---
title: "Expense policy: who spends, who approves, what proof"
description: "A one-page expense policy, an approval matrix that routes by amount and refuses self-approval, and the receipt rule, on Northwind's first October requests."
canonical: "https://lopifi.com/learn/expense-policy-and-approvals"
---

# Expense policy: who spends, who approves, what proof

> A one-page expense policy, an approval matrix that routes by amount and refuses self-approval, and the receipt rule, on Northwind's first October requests.

Source: https://lopifi.com/learn/expense-policy-and-approvals
Part of: Lopifi — Planned: US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

---

**How should a startup write an expense policy and approve spend?** A one-page expense policy, an approval matrix that routes by amount and refuses self-approval, and the receipt rule, on Northwind's first October requests.

Until October every dollar Northwind spent arrived as a vendor bill. Then people started buying things: a hosting charge on a card, a box of shipping supplies on someone's own debit card, a hotel for a trade show. None of it comes through [accounts payable](https://lopifi.com/md/glossary/accounts-payable), and all of it is still an [Expense](https://lopifi.com/md/glossary/expense). An expense policy is the page that says who may spend, how, with what proof, and who says yes.

| Path | Who pays first | Owed until settled | Entry when recorded |
| --- | --- | --- | --- |
| Vendor bill | Northwind, later | The vendor | Dr expense · Cr 2000 Accounts payable |
| Company card | The card issuer, then Northwind | The issuer | Dr expense · Cr Credit card payable |
| Out of pocket | The employee | The employee | Dr expense · Cr Reimbursements payable |

Three ways a cost reaches the books. Each is a different liability until it is settled.

The policy does not guess which path applies. An employee choosing the wrong one is the most common source of a cost booked twice or not at all, so the form asks, and the answer decides the entry.

## A policy that fits on one page

1. **What can be bought.** Name what the company buys for people (a laptop, software seats, travel to customers) and what it does not (personal subscriptions, cash advances, anything that needs a contract signed).
2. **How people pay.** Who gets a card and with what monthly limit. Everyone else is reimbursed, and the policy says that employees are never to lend the company money for regular spend.
3. **What proof is needed.** A receipt for anything a person would have to remember, and a business purpose written down at the time. For a meal that means who it was with and why.
4. **Who approves.** A table of amounts and approvers, below. The system applies it; people do not apply it from memory.
5. **Deadlines and consequences.** Expenses are submitted within 30 days, and a missed deadline has a stated consequence, such as the card being paused.

The five parts of Northwind's policy.

## The approval matrix

An [approval matrix](https://lopifi.com/md/glossary/approval-matrix) ties the amount to the number of people who must say yes. Northwind uses three tiers. The second tier's ceiling is its capitalization threshold, $2,500, so anything that might become an asset passes through Finance before it is bought. One rule sits above the table: nobody approves their own request. That is [segregation of duties](https://lopifi.com/md/glossary/segregation-of-duties) at its smallest.

| Request size | Who must approve |
| --- | --- |
| Up to $250 | Budget owner |
| Over $250, up to $2,500 | Budget owner + Finance |
| Over $2,500 | Budget owner + Finance + Founder |

Northwind's matrix.

| Request | Amount | Submitted by | Approvers | Moved up? |
| --- | --- | --- | --- | --- |
| Safety gloves for the stockroom | $250 | Warehouse associate | Budget owner | No |
| Replacement barcode scanner | $180 | Budget owner | Finance | Yes |
| Laptop for the counter | $1,400 | Warehouse associate | Budget owner + Finance | No |
| Annual inventory software renewal | $1,200 | Budget owner | Finance | No |
| Racking add-on for the stockroom | $2,780 | Budget owner | Finance + Founder | No |
| Trade show booth | $3,900 | Founder | Budget owner + Finance | No |

Six real requests, routed. The submitter is dropped from the chain; if that empties it, the request moves up.

Approval posts nothing. A request is a commitment, not a liability, so the books move when the purchase does, and the entry is the same whichever path paid for it.

> **Tip.** Put the tier boundaries where a decision changes, not at round numbers. Northwind's second ceiling is the amount at which a purchase becomes an asset, so the person who decides whether it is an asset sees it before the money moves.

> **Tip.** Check the limit against the whole request, never the line. A purchase split into two to stay under a ceiling is the oldest way around a matrix, so write into the policy that splitting is a violation, and have the system flag two requests to one merchant on one day.

> **Tip.** Show the rule while the person types. A message at entry ("Meals need a guest and a purpose") costs seconds to fix; the same message at approval costs a round trip and a week.

## Receipts, and the line the IRS draws

For the tax deduction, the regulation asks for documentary evidence, such as a receipt, for lodging away from home and for any other expenditure of $75 or more. Below that line a record of the amount, date, place and purpose is enough. For travel and gifts the Code adds that the taxpayer must be able to show the business purpose and the business relationship of the person who benefited.

