Employee travel and entertainment expenses are often one of the top 2-3 expenses that an organization has, and can typically run to 10-12 percent of overall operating costs. As a result, one of the biggest financial benefits that organizations 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 organizations 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 organizations can experience by leveraging an analytics tool as part of their expense management solution.
Track and Minimize 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 organization 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 organization, with rogue bookings being made outside of approved channels. Organizations 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, organizations 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 organizations, 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 organizations 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 organizations. While any organization 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 organizations to track spend across a wide range of criteria – by type, vendor, location, business unit, etc. This enables the organization 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 organization’s value as a customer and secure the best rates with its vendors.
Once preferred rates have been negotiated, organizations 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 organization’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 organizations’ 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 organization allows expenses below $50 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 organization.
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 organizations 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.
Our choice of Chrome River EXPENSE was made in part due to the very user-friendly interface, easy configurability, and the clear commitment to impactful customer service – all aspects in which Chrome River was the clear winner. While Chrome River is not as large as some of the other vendors we considered, we found that to be a benefit and our due diligence showed that it could support us as well as any large players in the space, along with a personalized level of customer care.
We are excited to be able to enforce much more stringent compliance to our expense guidelines and significantly enhance our expense reporting and analytics. By automating these processes, we will be able to free up AP time formerly spent on manual administrative tasks, and enhance the role by being much more strategic.