Many U.S.-based companies continue to operate outside the realm of best practices established by savvy expense managers, industry consultants and vendors, according to practices disclosed by 236 expense and finance managers for Business Travel News' first Annual Expense Manager Survey. Expense reporting tools used in Corporate America for the most part remain manual, some companies opt not to audit any employee expenses and some receipt submission policies may defy Internal Revenue Service regulations.
Although expense automation has proven to reduce cycle time and cut the cost of processing, only 17.5 percent of survey respondents said their company has purchased an expense reporting system from a vendor, while 82.5 percent employ homegrown expense processes. Vendors and industry-watchers agree that penetration of automated systems remains low.
"Expense management largely is not automated," said Steve Singh, CEO of market-leading Redmond, Wash.-based expense vendor Concur Technologies. "Most companies still are using paper or Excel-type spreadsheets."
Concurring with Singh, 72 percent of respondents that use an internal expense process said they employ spreadsheets or paper to file and process T&E expense reports. Yet, myriad methods of expense processing are in use throughout Corporate America
(see story).Vendors claimed that using an automated expense reporting system cuts down the time it takes from expense report submission to reimbursement to less than a week. "For our customers, I would say that something like 90-plus percent are reimbursing in less than seven days," said Jeff Cronin, Gelco vice president of marketing solutions, echoing other vendors. "That's with an automated system, and most people are not using an automated system."
"Companies who automate the travel and expense management process can slash the cost of processing an expense report by 80 percent or more and reduce a company's reimbursement cycle from weeks to a matter of days," said Sush Koka, PayStream Advisors Inc. senior analyst.
Regardless of the expense systems and processes used, best practices have yet to emerge for receipt policies and auditing guidelines. The industry has yet to reach a consensus as to the dollar threshold that companies should implement as guidelines for receipt submission: 41 percent of companies surveyed said they require paper receipts for all purchases; 17 percent require receipts for purchases of less than $20; 16 percent require receipts for purchases in the $21 to $30 range; another 13 percent put that range between $31 and $75; 4 percent require paper for purchases between $76 and $100; and about 9 percent of the companies surveyed only require receipts when travel purchases exceed $100.
"Although we have adopted a $25 receipt threshold—which is pretty common—if you use the corporate card we don't require the physical receipt, unless it's for car or hotel," said International Sematech manager of corporate travel and meeting services Bill Davidson.
The IRS last year clarified rules on the acceptability of corporate card statements, in lieu of paper receipts. Yet, the 13 percent of companies that have receipt thresholds of $76 or higher may violate IRS rules when charge card statements are not included.
"It used to be $25, but $75 or less is the current IRS regulation," said Concur Technologies senior director of product management Chris Juneau. "In all likelihood, these companies are running afoul of the IRS. People still grapple with these regulations. If you've ever tried looking for IRS regs, it's a royal pain."
According to those regulations, IRS "requires documentary evidence for any expenditure for lodging while traveling away from home and for any other expenditure of $75 or more, except for transportation charges if the documentary evidence is not readily available. Acceptable documentary evidence includes receipts, paid bills or similar evidence sufficient to support an expenditure."
Car rental and hotel receipts have provided challenges to companies that want to completely rid the expense reporting process of paper. Although some charge card companies have made strides in breaking out the line-item details of such transactions, the availability of level-three data for car and hotel expenses remains low.
As with receipts, the establishment of benchmarks and best practices in expense report auditing are elusive pursuits. Some companies randomly audit, while others audit every single report. Some pick a percentage of reports at which to take a closer look, yet others monitor only those submitted by maverick spenders.
With the emergence of automated expense reporting, the debate about auditing has shifted from quantity audits to quality audits. Since most expense reporting platforms in recent years have enabled clients to build policy and controls into the system, out-of-policy expenses automatically are flagged so audit-worthy expense reports gain more visibility—making it easier to keep a watch on maverick spenders.
"Through our audit service, our average number is 15 percent, but the automated system lets you focus on exception-based auditing, where you'll see a higher return on your audit record," said Gelco's Cronin. "The automated system uniformly applies policy, so you're not worried that somebody's getting away with something because it will get flagged."
Philadelphia-based Cigna Corp. also moved from auditing a fixed percentage to taking a closer look at reports that fit predetermined criteria. "We audit everything over a certain dollar threshold, then randomly audit others," said Tracy Thompson of Cigna at a panel on T&E best practices held last year in New York City by the Institute of Management and Administration. "We don't take a look at everyone. Before the Web-based system was put in place, we audited 100 percent."
About one-quarter of the companies responding said they audit 100 percent of expense reports.
According to many, however, neither approach is considered a best practice. "Before Sarbanes-Oxley from a statistical perspective, the best number was about 10 percent and we've seen that go up to 15 after Sarbanes," Gelco's Cronin said. "We have a couple of customers who do 100. However, accounting people will tell you it's not worth auditing 100 percent."
While auditing every expense report filed has been a surefire way to clamp down on deviant spenders, companies have moved away from the model due to costliness. Aberdeen Group analyst Christa Degnan said auditing all expense reports "gets to the issue of risk versus reward. Many companies do still believe in doing 100 percent auditing. They can start to pare that risk with an automated system when they have a technological process in place to check some of these."
"You don't want to spend $10 to save $2," said Dwight Drum, accounts payable manager at American Tire Distributors, adding that his company also avoids auditing randomly. "If you use a random audit approach, it's like closing your eyes hoping to catch what you're looking for."
Meanwhile, auditing too little leads to an expense process that is ripe for abuse. To the surprise of managers, vendors and consultants, nearly 15 percent of companies responding said they do not audit. Even though automated expense systems enable the automatic flagging of out-of-policy expenses, Gelco's Cronin said some random audits should be employed as well. "Referring to How To Pad Your Expense Report And Get Away With It," a book released in August 2003 by "Employee X," Cronin said the author—an expense abuser working at a Fortune 500 company—divulges ways to fraudulently file expenses. "It includes things that even an automated system will let pass by," Cronin said.
As such, the viability of fraud remains at many companies—regardless of expense filing process. Twenty-eight percent of the respondents said they had caught an employee fraudulently filing expenses in the past two years and a report released in July by the Association of Certified Fraud Examiners shows the cost of fraud has grown in Corporate America
(BTN, Aug. 2). The report showed the average cost of expense fraud has increased to $66,000 and now comprises about 14 percent of occupational fraud since ACFE released a prior report two years ago. In 2002, the average cost of such schemes totaled $60,000 and comprised 12 percent of all corporate fraud cases
(BTN, Aug. 11, 2003).