Think entering receipts by hand and then emailing files around for approval is still how expense management gets done? Not so, and if your company is stuck in manual mode, you’re wasting everyone’s time, not to mention potentially slowing down audits, missing policy violations and fraud and possibly running afoul of IRS deductibility rules.
Millennial and Gen Z workers in particular have no patience for manually shuffling receipts. They want apps, and the travel and expense management industry has responded. Technology advancements have delivered new capabilities. Automated solutions, the cloud and machine learning can speed up the expense management process and reduce frustration for both employees and the accounting team, which has to manage the approval and payment process across all departments and employees.
Not that everyone is taking advantage.
Forty-six percent of companies don’t track the cost to process expense reports, according to Tallie’s 2019 Travel & Expense Management Trends Report, and 43% still manage expense reporting manually.
The survey covered almost 600 finance professionals from a mix of company types and sizes. Most, 44%, of respondents are on the front lines of finance as controllers, managers or accountants. The report shines a light on how much businesses spend on T&E, as well as the time and cost of managing expenses from an accounting point of view:
- For 29%, it costs $10 or less to process an expense report; 14% spend $21 or more. But the majority (46%) say they have no idea of the cost.
- Finance pros say they find the most value in systems that use mobile apps to capture receipts (cited by 48%) and allow direct deposit by ACH (36%). Both responses make sense because chasing down missing documentation and processing payments are time-consuming tasks.
- Only 27% have systems that automatically flag out-of-policy expenses. That means either accounting is manually reviewing reports, or disallowed items are slipping by—that’s a ticking audit time bomb, not to mention a cash drain.
Despite that, Tallie reports that the 44% of companies have no plans to add dedicated expense management solutions that could automatically flag issues, saying that their current processes “work well enough.”
Maybe, but maybe not. Manual expense management is inarguably time-consuming and expensive and creates major inefficiencies for both employees and finance teams. This is a multi-step process that starts with accepting employees’ reimbursement claims and goes through the approval or denial of those claims, scheduling reports for reimbursement, paying employees and continually checking for fraud and errors.
Besides incurring high costs and eating up a lot of time, inefficiency leads to frustrated employees up and down the org chart. When automation is introduced, the process becomes much easier as well as more affordable and compliant with IRS tax rules and auditor expectations.
Remember, the IRS has complicated rules on, for example, allowable per diem rates, and auditors see lots of manual processes as a red flag that a company has lax controls in place.
Often, that impression is spot on.
Top Expense Management Inefficiencies
Mastercard reports that T&E costs are usually an organization’s second-highest indirect expense, behind labor. That report also states that accounting functions, like expense processing, audit, compliance and program management, on average, range from 11% to 23% of the total cost of the program.
So if you’re spending $100,000 on T&E and are middle of the pack in terms of back-end efficiency at 17%, that’s $17,000.
Does that sound accurate? In many cases, finance leads just don’t know, because they handle expense management manually and have little or no visibility into their overall spending, can’t produce accurate reports and can’t identify (and act on) potential areas of concern.
For example, in the Tallie survey, 26% of respondents say their companies don’t even know whether submitted expense reports comply with their corporate policies, and only about one in four can automatically flag noncompliant reports for follow-up. Again, that’s an audit flag or tax violation waiting to happen.
Other issues: Manual processes don’t scale, and companies with scattered data can’t figure out areas for savings, like cracking down on travel booked outside approved suppliers or, lately, disallowed home office-related purchases.
Technology is Behind
IDC expects the worldwide T&E management software market to reach $2.7 billion by 2022—that’s a compound annual growth rate of 8.7%.
That’s healthy enough growth, yet not what we’d expect given the number of companies performing this finance function manually.Our take: On-premises expense management systems haven’t kept up with companies’ needs, so finance teams may not see the point in investing time and money.
The answer, often, is leapfrogging those legacy T&E systems and going direct to more advanced solutions. IDC backs that up, saying that demand for cloud-based expense management software is growing at a CAGR of 11.2%.
That makes excellent sense, especially in the age of working from home. When people are not in the office, a manual expense management process becomes even more cumbersome. Cloud-based software makes it much easier to effectively manage the process from anywhere.
ROI for T&E Software
Tallie says areas where investments in automated expense management pay off include increased productivity by, for example, cutting down on manual data entry; encouraging employees to submit expense reports more frequently and quickly; and managers spending less time poring over reports for problems.
For finance, the big win is being able to allocate cash efficiently because the team knows at any given time what T&E costs.
And interestingly, smaller companies saw returns faster than enterprises, according to the poll:
- For enterprises, 50% realized a positive ROI in one year or less, while 57% realized a positive ROI in two years or less.
- Among midmarket companies, 55% saw a positive ROI in one year or less, while 76% realized a positive ROI in two years or less.
- For small businesses, 64% realized a positive ROI in one year or less, while 71% saw a positive ROI in two years or less.
Grand View Research analysis confirms that ROI boils down to automation of T&E-related processes, like submitting requests for preapproval of purchases, and integration with other enterprise software, like ERP, CRM and human resources systems. Enabling mobility—key to those Millennial and Gen Z workers—is also a contributing factor, as is automating the review and approval process.
Let’s dig into more trends to watch.
