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Automated Expense Management
Benefits of Rules-Based Expense Reporting

By Chrome River

According to 2012 research by the Aberdeen Group, the average organization spends 8% to 12% of its annual budget on travel, entertainment and employee reimbursable expenses. What's more, the very definition of employee reimbursable expenses is expanding to include such costs as court fees, membership payments, home office expenses and mobile payments. Perhaps this is why in a 2012 Travel and Expense Management Benchmarking study from PayStream Advisors, 42% of respondents reported a 13% increase in travel and entertainment (T&E) spending over 2011 levels.

For many businesses, the T&E category is second only to employee compensation as a controllable cost.

The Challenges Facing T&E Managers

This same PayStream Advisors study revealed that the two most significant challenges facing organizations are (1) manual data entry and inefficient processes and (2) the inability to enforce corporate travel policies, both cited by 39% of respondents.

What is interesting about the high response to inefficient manual processes is that only 13% of respondents, the lowest response rate for this question, cited the high cost of processing a report. It would appear that while some level of expense-report automation may ease clerical costs, the larger issue of streamlining approval processes has not been solved. These often impact more senior-level employees, where the costs are far higher and require more sophisticated automation.

More troubling is the inability to enforce corporate travel policies. This is where managers often sense missed savings opportunities due to a lack of visibility into spending and unforeseen risks such as lack of compliance with statutory requirements and exposure to expense reimbursement fraud. In fact, it is worth noting that the 2012 Global Fraud Study by the Association of Certified Fraud Examiners reported expense reimbursement fraud is nearing 15% of all fraudulent cases, up 10% over 2010 cases.

The Expense Policy as a Strategic Imperative

An expense policy is the starting point for managing these challenges more effectively. Compliance with local, state, national and international tax laws, often very different in scope and reporting requirements, means company travel and expense policies must be put in place and enforced to minimize corporate exposure to financial and operating penalties.

An expense policy not only sets the stage for potential savings and risk avoidance, it also improves employee morale as rules now become consistent and evenly applied. Employees know what is expected, and risks are mitigated. Companies also avoid being in the uncomfortable position of enforcing a policy after the expenditure has taken place.

Considering the Importance, Where Do You Begin?

Companies should start the process with the understanding that the only policies worth creating are those that can be enforced. Unless you have the commitment and means to ensure enforcement, the effort will never realize its full potential.

The next step is to understand the organization's culture and objectives. A good policy balances the needs of employees with those of the organization and, as a result, ends up encouraging the right kinds of behaviors.

Once this foundation has been determined, the ideal starting point is an analysis of the statutory requirements that apply to the business. Where is business being conducted? What are the tax and regulatory laws? What might cause compliance issues? For example, employee expenses may be within budget but the reports lack sufficient backup documentation or may be submitted late. IRS Accountable Plan requirements have specific rules regarding documentation and timely filings, and the penalties can be significant.

Beyond this, focus on simple changes involving big-ticket items; then, as usage increases, historical data can be analyzed to determine further areas of focus. Policies may need to be strengthened or even eased. After all, you may not need a rule where there is no problem.

Enforcement is the Difference between Success and Failure

Of course, a policy is viable only if it can be enforced. It doesn't do any good if employees don't read the policy manual or can't remember all the rules. The key, then, is to integrate the policies and rules into the expense management software, thereby simplifying what is required of employees and their managers. Here are three ways to support and encourage employee engagement:

  • Build training and just-in-time notifications into the software. Integrating triggers and rules for T&E booking and reimbursement provides guidance at the point of purchase, pre-approval or when filing the expense. It also applies rules consistently, which ensures that all parties are being treated fairly. For example, an employee might receive an alert that suggests alternate travel methods when booking a flight between certain destinations.
  • Support built-in, system-initiated auditing. Automated systems can generate audit instructions based on certain criteria. You can also use the software to help conduct random audits.
  • Provide exception handling. Remove frustration and provide a sense of control by including alternate approval or handling options. Rather than tell traveling employees that they cannot book the flight, give them the option of getting manager pre-approval.

End-to-End Expense Automation Ensures
Expense Policy Compliance

An automated expense policy contains a set of rules that integrates with software tools used to authorize, track, approve, process and reimburse employees for business-related expenses. Because it is programmed into every step of the process, managers gain visibility into areas where they can improve upon business processes and manage spending more effectively.

Based now on better access to facts and data, managers are able to negotiate more cost-effective travel arrangements, spot errors or malicious fraud earlier, issue better expense management rules and spending guidelines as well as identify opportunities to develop preferred vendor relationships.

This improved visibility is possible because the automated system was specifically designed to fit the organization's culture and objectives. The automated workflow mimics the existing company-approval process so that necessary approvals are gathered as activity progresses. Policy exceptions are caught before spending takes place. This has the effect of eliminating the back-and-forth that often happens when processing reports. By the time the approver receives a report, all the information is in place so they can easily make a decision.

Another benefit of automating expense policy administration is the de-personalization of the process. Enforcement comes from the system, which is based on approved rules, not from an email sent by an expense payables clerk. Removing the human element improves employee relationships and returns everyone's focus to the organization's objectives, where it belongs.

Measuring Success: What's the Value to the Organization?

Would your organization be more efficient if your employees complied with company expense policies? Do you think compliance to policies would help reduce expenses?

While it may be difficult to quantify savings from the outset, 59% of those responding to a 2012 T&E study published by Aberdeen Group cited "lack of compliance to T&E policies" as their top concern. This response rate registered a 55% increase over 2008 survey results.

As pointed out earlier, the difficulty of enforcement is one of two primary challenges facing organizations. The second, improving efficiency is also positively addressed by automating expense policy compliance. And these efforts have a solid financial benefit.

Organizations that process expense accounts through manual methods alone pay an average of $21.41 per report, while those using a fully automated system reduce the cost to $8.50 per report. Even when comparing the fully automated cost to the cost for those using "some automation" ($15.06 per report), full automation can save as much as 43%.

No two organizations are exactly alike. That's why expense policy success is dependent on fitting each policy to the unique requirements and culture of the organization.

Chrome River

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