> “Any other expenditure of $75 or more except, for transportation charges, documentary evidence will not be required if not readily available.”

— [Treas. Reg. §1.274-5(c)(2)(iii)(A)](https://www.law.cornell.edu/cfr/text/26/1.274-5), When a receipt is required: lodging, and any other expense of $75 or more

> “the business purpose of the expense or other item”

— [IRC §274(d)](https://www.law.cornell.edu/uscode/text/26/274), Substantiation: amount, time and place, business purpose and business relationship

| Rule | Receipt minimum | Receipt for $40? |
| --- | --- | --- |
| Tax regulation | $75 | No |
| Northwind policy | $25 | Yes |

A $40 charge against the tax line and against Northwind's policy.

The policy is stricter on purpose. The tax line is the least a company can get away with; the policy line is the amount below which a person cannot reliably remember what the charge was a month later.

**Approve before the spend**
- Pro: The money has not moved when the no is said
- Pro: Budget owners know what is coming
- Con: Slow, and people route around it for the small things
- Con: Approvers rubber-stamp when the queue is long
- Best for: Rare, large or irreversible spend: a contract, a hire's equipment, anything over the top tier

**Limits first, review after**
- Pro: No friction for the small, frequent things
- Pro: The card limit is the pre-approval
- Con: The no comes after the money has gone
- Con: Needs a reviewer who actually reads the feed
- Best for: Day-to-day spend by trusted people on a company card with a limit

**Trust and a monthly look**
- Pro: Costs nothing to run
- Pro: Matches how a two-person company works
- Con: Nothing is checked until someone outside the spender looks
- Con: Does not survive the first hire
- Best for: A founder who is the only person spending, for the first few months

How tightly to control spend.

> **Mistake.** A policy that lives in a chat message and an approver who is also the spender. If the founder can approve their own card spend, the control is a form, not a control, and the first person to notice will be an investor's diligence team.

**Use case — A matrix with no one in Finance.** A five-person company has no Finance team to be the middle tier. The middle approver becomes the other founder or an outside bookkeeper, and the rule that survives intact is the one that matters: the person who spent is never the person who approved. When the founder is the spender, the second founder or the bookkeeper approves, and the approval is logged.

> **A policy is the rule, the matrix is the routing, and the receipt is the proof. Without the third, the first two are opinions.**

**Scenario — Challenge: route the six requests.** Six requests are waiting: gloves at the first ceiling, a barcode scanner from the budget owner herself, a laptop, the $1,200 software renewal, a racking add-on, and a trade show booth the founder wants. Use the matrix above and the no-self-approval rule to say who must approve each.

**Exercise — Route the six requests.** Northwind's matrix: one approver up to the first ceiling, two up to the capitalization line, three above it. Nobody approves their own request, so when the submitter sits in the chain, take them out; if that leaves no one, the request moves up a tier. Choose who approves each. Type it in the workbook at https://lopifi.com/playground.

## Where this lesson's rules come from

- [Treas. Reg. §1.274-5(c)(2)(iii)(A)](https://www.law.cornell.edu/cfr/text/26/1.274-5) — When a receipt is required: lodging, and any other expense of $75 or more (regulation)
- [IRC §274(d)](https://www.law.cornell.edu/uscode/text/26/274) — Substantiation: amount, time and place, business purpose and business relationship (statute)
- [IRS Publication 463, Travel, Gift, and Car Expenses (2025)](https://www.irs.gov/publications/p463) — Reimbursements, per diem, the 50% limit on meals and accountable plans (irs)

## Read further

- https://lopifi.com/md/startups/company-cards-and-receipts
- https://lopifi.com/md/startups/employee-expense-reimbursements
- https://lopifi.com/md/docs/domain/procure-to-pay
- https://lopifi.com/md/docs/domain/controls-and-audit

- **Track:** [Accounts payable](https://lopifi.com/md/learn/ap)
- **Lesson:** Lesson 15 of 21 — 9 min
- **Terms taught:** [Expense](https://lopifi.com/md/glossary/expense), [Expense report](https://lopifi.com/md/glossary/expense-report), [Approval](https://lopifi.com/md/glossary/approval), [Approval matrix](https://lopifi.com/md/glossary/approval-matrix), [Segregation of duties](https://lopifi.com/md/glossary/segregation-of-duties), [Reimbursement](https://lopifi.com/md/glossary/reimbursement), [Corporate card](https://lopifi.com/md/glossary/corporate-card)
- **Previous:** [Paying early, on time or late: AP and cash, AP · Lesson 14](https://lopifi.com/md/learn/paying-early-on-time-or-late)
- **Next:** [Company cards and reimbursements: coding, receipts and the statement, AP · Lesson 16](https://lopifi.com/md/learn/company-cards-and-reimbursements)
- **The course:** https://lopifi.com/md/learn