oracle's example is a daily hotel limit in USD by job and geographical location, with 10% warning and 20% error tolerances. In the rate spreadsheet:

• an Accounting Manager gets 200 USD in San Francisco, 220 in New York and 185 elsewhere in the United States;
• an All Others row (200 USD) covers any role and location not listed.

A preferred hotel list is another way to enforce an accommodations policy.

Meals

The example uses a single instance limit by job: 120 USD for an Accounting Manager, 150 for a Salesperson, 180 for a Sales Manager, and 150 for All Others. Meals can also be itemized into food, tip and tax (section 9.2).

Car Rental

The example uses a daily limit by job, with warning and error tolerances like the accommodations policy.

Airfare

An airfare policy is a flight class policy. With Role as the flight class determinant, you can define which roles may fly which class, by flight duration and by domestic or international flight. For example, vice presidents flying more than 8 hours internationally may book first class, while shorter domestic flights must be economy. Airfare violations can be warnings or errors.

Entertainment

Entertainment policies also manage attendees and gifts:

• Capture attendee information, or capture the number of attendees only for lines above a specified amount.
• Require attendee amounts and at least one employee attendee.
• Show Employees and Nonemployees sections in Add Attendees.
• The rate determinant is attendee type:
  • Employee, which enables Role with role type Grade; each employee attendee's grade sets the limit, with All others as the fallback;
  • Nonemployee: public sector or private sector attendees.

Without determinants, the limit applies to the total receipt amount. Oracle's example has a daily sum limit of 200 USD with 10% warning and 20% error. A 250 USD dinner for two attendees exceeds the 240 USD error amount, so submission is blocked, even though each person's share is 125 USD. With employee or nonemployee determinants, the limit applies per attendee.

Miscellaneous

For items such as laundry, internet and parking:

• Eligibility rule: a Minimum Number of Days before miscellaneous expenses can be reimbursed, for example laundry only on trips of 5 or more days.
• Rate type: rate limit, percentage reimbursement, or percentage reimbursement with an upper limit.
• Limits:
  • single instance, daily sum, monthly;
  • yearly, with a period start month and day;
  • lifetime, the most an employee can claim from hire date onward, for example 2,000 USD.
• Determinants: role, gender and location.

Design tips

• Use All Others rows in every rate spreadsheet so no combination is left without a limit.
• Keep the tolerance bands realistic. Many warnings that approvers always see train them to ignore warnings.
• Pair policies with audit selection rules on policy violations (section 10.4). The policy flags the item, and the audit makes sure someone reviews it.