The Coca-Cola Company expects to save as much as $10 million over the next five years in payment and expense management, mainly by quickening payments and enhancing productivity through reduced human scrutiny on expense report approvals.
Despite the reduction in manual sleuthing, a new emphasis on automation and data examination means Coca-Cola would be more, not less, likely to detect fraud, said Coca-Cola TravelSmart department manager Peter Pearson, who spoke here at an Association of Corporate Travel Executives forum.
Throughout much of this year, Coca-Cola reviewed and revamped its approval processes with an eye on the proverbial 80-20 rule. Timed with a September upgrade of its Extensity-provided expense management product, Coke decided to no longer mandate managerial approval for every expense report; instead, it now uses sophisticated business rules to enable the technology to flag the minority of reports that require examination.
The beverage giant's 5,800 travelers submit more than 130,000 expense reports per year.
"The vast majority of expenses through the expense management system are legitimate and reasonable--and the core of our employees are professional," said Pearson. "Most employees are not thieves, so why should they be stuck in a process that needs to be focused on the people who aren't doing right?"
When Coca-Cola replaced manual processes with Extensity's software in Jan. 2004, the cost to process each expense report fell to around $10 from about $30, Pearson said. Formerly a corporate librarian, he was later hired to "take stock of where we were and determine where to go next." Thanks partly to a third-party audit of expense management procedures, Pearson identified human error in approving reports as a key generator of waste.
He said just .05 percent of expense reports were typically rejected, even though the audit found a significant number of out-of-policy activities including extensive use of cash, reimbursements for retail purchases and personal charges to the American Express corporate card. Though Coke mandates use of the corporate card, Pearson's research found that other cards or cash were used for 10 percent of expenses--half of which for air, car or hotel. He identified 60,000 personal expense transactions using the company card as well as an inordinate number of "miscellaneous" expenses.
Among the most alarming charges were one for plastic surgery, a $1,500 purchase at Target and a nearly $8,000 charge at Tiffany. These, of course, were not reimbursed, but nonetheless violated policy.
"We decided to move to 'best in class' processes, and to include them in an upgrade" to Extensity's Web-based interface, said Pearson, joking that this allowed him to blame the new processes on Extensity.
Among such other initiatives as allowing receipt images instead of paper, Pearson installed approvals by exception. Now, the vast majority of expenses "go immediately for payment." This was acceptable because of what he called "forensic auditing," or back-end analysis that focuses on the small number of violations that slips through.
Coca-Cola even hired an expense and travel data analyst, "someone who does nothing but help us analyze the data," said Pearson. "It's a sign of where we're going. To me the quality is in the data, not the process." This analyst joins with the third-party auditor to not only help create business rules, but also analyze data on the back end.
Pearson said improvements in data analysis via more than 100 audit reports mean that, "If anyone is stealing, we'll find them and terminate them," helping to alleviate some managers' concerns about not examining every expense report. Budget managers still receive broad-based, cost-center reports.
By way of example, Pearson said the company established 125 price thresholds for its top lodging markets. "We determined that based on actual global hotel program rates, taking an average and applying a statistical measure above it," he said. When an employee submits a rate that exceeds the threshold, the system asks him or her for a reason, and the report is flagged for manual approval.
"We don't tell employees any of the thresholds," Pearson said. "We don't believe in creating per diems. If you say you can spend X for meals, they'll spend X minus two cents." Other flags are created when, for example, employees use cash or non-corporate cards for travel, or identify charges as miscellaneous.
Speedier payments as a result of a reduction to five from 13 average "client-held" days, as well as reductions in delinquency fees and other items, are expected to drive $3 million in "hard dollar savings" over the next five years, Pearson said. He anticipates an impact of another $6 to $7 million because of such "intangibles" as employee and manager productivity improvements.