Travel and entertainment
spending can represent as much as 6 percent of all corporate expenses, and with
the large volume of travel transactions and growing globalization of business
it can be difficult to monitor such expenditures in a timely and effective way.
Not doing so leads to policy abuse, fraud and unforeseen T&E waste. Here
are six tips to reduce T&E waste and positively influence traveler
behavior.
Stop Duplicate Expense Submissions
T&E management
systems do a good job of discerning when an expense is recorded twice on the
same expense report. Things get a little more challenging when expenses are
duplicated across multiple expense reports for the same traveler, or when two
travelers claim the same expense on different reports. There are two common
scenarios for how this can occur.
In the first, a traveler
submits an expense report that includes an airline ticket. A month later, he can't
remember if he submitted that airline ticket for reimbursement. He can't find
his credit card receipt, but he can find his itinerary. He submits another
expense report for the current time period with his itinerary and claims the
expense as an out-of-pocket expense. While certainly erroneous, this isn't
necessarily malicious.
In the second scenario,
two or more travelers have dinner together. One pays for the meal with her
company card and properly expenses the meal. The other takes the itemized
receipt and expenses the same meal as an out-of-pocket expense. This behavior
is rarely a mistake, and travelers who abuse the system like this often are
misusing other company policies as well.
Companies that
automatically monitor their T&E transactions and report on (at least) a
monthly basis see a significant reduction in these behaviors. Erroneous
duplicate submissions still occur, but the errors are identified and the
erroneous reimbursements returned. More importantly, with increased
supervision, abuse drops to near zero as travelers understand that companies
are auditing spending patterns.
Identify And Address Misclassified Expenses
T&E management
systems now streamline the process for travelers to account for their expenses,
and make it easy for them by allowing receipts to be photographed and
electronically attached to reports.
They also present
drop-down menus that make it easier than ever to select expense types; it's a
lot easier to select "hotel," "taxi" or "airfare"
than it is to type in the expense category. The challenge comes when travelers
erroneously select an expense type or intentionally misclassify the transaction.
Misclassification errors impact the deductibility of an expense for U.S.
Internal Revenue Service reporting purposes, misrepresent the distribution of
spending and conceal expenditures not compliant with company policies.
In some cases, the purchases
are obviously non-compliant and the merchant category code (MCC) should be
blocked. In all cases, it is worth reviewing misclassified expenses to
determine if the purchases are necessary, but more than this, misclassified
expenses should raise important questions. Are these errors indicative of other
unwanted behaviors? Should policies change to address these scenarios?
Focus On Suspicious Out-Of-Pocket Expenses
Out-of-pocket expenses
are a fact of life in business travel. Not all taxis accept credit cards, many
European locales outside of major cities prefer cash as payment, and bellhops
don't take credit card tips or provide receipts.
Out-of-pocket expenses
also can be used to game the company expense system. Out-of-pocket expenses
often are used as a way to circumvent blocked MCCs on corporate cards or
accumulate expenses on personal credit cards in order to add points for their
own uses. While some of this behavior isn't malicious or fraudulent, it isn't
always in the best interest of the company.
To hone in on suspicious
out-of-pocket spending, identify statistically high out-of-pocket expense
claims. Airline tickets are a great example. These are usually indicative of
card spend that has been redirected to an employee's own credit card.
Also, look for
out-of-pocket expenditures on the same date and for the same amount as card
expenditures that have been expensed on other expense reports. This usually
indicates a duplicate submission.
To reduce fraudulent
out-of-pocket expenses, implement a monthly audit system to monitor 100 percent
of T&E transactions. Employee behavior will change once they know the
chances for exposure are greater.
Beware Of Weekend And Holiday Purchases
Weekend and holiday
purchases are a tricky outlier in the T&E game. Today's modern road
warriors often are expected to begin and end travel on weekends and holidays.
In most cases, weekend and holiday travel is nothing to worry about, but the
timing of a purchase can tip the scale in the direction of suspicious when
considered with other indicators. Visits to the grocery store during the week
listed as entertainment might be a sales representative purchasing items for an
office breakfast for a client meeting. But when the grocery purchases are made
on the weekend and classified as office supplies, suspicion increases. Is this
traveler doing weekend grocery shopping and putting it on the company travel
card?
Keep An Eye On Lodging And Meal Outliers
Hotel and meal prices
vary widely by city and country. The key to cutting waste and abuse around
hotels and meals is to understand what is normal for your travelers and to spot
when such expenses are wildly out of balance with the rest.
Here are three methods
to help you keep an eye on lodging and meal outliers:
Benchmark your travelers
so you know what is usual for lodging and meals by city. This requires
cataloging all hotel stays by night and understanding the itemized expenses.
Separate lodging and related taxes from other expenses at hotels, including
meals and Internet. If a traveler's lodging expenses are consistently higher
than their peers, you may want to ask why.
All meals should be
cataloged, and be sure to identify the number of participants for each meal.
For instance, the sales team when entertaining clients may spend more on meals
when traveling than marketing or operations, but if a salesperson's meal spend
is just as high for meals eaten alone, there may be an issue.
Take specific
expenditures by traveler and compare them with the norms indicated by the
overall traveler data. You will be able to see which travelers have higher
spending patterns than your norm, and allow you to take steps to understand
why.
Don't Forget About Receipt Limits
While the IRS
requirement for receipts is $75, every company has its own policy for the
minimum receipt level. In the United States, most companies set this limit at
$25, and this limit usually varies to some degree by country and/or region
elsewhere in the world. We've observed that abuse of the receipt limit is a
strong indicator of abuse in other areas of expense reporting.
While the spending limit
is negligible, especially in comparison to overall spending, it is useful for
companies to monitor expenses under the receipt limit and look for patterns
that may indicate waste and abuse.
This report originally appeared in the June 16,
2014, edition of Business Travel News.