As corporations strategize for the most effective ways to contain an expected 4.5 percent rise in travel costs next year, a deeper emphasis on policy and policy compliance could be one of the tactics used to deliver the biggest returns.
Policy changes and enforcement are among the best ways corporations can contain rapidly rising travel costs, American Express Business Travel Advisory Services vice president and global leader Mike Streit said this fall when presenting his company's 2007 business travel forecasts.
"In a seller's market, buyers can no longer look to suppliers for savings from traditional procurement processes. Their focus will move beyond sourcing to behavioral change," Streit said. "As travel costs continue to increase, expect more companies to update and strengthen their travel policies, improve compliance and ensure that negotiated rates are more fully realized. Travel policy will also expand beyond the traditional travel categories of air, hotel, car, agency and card, to include things like health, security, extended stay and travel alternatives to mitigate risk and control costs."
Amex also predicted that companies would increasingly require approvals for non-compliant bookings and scrutinize policy compliance in five areas. "They will focus on increasing usage of preferred hotels, limiting usage of refundable airfares, narrowing the definition of situations when first/business fares can be used, expanding use of advanced purchase fares and reviewing all overseas trips, especially to high-risk locations," Streit said, adding that evolution of automated policy compliance technology would aid corporations in applying this scrutiny.
Automated expense reporting vendors this year announced new technologies and services to help corporations define and identify policy violations.
Following a survey in fall 2005 of 353 senior finance executives, conducted by CFO Research and American Express, respondents noted that "difficulty in gathering, analyzing and acting on spending information--in addition to uneven compliance with spending policies--are commonplace challenges," the researchers stated in their March 2006 report.
Fifty percent of respondents cited tracking and analyzing purchasing patterns as extremely or very important for effective expense management. Close behind, 42 percent ranked as extremely or very important those policies that direct buying to particular vendors or purchasing tools, and 39 percent cited policies that control indirect spending while 7 percent supported providing only senior executives with special perks when traveling.
Financial controls required by Sarbanes-Oxley are exposing the highest-profile examples of travel policy abuses. In July, Atmel fired its CEO after an internal investigation found fraudulent booking of airline tickets for personal and family use. In mid-2005, Red Robin Gourmet Hamburgers said its CEO misused chartered aircraft and violated travel and entertainment policies to the tune of $1.25 million. The CEO resigned and reimbursed the company. Examples of other travel expense malfeasance at government agencies, nonprofits and corporations regularly appear in U.S. and world headlines.
In a speech this fall, Enron whistleblower Sherron Watkins noted that clues to the oncoming crash were apparent long before her infamous memo. "For instance, for years, [former CEO Kenneth] Lay forced all Enron employees to book corporate travel through his sister's travel agency, Travel Agency in the Park (nicknamed Travel Agency in the Dark by disgruntled workers), even though it was more expensive than more competent agencies," Calgary Suncolumnist Licia Corbella wrote of Watkins' speech. "That seemingly small gesture sent the message [that] it was okay to use the company to enrich family and friends at the expense of shareholders."
Few industry studies have analyzed the cost of travel policy violations, but the Association of Certified Fraud Examiners since 1996 has been studying the cost of fraud, including fraudulent expense reports.
Fraud costs U.S. corporations an estimated 5 percent of revenues, or more than $652 billion, according to the ACFE's 2006 Report to the Nation on Occupational Fraud & Abuse. Studying 1,134 occupational fraud cases reported by its members from Jan. 2004 through 2006, ACFE found that more than 90 percent involved some type of asset misallocation. Within asset misallocation, 28 percent of fraud is related to billing (procurement fraud) while 20 percent is related to expense reimbursement. By industry, billing and expense reporting problems were among the top nine causes of fraud in every sector. Within manufacturing, billing fraud topped the list at 34 percent, with expense reimbursement closely behind at 29 percent of all cases.