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Expense Management Automation: A Silver Bullet?

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For any organisation that depends on travel and entertainment (T&E) to generate new …

For any organisation that depends on travel and entertainment (T&E) to generate new
business and manage its operations, one truth is evident - managing these expenses can
be a monumental challenge.


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  • 1. SMARTPROCUREMENTEXPENSE MANAGEMENT AUTOMATION (EMA): THE "SILVER BULLET" IN COST CONTAINMENTAND PROCESS EFFICIENCY.According to a recent Aberdeen Group survey, companies that don’t use anautomated travel and entertainment (T&E) expense management service are fallingbehind in almost every measure of financial management.Aberdeen refers to these companies as “laggards” and presents figures showing thatthey pay 37 percent more to process their expense reports, they take three times longerto reimburse employees, and they’re essentially working in the dark when it comes tocontrolling travel expenditures.Plus, Aberdeen estimates that almost one of every five T&E expenses submitted at thesecompanies is in direct violation of corporate policy.For any organisation that depends on travel and entertainment (T&E) to generate newbusiness and manage its operations, one truth is evident - managing these expenses canbe a monumental challenge. According to Aberdeen research these challengesinclude:Figure1: Top Challenges in Managing T&E Spend Lack of access to sufficient T&E data 54% Enforcement of compliance to T&E Policies 54% Controlling cost of T&E programs 38% operations/admin Travel booking process disconnected from 37% expense management process Insufficient accuracy of T&E data 35% Source: Aberdeen Group 2008This situation is generally the result of business risk managers’ tendency to sacrificeefficiency for control. This has led to the prevalence of reimbursive T&E policies, thesepolicies typically directing that the employee utilise their own funds and claim back fromthe organisation. This delivers the following benefits to the organisation: 1) This policy ensures that the organisation only reimburses expenses it deems appropriate and as such ensures the employee is more circumspect about their spend. This assists with Control and Compliance. 2) The employees ensure timely and speedy return of documents to the organisation. This assists with Control.Despite these benefits however reimbursive, manual policies actually create andcontribute the challenges mentioned by Aberdeen. 1) Lack of access to sufficient T&E data. In all cases, these policies result in the manual processing of the data through the organisation. The irony is that at the point of origin, i.e. the transaction, the data is electronic. From that point on it is handled manually right up to the point it is captured into the General Ledger (GL) by some overworked and underpaid accounts payable/finance clerk. Due to the volume of data, this data is usually captured at a low level of detail and hence analysis of the data, beyond GL account level reporting, is almost impossible.© 2009 TRANSACTION TECHNOLOGY SOLUTIONS -1- 19 February 2009
  • 2. SMARTPROCUREMENT 2) Enforcement of compliance to T&E policies. i. Most manual expense management processes rely heavily on the authorising manager to check the employee’s claim to ensure policy has been adhered to. Most authorising managers will be aware of the obvious non-compliant spend such as Hotel valet services, mini-bar use and in- room dining and movies and will check for these. Generally though approval of these is also left to the discretion of the authorising manager as there may be circumstances where these can be allowed. As a result, once the claim makes it passed the authorising manager there is often very little secondary checking done, and this leaves the policy open to abuse and fraud. ii. Further, whilst authorising mangers are generally kept up to date with the organisation’s T&E policies, they may not be kept up to date with the organisation’s sourcing policies. As result authorising managers may often sign off on non-compliant spend without being aware of it. A common example is where an organisation’s travel office books the employee into a contracted hotel where-upon the employee cancels this booking and changes it to a property of their own choice, at the same or lesser rate. The employee and the authorising manager are unaware that this may impact on the rebate the organisation is hoping to receive from the contracted hotel group. In an actual case study conducted by Transaction Technology Solutions, an organisation was “leaking” 82% of its hotel spend. Furthermore, this information was only discovered following an extensive and costly manual analysis of thousands of expense claims. Figure 2: Lodging Spend Spread at Case Study Organisation R87 Contracted Group 1 R130 Contracted Group 2 Lodging Spend R1’040 “Out of” Contract 200 400 600 800 1000 1200 Thousands (R) Source: Transaction Technology Solutions 2008 3) Cost of administration. Few organisations realise the overall process cost of manual expense reports. Studies done by the Aberdeen Group in 2003 showed that on average it costs R420* and can take up to 14 days to process an expense report manually. More importantly it takes on average 35 minutes of an employee’s time to complete a manual expense claim. Given that most of these employees are at the higher end of the pay-scales, this contributes greatly to the overall process cost. What the Aberdeen report fails to highlight is that the 14 days taken from “submission to reimbursement” do not take into account the time from “origination to submission”. All manual expense reporting processes generally kick-off with the receipt by the employee of their bank/card statement, which is often one of the documents required by the employer to ensure “proof of payment”. This can add an additional 30 days to this cycle and can result therefore in the GL being, on average, 45 days out of date.© 2009 TRANSACTION TECHNOLOGY SOLUTIONS -2- 19 February 2009
