The Cost-Control Benefits of Analytics in Expense Management

Employee travel and entertainment expenses are often one of the top 2-3 expenses that an organisation has, and can typically run to 10-12 percent of overall operating costs. As a result, one of the biggest financial benefits that organisations can see is from implementing an expense management solution. From reducing the cost of expense report processing through automation, to leveraging a solution’s business rules capabilities to eliminate the potential for submitting out-of-policy (OOP) claims, there are a number of inherent ways that expense automation can enable organisations to control costs.

Some of the biggest cost-control benefits that expense management solutions can deliver, however, require deeper analytical insight – the ability to drill down into thousands or even millions of individual transactions to identify trends, spot anomalies or outliers, and gain meaningful and actionable business intelligence from complex data sets. The benefits that this insight can run into tens of thousands up to millions of dollars saved.

Here are some of the biggest benefits that organisations can experience by leveraging an analytics tool as part of their expense management solution.

Track and Minimise Non-Compliance

One of the biggest expense-related issues facing finance departments is non-compliance with expense policies. These incidents may range from individuals staying in a higher class of hotel or higher room standard than an expense policy allows, right up to office- or department-wide non-compliance for flight or other travel purchases.

If an organisation uses pre-approvals or a travel agency for travel purchases, it’s possible to stop a considerable amount of non-compliant spend before it’s even booked. However, a certain amount of booking leakage can still occur across almost any organisation, with rogue bookings being made outside of approved channels. Organisations that don’t employ pre-approvals or travel agencies often find that even greater numbers of employees submit travel that doesn’t comply with policies, as those in-built checks and balances aren’t in place.

Of course, many out-of-policy expenses may be of a relatively insignificant amount. They could also be for a valid reason, such as an expensive steak dinner for a high-profile customer, which goes far beyond corporate meal policy but is perfectly valid. In these instances, a quick discussion with finance or a line manager will often resolve the issue. However, if the amounts are significant, or a pattern of non-compliance appears, organisations could risk losing many thousands or even millions of dollars, and should address the problem on a larger scale.

The first challenge is how to detect these patterns. Simply poring over endless lines of individual expense submissions on a spreadsheet is impractical for most organisations, and often will not yield actionable data unless those reviewing it know what they are looking for.

In order to rapidly identify these patterns of non-compliance, an expense solution’s analytics program can provide an easy-to-understand visual dashboard, which clearly shows the volume of out-of-policy expense items, as well as the value of expenses that are out of policy. This data can be further explored, to identify the specific type, location and department of these expenses, and action can then be taken to understand why the non-compliance takes place, and subsequently bring the violators into compliance.

Negotiate Vendor Discounts

Airlines, hotel chains and car rental companies all offer significant benefits to organisations that commit to a certain level of spend with them each year. This can range from a few percent up to 30 percent for high-volume organisations. While any organisation can apply for preferred corporate rates, and may automatically receive the lowest discount tier, in order to receive deeper discounts, there needs to be evidence of the previous year’s spend in that category.   

Leveraging an expense management solution’s analytical capabilities allows organisations to track spend across a wide range of criteria – by type, vendor, location, business unit, etc. This enables the organisation to present information on a number of data points in order to secure favorable rates. For example, with hotel chains, it could show the number of nights and average cost per night across different markets for a range of different hotel chains, as well as geographical information about where hotels are used. For car rentals, it can outline total spend, where the rentals take place, and so on. Similarly, for airlines, multiple data points can be collected – routes, class of tickets, cost, etc. All of these data points are essential to demonstrate an organisation’s value as a customer and secure the best rates with its vendors.

Once preferred rates have been negotiated, organisations must ensure that spend volumes remain at agreed levels, otherwise they could be in breach of contract, and may lose the discounts. It’s therefore essential that employees book with these vendors, wherever feasible. An analytics solution can help the travel manager to check employees’ compliance with these agreements in near-real time and identify any trends or pockets of non-compliance, through a straightforward visual interface. This information can then be used to work with managers or individuals to encourage higher compliance rates, therefore ensuring that discounts remain in place.

Detect and Reduce Expense Fraud

Integrating an organisation’s expense policies into expense management solution’s business rules engine considerably reduces the potential for individuals to submit out-of-policy expenses and reduce fraud, simply by eliminating the possibility of entering potentially fraudulent expense items. At the very least, the items will be flagged as non-compliant, and individually will need to enter explanations into the expense system in order to submit them. However, some organisations’ expense policies may be set up in a way that could leave them open to a certain level of fraud, and in addition, collusion between expense submitters and approvers could be used to bypass automated fraud prevention measures.

Analytics tools can spot patterns and anomalies within expense data sets (both from individuals and groups, such as a department or employees whose expenses are all approved by a single approver) that could point to the potential for fraud being committed.

For example, an organisation allows expenses below 50 Dollars to be submitted without requiring a receipt. An individual or group of individuals could exploit this loophole to submit a series of receipts just under this threshold. Unless a sharp-eyed expense approver (who may have 10 or more subordinates’ expenses to approve) is able to remember similar patterns from previous expenses, this could be easily overlooked and the fraud will continue. However, using an expense management system’s analytics capabilities could flag this type of pattern to business analysts, who can then investigate more deeply to determine if the pattern is a coincidence or a determined plan to defraud the organisation.

The best analytics solutions can be configured almost endlessly to allow both corporate finance departments and business analysts to identify trends and discover partners and dependencies in large, complex data sets.  This information can be represented in straightforward, visual dashboards, allowing organisations analysts to easily spot patterns in expense spend, and draw data-driven conclusions that can be used to deliver meaningful insight to maintain costs. This is where the real financial benefits of expense automation can come through.