Corporate travel expense policies are created for a reason: to provide clear guidelines for travellers, which saves the organisation money by minimising excessive or wasteful spend. As with all regulations, these policies are only effective if they’re adhered to. To achieve this, organisations need to make it easy for them to be followed and hard for them to be sidestepped.
The first step to ensuring compliance is creating a travel and entertainment expense policy which is easy to understand, and easy to adhere to. While forward-thinking organisations are moving towards short policies (maybe just a couple of pages), others still have policies which read more like War and Peace. The main outcome of this is that it’s almost impossible to remember when making purchases if they are within policy. In addition, policies of this length can often be overly restrictive, making it more onerous for employees to stay within policy.
Even if a policy is clear and well communicated to employees, enforcement is still required, and while many employees won’t knowingly make purchases outside of corporate guidelines, there is still a sieable number (estimated at anything from 20-40% of travellers) who deliberately abuse the policy. Therefore, protocols and safeguards need to be put in place to make it easier to prevent these expenses being incurred, submitted and approved. For any company which relies on manual expense management solutions, enforcing expense policy compliance is at best incredibly time-consuming, and at worst impossible.
For a company without an automated solution, the only way that compliance can be verified without dramatically slowing down the reimbursement process is by auditing expense claims after the fact. However, even if just a fraction of all claims are audited, this could take many days of work each month, and will still leave them open to a significant risk of policy non-compliance through the majority of un-audited claims.
It’s clear that there needs to be additional measures put in place to both prevent these expenses from being submitted, as well as ensuring that submitted expenses can be caught and addressed.
Here are the three biggest reasons why manual expense reporting solutions make effective policy compliance an unrealistic goal:
Pre-approvals for flight and lodging bookings can have a major impact on an organisation’s ability to maintain compliance with travel policies. For companies that have manual travel booking and expense submission processes, this can be a time-consuming task, which can be easily bypassed, and can also result in prices rising during the approval process. Also, once the purchase has been made and submitted by the traveller, the company’s hands are somewhat tied in their ability to block or restrict reimbursement, making out-of-policy spend almost impossible to curtail.
Expense management software, especially when combined with corporate cards and travel agencies/online booking tools can enforce pre-approval for any purchase. Travel policies are loaded into both the booking tool and the expense solution, ensuring that the approver will only ever receive a pre-approval request if it is within policy (although companies can allow for a certain amount of tolerance over allowed amounts). This approach ensures that the two biggest parts of most organisations’ expense spend – flights and lodging – are always in compliance with policy.
2. Expense entry
When expenses are entered manually onto a spreadsheet, users are able to enter whatever amount they choose for a given purchase. Even if a company’s lunch policy is £20 per person, it’s still possible to submit an expense for £25, £30 or any other amount. This may be a legitimate expense, backed with a receipt from the restaurant, but it’s still out of policy. Regardless of whether the traveler is unaware of the limit, or is simply trying to push the boundaries of what they can get away with, the outcome is the same. In the vast majority of cases, the employer will simply absorb the additional cost, driving down profitability.
How this can be eliminated with an automated solution is by incorporating the corporate travel policy into the expense tool via a set of business rules. These rules can then automatically enforce parameters for each expense type (food, air, lodging, ground transportation, etc.), both by the amount and also the action taken – whether to prevent the expense from being submitted, or whether to flag it as out of policy. Therefore, when the traveler attempts to enter that £30 lunch receipt, this can either automatically be prevented from being entered (a “hard” stop), or the system can flag that the amount is in violation, but will enable the traveller to explain the reason behind it (a “soft” stop). Both of these provide major improvements in policy enforcement, and also keep traveller honest by reminding them of the policy’s parameters.
3. Expense approval
Even though the onus is on travellers to comply with expense policies, once the expenses have been submitted via a spreadsheet, the burden is then on the approver(s) to ensure that they are verified and valid, before forwarding approved claims to the finance team for reimbursement.
An approver may have a dozen or more reports who require expense approval on a frequent basis. These reports may be based in several countries, or be in different roles, which may impact the way that the expense policy applies to them. If it’s unrealistic to expect individuals to know every facet of the corporate expense policy as it applies to them, it’s highly unlikely that an approver will be able to recall the nuances of the policy as it applies to multiple people. The approver is also unlikely to have the time to refer back to the corporate T&E policy to verify the validity of each item. As a result, there is a strong chance that many expenses which are in violation of the policy will be missed, and will inadvertently pass through the approval process.
As mentioned above, a key benefit of automated expense solutions is the ability to enforce compliance at the point of entry. This also makes the approver’s job much easier. First, it can prevent out-of-policy expenses from being submitted. Second, if an expense item causes a “soft stop” violation notice, this is automatically flagged to the approver, and they can make an approval decision based on this. No more second-guessing, no more back-and-forth between employees and approvers to identify if the expense is valid.
While 100% policy compliance isn’t that practical in reality for any organisation with more than a handful of employees, any organisation which remains on a manual expense submission and approval process is likely to have major challenges in maintaining even a reasonable of compliance with company policy. Implementing an expense solution can more than pay for itself simply by staunching the flow of wasteful, out-of-policy spend.
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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.