Expense reporting and electronic data exchange and archives in Russia – a big question with big room for efficency gains
Russian accounting and tax rules are much more relying for control on paper based documentation than in many western countries. There have been big improvments in Russia, and in certain areas Russia is up to world standards (such as electronic company tax declarations) but in expense reprorting there is still lots of effiency gains possible if the Russian laws and recquirments would be changed.
This short article goes through the main areas where in Russia additional effiency gains in the area of expense reporting would be possible and where already today companies could try to optimize some of the processes for expense reporting in the current regulatory environment.
Expense reporting and electronic data exchange
When a manager goes on a business trip, especially to a western country or using all the different electonic platfroms for hotels, tickets etc. many documents are provided in electronic formats. Unfortunatelly Russian laws do not allow to reduce the tax base with electronic documents but originals must be provided. So if a hotel is confirmed by a PDF attached to an email, the bill is in a PDF format and the bill is paid by credit card issues arise. It might be sufficient for the accountant to reimburse the manager for the expense but it is not sufficient to reduce the tax base. If it is expensed in a tax check it could come up as issue.
Currently there is no way that any electonic format is sufficient for tax purposes if it is exchanged with the employee incuring the expense.
There is a difference if the company has in place an approved electronic data exchange with the a provider of services such as a taxi company or a travel agency. These documents can be processed electronically for expense reporting purposes. Based on the type of document it then depends if actually the employee must provide any document or not. Not logical but it is this way. If an employee takes a taxi no document is needed, if an employee flies by aeroplane the ticket stup should be provided to be sure there is no issue with the expense report in a tax check.
To read more about the documents needed click here.
Expense reports and electonic archives and documentations
In many countries electonic documents and archives are sufficient to document expenses. This is sometimes, like in Finland as easy as taking a picutre of an expense (hotel bill, restaurant bill ….) and archiving this for e.g. like in Finland for 6 years. Having such an electonic archive is sufficent to deduct expenses from the tax base. Such an electonic approach naturally makes it also much more easy to process expenses. No documents need to be exchanged manually, no paper filings are needed, no paper sign offs are needed. A big efficency gain.
Not so in Russia for expense reporting. For expense reporting in Russia all expenses which an employee wants to have reimbursed and the company wants to deduct from its tax base must be available in physical format – and in the correct physical format. So e.g. a so called precheck – from a restaurant – is not sufficient. Read more here.
Same goes for e.g. hotel bills. Even if an orginal document, tax authorities could not allow the deducation of costs if the document has no stamp on it and to make it worse – if it is not translated into Russian -. So lots of issues and if you like to read about documents please read here.
Standard expense reports in Russia and the issues with the standard expense reports in Russia
The following is based on many years of experience in the accounting area in Russia. For sure it does not apply to all companies but for sure to the majority. And where it does not apply it is most likely due to a very innovative local accounting management, global standards which were imported or a very innovative general managment. But this in the area of expense reporting is more the exception than the standard.
How does a standard Russian Expense report look like
A standard Russian expense report is based on the form AO-1 which is the cover page of the report. It is in Russian. It contains a list of the expenses to be reimbursed and expenses to be allocated to e.g. a business trip. The document lists all in rouble amounts, is in Russian and is to be signed by the employee and the relevant manager with the signing rights for this type of document in the company. Attached to it are the list of original documents to be expensed or reimbursed through the expense report.
Language in Russian standard expense reports or why it is an issue
A Russian expense report is in Russian. This is normal but as some of the foreign managers in Russia do not know fluent Russian it creates issues if a foreign manager is to approve an expense report. Many of the attached expenses are also in Russian, if incurred in Russia and thus it might be difficult to approve if the language skills are missing.
The expense report is in roubles
Again, than an expense report is in rouble sounds normal. A Russian law obliges companies to pay to their employees only local currency. Thus if an expense is incurred in Euros it is to be reimbursed in roubles. Sounds normal up to a point. The issue here only arises that the currency exchange rate is not very well documented in the standard Russian expense report. It depends in all honesty on the accountant and how the expense report is prepared by the accountant. To read more and all the details about currencies read this article here.
No where is the issue for any manager. All this detail is normally missing in an expense report. Best case an accountant adds in the comment line the exchange rate used to convert a foreign currency to roubles.
And if there are many currencies, the currencies are fluctuating very much and there are additional documents provided to deviate in the calculation from the standard way – which is to use the Central Bank Rate of Russia – at the date the expense report is prepared then control gets difficult.
Expense report should be about the reimbursment of expenses but it is not only
Everyone would assume an expense report in Russia is about the reimbursement of expenses to an employee that he incurred when acting in a function for the company. And it is not only. An expense report file also contains the documents for expenses incurred by the company directly for the employee – such as the payment for a hotel room or a plane ticket.
Now these types of expenses are mixed. Some are to be reimbursed, some are just to document e.g. that the company incurred direct expenses for a business trip. The idea is that kind of the employee incures a debt versus the company when the company buys him e.g. a ticket and he must proved the trip then to forgive the debt.
And nowhere in the standard Russian document which is to be signed off and which forms the basis it is cleary marked in which category an expenese falls. Paid by company or employee. Thus it is not clear from the document actually how much money an employee should receive or received if already paid out and signing later. Well, but the employee and a manager are to sign off this document. Clearly total intransparency and no way to easily control for anyone. Neither the manager signing off nor the employee waiting for a document which clearly tells him how much money he is reimbursed. And worse – very often the reimbursement is just a payment to the bank account of the employee with no futher explenation.
And expense reports are paper based
The standard way that an expense report is prepared is that the employee applies to be refunded for expenses incurred or the employee just documents a business trip. How the employee does this – by handing over all expenses in a well structured and pre-sorted way or just by handing over an envelop is up to each company.
Then the accountant prepares the expense report. No rules are in place when this is to be done. There are rules in place that employees should hand in expense reports latest 3 days after the return from a business travel but these rules are also not really followed in many cases. Thus oftern there can be a substantial time difference between when an expense was incurred and when it is reimbursed. If the expense was incurred in a foreign currency and there are high fluctuations there can be substanial issues.
And the accontants prepare all these reports but in order to generate efficiencies they are often only signed off by the managment and the employees once per quarter and not each time a report is prepared. Thus there is even more time and less traceability between when an expense is incurred, when it is accounted for by and accountant and reimbursed and when it is signed off on paper.
Since all of this is on paper there are no systems where anyone can easily review all this. All sits most of the time only in electronic format in an accounting system like 1C where employees and managers do no have access.
The only way for employees in reality to check that all works out is to keep a parallel manual bookkeeping of the expenses they handed in and then to compare to what they receive back and if there are substantial deviations to question this.
Based on experience, this a black box overall where actually employees and the managers if they do not spend substantial time to check just have to trust their accountants fully. Not a state which is really acceptable for accounting.
How does Avansovka improve Russian expense reporting
Avansovka, is a long term project in multiple steps. First step is the app for Android and IOS to collect expenses on a mobile and to make them electronic when they are incurred. There are multiple steps thereafter to ease the the expense reporting by an employee, to simplify the work of an accountant and to make the control of expenses much more easy.
In the first step of the overall Avansovka project – the most flexible mobile application for expense reporting – the advantageous for the user are:
The big advanageous for an accountant are using Avansovka:
To read more about Avansovka click here.