Due in part to the financial reporting requirements of Sarbanes-Oxley—which this summer marked the fifth anniversary of becoming U.S. law—corporations have stepped up travel and entertainment expense report auditing practices, according to Business Travel News' fourth annual Expense Manager Survey. Consultants, however, said a lack of automation is preventing respondents from reaching true auditing best practice status.
T&E expense fraud remained common among survey respondents. This year, 36 percent of respondents said they caught an employee trying to commit fraud through their expense reporting system in the past two years, higher than the 28 percent rate seen in the last two years of BTN's survey. Among companies with less than $2 million in annual U.S. booked airline spending, about three out of every five respondents reported T&E expense fraud.
Meanwhile, virtually all companies now audit at least some expense reports. Only 5 percent of respondents said they audited none, compared with 11 percent who did so in 2006 and 26 percent in 2005. On average, companies this year are auditing 58 percent of expense reports, and 39 percent audit every one that employees file.
David Hillman, principal of Deerfield, Ill.-based Consulting Strategies, said the results reflected the high level of respondents still using paper- or spreadsheet-based expense reporting systems. Usually, auditing all expense reports is not considered a best practice, he said.
"If you're a small to midsize company, it might make sense to have a 100 percent audit, in some level of detail, because you don't have anything in place to catch obvious errors," Hillman said. "If you have an expense management system in place that incorporates rules, there's no reason to audit 100 percent."
With automation, Hillman said, auditing should be done at a statistically significant level with controls in place to determine which reports get an automatic audit, such as those submitted by senior management.
Coffee retail giant Starbucks, for example, monitors transactions with merchants prelabeled as high-risk, and conducts full audits on new corporate cardholders and senior executives, accounts payable manager Raymond Williams reported in a white paper recently published by JPMorgan Chase. Starbucks audits only a random 5 percent of its approximately 45,000 annual expense reports.
A newly adopted automated expense reporting process also improved auditing at Malvern, Pa.-based life science company PuriCore, according to senior financial analyst Marko Vukosavovic. "We have the ability to find out the way managers are approving reports," Vukosavovic said. "On a biweekly basis, we'll take a certain number of reports, and the financial analysts will go and review the reports."
Expense managers and consultants said it's also invaluable from an auditing perspective to be able to link corporate card and expense data. This year, 40 percent of survey respondents reported that their corporate payment system was linked to their expense system, a number that has been growing since BTN's survey began.
"Five years ago, it would have been a very bumpy road, but the ability of the card company to feed data into the more common solutions for expense reporting has become much more successful," said Bob Langsfeld, a consultant with the Incline Village, Nev.-based Corporate Solutions Group. "Then, the need falls upon the expense tool provider to take that data and make it more meaningful and effective, and products are getting more reliable and successful at doing that."
In addition to having better monitoring of data, it also is a way to get more business travelers to use their corporate cards, thereby giving more visibility into spending, according to Frank Dombroski, vice president of commercial card products for JPMorgan Chase.
"It's clearly got a huge benefit in being able to detect fraud and be a detriment to fraud and misuse," Dombroski said. "The real core value is driving employee behavior. Anytime you make it easier for them to do their job, it's easier for them to conform and comply.
Thousand Oaks, Calif.-based biotechnology company Amgen is one example of a company that used corporate card data to enhance its fraud-detecting capabilities (BTN, July 9).
Category manager Deb Blowers said the card data is used to isolate top spenders, those delinquent on bills or those writing checks with insufficient funds for review.
Redmond, Wash.-based Concur Technologies said its introduction of a single, linked online booking and expense tool also is improving auditing capabilities. With data entered at booking, it can immediately be checked against parameters to detect potential problems before the purchase is even made, said Raj Singh, Concur president and COO.
"When booking flows right into expense at the point of entry, you can ask why these things occurred and have the capacity to ask the traveler to reconcile that transaction," Singh said. "You have the opportunity to audit 100 percent of your expense reports without having to look at a single one of them."
Several expense companies also offer auditing services, but their usefulness depends on the auditing preferences each company has in place, Consulting Strategies' Hillman said.
"It's a mixed bag, because some companies totally control their audit procedures while others outsource a lot of their audit-related activities," Hillman said. "If a corporation wants to audit a certain percentage of reports, and the expense management systems can do it at a lower price than the corporation can do it, that's a reason to use them."