News & I nformation for S enior Finance Executives What ... · intimidating to take a look at senior management’s purchases for fear of bringing an executive’s practices to light,

What CFOs Need to Know About Expense ManagementHow automation reduces fraud and streamlines reimbursement

N e w s & I n f o r m a t i o n f o r S e n i o r F i n a n c e E x e c u t i v e s

www.cfo.com

What CFOs Need to Know About Expense Management is published by CFO Publishing LLC, 295 Devonshire Street, Suite 310, Boston, MA 02110. Kim Zimmermann edited this collection.

Copyright © 2017 CFO Publishing LLC. All rights reserved. No part of this book may be reproduced, copied, transmitted, or stored in any form, by any means, without the prior written permission of CFO Publishing LLC.

What CFOs Need to KnowAbout Expense Management

CFO PUBLISHING | www.cfo.com 3

CONTENTSFOREWORD

Automating T&E Spending Has Its Rewards 4

TRACKING T&E

Where Travel Dollars Go 5

METRICS MATTER

Making the Case for T&E Automation 9

BRINGING ORDER

Gain Control Over T&E Expenses 11

CONCLUSION

The Move to More Efficient T&E Spending and Reimbursement 13

What CFOs Need to Know About Expense Management



Automating T&E Spending Has Its Rewards

FOREWORD

Travel and expense (T&E) spending typically ranks closely behind wages and sales-and-marketing outlay when it comes to controllable costs. Finance chiefs who automate travel expense management and reimbursement can potentially save their companies a substantial amount of cash.

When companies fail to manage travel and expenses, it impacts the bottom line. According to the 2016 Global Fraud Survey by the Association of Certified Fraud Examiners, expense reimbursement fraud costs the average company $40,000 per year.

With T&E representing such a large percentage of the average company’s budget —the Global Business Travel Association estimated U.S. T&E spending reached $310 billion in 2015 — the systems used to manage expense reporting have an even greater impact on a company’s overall financial well-being.

This eBook will explore how agile internal and external processes, supported by intelligent tools to flag potential fraud and employee error, can help mitigate risk and save your organization money. It will also explore how automation provides the building blocks to support T&E policies that are

easy for employees to understand and simple to for finance to enforce.

Savvy CFOs are choosing solutions that can give them all-in-one visibility over travel, expense, and other types of spend. Managing T&E effectively requires automated systems that can provide a broader view of overall spend across departments and functions.

Finance chiefs should partner with expense automation solution providers to establish and track joint success metrics tailored to the needs of their organizations. This helps to develop best practices, ensure optimal compliance and maximize the value of travel and entertainment spend.

Topics addressed in this eBook include:

• A look at the causes of expense report mistakes, including intentional fraud and human error.

• The role automation plays in accurately managing T&E expenses and speeding the reimbursement process; and

• The benefits of tracking travel reimbursement metrics versus independent benchmarks. g



Tracking T&E: Where Travel Dollars Go

Corporate executives need to be keenly aware of the importance of travel and entertainment expenses, particularly within the financial services industry, which requires at least some level of spending in order to generate new business leads. Taking a prospective client to a golf outing or hosting a dinner isn’t out of the ordinary. In fact, these costs are often crucial to signing new business. But what happens in Vegas, from a T&E perspective, doesn’t stay there. It follows you home.

Although savvy execs might have an eye on the bottom line, the question must be raised: are all of the organization’s internal departments effectively monitoring every expense, and would they catch

something that may on the surface appear to be valid, but in reality is an error, or even worse, fraud?

Take the example of the employee who worked for a business with an extensive P-Card (purchasing card) program. This individual had an interesting side hobby raising livestock. One weekend, while attending a cattle auction, he ended up winning a bid, but only had his corporate credit card in his wallet at the time. Until this was flagged, the cow was listed as a valid business expense. Yes, this is a true story.

Although it’s a great cocktail party narrative that is certain to garner chuckles, these types of errors and



fraudulent acts are unfortunately a reality. If left unchecked, they can add up quickly.

Even if an organization has established policies, along with a clearly defined document that everyone must sign off on when the actual transactions come through, it’s extremely difficult to match the expenses with the descriptions (cash transactions vs. corporate credit card purchases vs. out of pocket expenses, etc.), which are usually vague and don’t always map directly to the policy.