Top 4 Expense Management Industry Trends in 2020
Employees want to use their mobile devices to create reports then input, track and submit their expenses. In fact, mobile applications and integration should be a core decision point when selecting expense reporting software.
Vendors are responding to this by rolling out systems that allow for the submittal and approval of claims via smartphone—that includes snapping photos of receipts and uploading them into the system. Even better: OCR capabilities to “read” receipts and auto-fill fields.
Expect this trend to continue. When on-the-go professionals can handle expense reporting tasks on the fly—at home for now, but eventually over lunch, from a hotel room, the back of an Uber or on the flight home—that not only saves time for the employee, it accelerates back-office billing and financial reconciliation.
Three more capabilities to look for in mobility-enabled expense management solutions:
- Integration with travel-booking and itinerary apps.
- GPS capabilities to auto-fill expense entries based on location, such as an airport or restaurant.
- Industry-specific capabilities, like mobile currency conversion for global firms.
As companies reimagine business travel in the post-pandemic world, the need for good expense tracking will continue. With an automated expense management solution in place, finance teams can institute new policies and monitor compliance to ensure that employees are not abusing the reimbursement system—and take quick corrective action if they are. Simply alerting supervisors in near real time so they can alert individual employees that they’re spending more than they should can nip problems in the bud.
Say, for example, a salesperson attempts to book a flight that’s outside policy. A smart expense management system that’s integrated with the travel-booking system will flag that and suggest a policy-compliant option. Perhaps the salesperson will override the alert; in that case, her manager will get a notification and can either allow or deny the spend.
Or, say two employees meet over lunch and split the tab 50/50 rather than the senior person paying. Later, both expense the same meal with receipts showing the same amount. In this case, that’s not fraudulent, but it’s certainly something that should be flagged; it’s also not best practice to have accounting handle one meal twice.
Without a rules-based approval workflow, such inefficiencies, red flags and travel-related violations can be difficult to spot, particularly for larger companies.
The same holds for new work-from-home policies that many companies are enacting. Oversight’s recently released Spend Insights report shows an alarming jump in fraud and misuse of the expense system. In fact, even though overall T&E spend is down by 64%, the violation rate is up an eye-popping 207% versus pre-COVID times.
What’s going wrong? Likely, rules-based “guardrails” that can flag violations are either not enabled or not updated to reflect current reality, so spending is approved without the proper review. Then, when supervisors catch on, approvals of legitimate reports may take a long time. This leaves employees wondering where their checks are—even as they’re already racking up new expenses for the upcoming closing period.
Again, smart systems can help finance create and update these guardrails and call out (intelligently) submissions that stray outside the lines.
Integration of expense management with ERP and other accounting systems benefits both employees and finance.
For workers, look for the ability to follow the progress of an expense report from inception to approval to payment, whether direct deposit or remittance to the credit card issuer. That alone will cut down on emails to accounting.
For those in accounting tasked with tracking expense spending, a consolidated financial view with integration into accounting and/or ERP solutions—that is, the ability to share data directly and continually without the need for human intervention—delivers a unified view of outlays. That’s especially critical for companies with short cash runways or limited financial resources.
By consolidating a range of T&E data and automatically sharing it with a company’s ERP and other systems, integrated expense management solutions drive most of the friction out of a typically cumbersome, expensive process.
Look for built-in integrations with your accounting system, the ability to link policies and those guardrails into any travel booking tools, the ability to granularly report on T&E spending and support for complying with relevant regulations.
4. AI, Automation and Machine Learning in Expense Management
Machine learning systems look at lots of data and learn from it. A company can feed a year’s worth of expense reports into an ML-enabled T&E system with the goal of teaching it to flag anomalies that might indicate fraud or human error. The more reports the system has to study, the better it will spot potential problems.
The difference between ML, which looks at good examples and bad ones and learns how to spot the bad, and AI is that artificial intelligence ups the ante by adding additional context.
For example, true AI-enabled system will be able to tap into external data sources to know that almost no one pays a certain rate for this service, or that the flight someone expensed for was canceled. Maybe it can tie into your travel booking system and see that, when in New York, your sales team always goes to Momofuko. That’s expensive, so can the AI recommend similar places more in line with per diem policy, then provide info on making a reservation and put the address into the VP of sales’ calendar?
If a vendor starts pitching you on its “advanced artificial intelligence,” ask some hard questions. Is it actually machine learning under the hood with some fancy AI marketing to justify a price premium? How will it provide a truly intelligent suggestion about whether an expense is out of line or not? What context can it bring to bear beyond just looking at your own data?
What CFOs need to understand is the type of insights a given system will surface and whether those findings are worth it to you in terms of the cost of the system. For most companies, what’s important is spotting anomalies that indicate errors and fraud. Ferreting these out is time-consuming, tedious and critical, and thus well worth automating. Cloud-based solutions are better at this because they have much larger data sets and can be more extensively trained to spot rule infractions.
In terms of automation, the goal is to reduce to the greatest extent possible the need for manual intervention and monitoring. That ties back to the policy-based guardrails and ML capabilities we’ve discussed. Ask: What, exactly, will our employees and finance team need to do manually to push an expense report from inception to payment to reporting?
Bottom line: If you’re still emailing spreadsheets and collecting paper receipts, make 2020 the year you get with the trends.