In the financial services industry and others in which travel is a crucial aspect of employees’ jobs, this immediately rises to the top as an area of risk for the organization.

In addition, because this facet of the business is highly subject to manual controls, it speaks volumes about corporate behavior, employee values, and overall culture. If there is a high level of non-compliance in T&E as witnessed in some transactions, what does this say about the culture that executives have cultivated?

Overall, T&E is enormously meaningful in many ways. So how can executives make sure that risk, compliance, and audit departments are mitigating risk? Automating the process helps along with leveraging technology and having a record of evidence so that organizations can identify control breaches before problems escalate and become material.

If an organization has numerous departments that submit expense reports for travel, dinners, hotel stays, and so on, the task of implementing a solution to automatically monitor for red flags can seem daunting. Although it might be even more intimidating to take a look at senior management’s purchases for fear of bringing an executive’s practices to light, establishing the tone from the top is the most effective way to let everyone know that all T&E expense claims are monitored, even when it comes to the c-suite. This approach serves as a deterrent for non-compliant behavior.

And once a data analytics program is implemented



within one unit of business, such as T&E, and applied to one department, such as senior management, it’s relatively easy to branch out into other areas and groups.

INACCURACIES AND HONEST MISTAKESOne error that often occurs is when employees are submitting the same expense on both the corporate card as well as their personal card at the same time. Another example would be two employees who have attended the same event or dinner and both accidentally submitted a claim. Monitoring this closely would show that the employees spent money at basically the same restaurant during the exact same time frame.

FRAUD AND ABUSEAlthough the notion of a fraudulent employee is cringe inducing for executives within any industry sector, businesses that encourage employees to entertain existing and prospective clients are especially prone to fraud within the T&E expense department. This characteristic, common among the financial services industry, creates an even greater need for continuous monitoring technology.

Airfare, hotel, and ground transportation are all areas that must be looked at closely. The airfare booking class is a great place to start as every organization has its own internal controls around whether or not employees are

permitted to book a business class flight. Simply checking to make sure that the classes are appropriate is a measure that will reveal potential abuse. Another issue to monitor for is people who are constantly making late bookings, which tend to be significantly more expensive.

Other issues within the theme of airfare include repeat destinations and one day trips, which could point to an employee commuting by air as opposed to taking a flight and staying for more than a day at a time. It’s also necessary to check airfare expenses that are less than a certain amount, which could identify instances where an employee is charging up additional fees, such as excess baggage, premium seats, etc. These fees can add up to enormous, unnecessary costs.

With regard to car rentals, mileage, and gas expenses, people can be foolish, be it accidental or fraudulent. For instance, if an employee is claiming mileage for a two hundred mile trip at X number of cents per mile, but is also claiming on the expense report that he or she has a car rental that includes gas expenditures, you have someone who is attempting to take advantage of the system.

Similarly, hotel stays can be categorized and analyzed by city. Expense amounts should be reviewed by location as part of a standard analytic in order to recognize whether



or not the claim makes sense within the context of the location. For example, if an employee is staying in Manhattan, the cost is going to be higher than if he or she were staying in Jacksonville, Florida. With the right tools, an organization forces people to be far more specific in terms of individual behavior, benchmarking against not only the city itself, but some of the employee’s colleagues who also frequent the same city.

REGULATORY COMPLIANCEAn area that has become especially significant in recent years is regulatory compliance with the Foreign Corrupt Practices Act (FCPA). The U.S. government has increased scrutiny of corporate practices abroad and management must be made aware of any potential suspicious activities that indicate possible violations at an early stage so that a direct focus can be placed on high-risk targets for regulatory enforcement.

One violation, no matter how minor it may seem, can carry significant fines and damage an organization’s reputation. The Securities and Exchange Commission is now settling with companies that self-report violations in a timely fashion under non-prosecution agreements, which creates even more incentive for senior management to ensure that all T&E expenses are valid and spent within regulatory guidelines.

The cost of lost revenues or regulatory enforcement penalties is too steep for executives to ignore or leave to manual processes, as human error can impart

significant risk to the business. Uncovering potential problems certainly takes a strong ethical mind and a bit of spine, but when the data is speaking for someone, their argument becomes irrefutable. g

i Automation can flag inappropriate items on an expense report, whether the error is unintentional or deliberate. By leveraging technology, the finance team can identify items that require further review before they escalate into a problem.

i In industries where travel is a major requirement, or positions such as sales where travel is a crucial aspect of a job/role, the potential for travel reimbursement fraud is a prominent area of risk for an organization.

i One of the biggest issues, which automation can readily address, is employee error, such as accidentally submitting an expense twice. Deliberate fraud and abuse can also be detected early with the proper systems and checks in place.

CFO SUMMARY



Metrics Matter: Making the Case forT&E Automation

Business travelers are the face of your company. They’re the ones who go out and meet the clients, roll up their sleeves, get down in the trenches, and close the deal. It pays to keep them happy while they’re away from their families, and one way to do that is to reimburse their expenses in a timely manner. When companies fail to do this, it costs them — in more ways than one.

Research by the benchmarking firm APQC found that the fastest 25 percent of 1,069 public companies turn around

an expense reimbursement in four days or less, while the slowest 25 percent of companies take nine days or longer. Somewhere in America, those companies’ travelers are sitting impatiently in hotel rooms, waiting for payment, accruing credit card interest and bad attitudes.

There’s also tremendous disparity in what companies spend to process travel and entertainment expenses. The 25 percent of companies that spend the most pay out 0.04% of revenue annually or more to process



reimbursements, while the top 25% spend 0.01% of revenue or less. That’s right — the bottom quartile is spending four times more than the top quartile to complete the same process.

In fact, APQC has found that the bottom 25 percent of companies are paying at least $89,000 annually to FTEs involved in expense reimbursement, while the top 25 percent spend, at most, $50,000. These figures reflect total cost, which includes salaries, benefits, systems, and overhead.

Thankfully, there’s an easy fix — a growing market of cloud-based technologies that can streamline the entire expense documentation, submission, and reimbursement process and dramatically reduce both cycle time and costs. Combined with clear policies, these systems have the added benefit of reducing the possibility of fraud, which unfortunately for shareholders has been known to find safe haven within lax T&E operations.

Workflow automation reduces the hands-on time required by finance personnel to process T&E reimbursement requests, freeing finance staff to focus on other priorities. When adopting an enterprise-wide T&E system, large organizations can customize permissions and allowances for various employee levels and travel destinations. Many electronic workflow systems accept scanned receipts and can be set to flag only outlier charges for auditing, placing the burden of approval back on managers and relieving highly paid accountants of the need to reconstruct a traveler’s paper trail.

Some companies issue corporate credit cards with strict limitations, asking employees to sign usage agreements up-front. Clarifying policies with written guidelines creates a culture of accountability in which employees know what is expected of them, so they can spend accordingly and ensure complete and accurate documentation.

If you’re curious about how many employees stay in three-star properties versus how many opt for the glamour-free low-rent hotel chain, that information can be at your fingertips, too. Wonder how many times the

widget demo team canceled flights at the last minute this quarter? Hmm, maybe there’s a pattern there.

Companies that establish clear policies for how employees can book and pay for travel — and which vendors to use — can often negotiate discounts and rewards with hotels, rental car agencies, and airlines. At the same time, the system captures detailed information about how to reach employees in an emergency.

The goal of automating the T&E function isn’t just to save the company time and money, but to create a realistic travel policy that is people-friendly, keeps employees honest, and gets people reimbursed faster. After all, life on the road isn’t easy. Travelers do it because they are dedicated. The best companies help them do it efficiently, and make it worth their time. g

i The top quartile of companies reimburses business travelers in four days or less, while the bottom quartile takes nine days or longer. Automation can speed the process, resulting in happier travelers.

i The bottom quartile of companies also spends more to process expense reports, while for the top performers automation reduces the hands-on time required by finance personnel to process T&E reimbursement requests. Streamlining the reimbursement process enables the finance staff to turn their attention to more strategic initiatives.

i By establishing clear policies for how employees can book and pay for travel — and which vendors to use — companies can often negotiate discounts and rewards with travel partners. Automation and data analysis can bring these potential savings to light.

CFO SUMMARY



Bringing Order:Gain Control Over T&E ExpensesEvery month a bound volume of credit card bills lands with a thud on Dan Marchetti’s desk. “I look at every one of them,” says the CFO of Urschel Laboratories, a 100-year-old family business that dominates the industrial food-cutting business. Marchetti estimates that, adding interest and fees, each expense form costs about $15 to process.

Urschel’s travel-and-entertainment spending is just a bit less than 10% of its total annual operating expenses. T&E expense management is generally viewed as a hassle, both for employees collecting receipts and for accounting departments. “Tracking receipts is not the average salesperson’s thing,” says Aberdeen senior research analyst Christopher Dwyer.

Neglected receipts can sit in desk drawers until the third Monday of the following month in which the expense was incurred after which, he says, “they don’t get reimbursed.”

With that in mind, Marchetti wants to implement a system to automate reporting, which can reduce the processing costs associated with expense reports and allow organizations to gain greater visibility into their T&E spending.

T&E can be particularly costly for companies that fund corporate credit-card programs. Take Transmarine Propulsion Systems, a small private firm that sends crews all over the world to maintain diesel engines on



oceangoing cruisers. Two years ago, T&E expenses became an issue when employees began using their corporate credit cards for personal purposes and then couldn’t cover the charges.

“It was a drain on finance,” says Transmarine president Shane Roeser. “We had to pay the credit-card company and couldn’t always get money from the employee.” Transmarine tried cutting checks for anticipated employee expenses, “but then the guys would run out of money and there would be no way to get money to them easily,” recalls controller Angela Bauer.

The company eventually introduced a prepaid expense card. “It simplified our expense-management process quite drastically and gives instant visibility into our spend,” Bauer says.

That transparency is key. “Visibility in T&E,” says Aberdeen’s Dwyer, “allows finance to control the future.”� g

i Employees and employers often view managing and processing T&E reimbursements as a hassle. Salespeople are not always focused on the critical details, such as gathering receipts and submitting reports on time.

i Options such as corporate credit cards can present challenges and risks, as some employees use the cards for personal expenses and cannot always cover the costs when the bill is due.

i With systems and transparency, finance can gain greater control over how T&E dollars are spent as well as over the reimbursement process.

CFO SUMMARY

SOURCES: “T&E Expenses: What Happens in Vegas Does Not Stay There,” Chris Stewart-Smith, CFO.com, September 17, 2013. Copyright © 2013 CFO Publishing LLC.

“Travel Expense Management Tortures Small-Biz CFOs,” David Rosenbaum, CFO.com, January 22, 2013, Copyright © 2013 CFO Publishing LLC.

“Metric of the Month: Travel Reimbursement Expenses,” Mary C. Driscoll, CFO.com, October 13, 2015. Copyright © 2013 CFO Publishing LLC.



Many finance functions are undergoing a type of transformation. CFOs across the country are leading the charge to improve efficiency and increase growth. CFOs understand that every element of control they have over their organization can serve as an advantage.

One area in particular that CFOs are focusing on improving is expense management. Travel spending, specifically, has always been a source of tension with CFOs. T&E is a necessary part of business, but the lack of transparency into travel spending is often a cause for concern. CFOs find it difficult to manage budgets when employees are on the road dealing with a range of costs. Expense reports thatare turned in late make reimbursement difficult.

Employees are overwhelmingly compliant, but fraud does occur. The majority of employee fraud occurs in procurement, payment, and expense transactions. CFOs should clearly define ethical policies concerning fraud and then monitor and analyze transactions in these common areas to track any potential schemes.

All of these efforts to transform the finance function and regain a control on spending will help the finance function spend more efficiently and encourage growth within the organization.

An expense management system that encompasses travel and entertainment expenses, along with related spending, is critical in providing an overall view of how departments are handling their travel budgets.

Partnering with an expense automation solution provider can streamline this process and ensure success by tracking the metrics to build on best practices going forward.

Key takeaways from this eBook include:

• The top performing companies are using automation to carefully manage travel spending as well as speed reimbursements to keep business travelers focused on meeting client needs and closing deals.

• With greater visibility into the process, finance chiefs can negotiate better deals with frequent travel partners such as hotels and airlines and enforce compliance of group rates and travel perks.

• Savvy finance teams are evaluating cloud-based solutions to provide the flexibility and data analysis needed to streamline the process in order to focus on more strategic activities. g

The Move to More Efficient T&E Spending and Reimbursement

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Documents

News & I nformation for S enior Finance Executives What ... · intimidating to take a look at senior management’s purchases for fear of bringing an executive’s practices to light,