  • 3. SMARTPROCUREMENT Figure 3: Analysis of Manual Expense Report Management Process 35 minutes Time to complete expense report 10 minutes Time to review expense report Time for accounts payable to 22 minutes process expense report 14 days Time to process report from submission to reimbursement Average cost of processing an R 420 expense report Source: Aberdeen Group 2003* Original US$ values converted to ZAR at Price Parity 4) Accuracy of T&E data. Most organisations insist on the employee utilising their own funds or credit cards because the organisation does not trust the employee to be responsible with a company credit card. Figure 4: Top 3 Reasons Why Organisations Resist Implementing Corporate Card Programs 86% Concerns about fraud and misuse (Lack of trust in the employee) Encouraging of compliance to T&E Policies 72% Ensuring the timely submission of expense 64% reports Source: Transaction Technology Solutions 2008 The irony is that the organisation relies on the data originating from the employees’ “systems” to manage its own expense information. The challenge this presents is that individual bank and credit card statements are notoriously short of “description” and therefore the organisation must now trust the employee to be truthful about what the item relates to. This, when 86% of the organisation polled effectively stated they did not trust their employees.It should be clear from what has been covered so far that those organisations thatdepend on reimbursive, manual T&E policies are operating under an illusion of control. Itis an illusion because the systems that are put in place to deliver this control actuallycontribute to its absence. The only way to gain control over T&E expenditure is theimplementation of data and workflow systems that deliver detailed reporting informationback to the organisation for management and analysis. Studies done by the AberdeenGroup in 2008 show that 79% of organisations believe Corporate Card programs areessential to the competent management of T&E expenses. Furthermore, 73% believedthat a formal expense management solution was essential and 68% believed a traveldata reporting system was essential.© 2009 TRANSACTION TECHNOLOGY SOLUTIONS -3- 19 February 2009
  • 4. SMARTPROCUREMENT Figure 5: Organisations’ Use of T&E Management Technology 70% 62% 52% 47% 43% 26% 18% 25% 9% 9% Corporate Card Online Booking/Self Travel Management Expense Management Travel Data Matching Program Booking Tool Company Solution Application Currently Use Source: Aberdeen Group 2008 Others that plan to use within 12 months Apart from directly addressing the challenges raised in Figure 1, expense management automation contributes directly to enabling the elimination of fruitless and wasteful expenditure and contributes to increased efficiency in the expense management process. Organisations polled by Transaction Technology Solutions reported savings of between 15% and 32% in T&E spend through the implementation of expense management automation and increases in compliance of between 4% and 78%. Figure 6: Savings Delivered by EMA Figure 7: Decrease in Non-Compliant Spend 15% 4% Air Air 17% 5% Car Rental Car Rental 23% 78% Hotel HotelEntertainment & Entertainment & 75% 32%Subsistence Subsistence Source: Transaction Technology Solutions 2008 Source: Transaction Technology Solutions 2008 The relatively low 4% and 5% increase in compliance in Air and Car Rental respectively is a result of the already high compliance to policy as a result of the use of Travel Management Companies at the respondents. The massive 78% increase was as a result of the increased capability of the respondent organisations to police and drive © 2009 TRANSACTION TECHNOLOGY SOLUTIONS -4- 19 February 2009
  • 5. SMARTPROCUREMENTcompliance due to increased availability of management information. Offendingemployees are identified within 48hrs of the execution of unauthorised or non-compliantspend. Thereafter “soft” controls come into effect with offending employees “spreadingthe word” and causing a “wave of compliance” among other employees. This results inrapid changes in behaviour and thus rapid delivery of benefit.Aberdeen research, corroborated by Transaction Technology Solutions, also illustrates asignificant improvement in expense reporting cycle times and costs.Figure 8: Comparison of Manual vs. Automated Expense Management 35 minutes Time to complete expense report 20 minutes 10 minutes Time to review expense report 5 minutes 22 minutes Time for accounts payable to 5 minutes process expense report Time to process report from 14 days 7 days submission to reimbursement R 420 Average cost of processing an R 102 expense report Manual Automated Source: Aberdeen Group 2003* Original US$ values converted to ZAR at Price ParitySignificantly, with web-based automated expense management the employee canaddress items within 48hrs of origination, wherever they happen to be, thereby reducingthe “origination to GL update” cycle time from an average of 45 days to 72 hrs. Thisresults in dramatic changes to the accuracy of the organisation’s General Ledger whichinforms not only financial reporting but Treasury efficiency as well. Expense claims nolonger “ambush” the Treasury, thus improving fund management.The benefits of expense management automation can be summarised as follows: 1. Improves access to T&E data; 2. Improves compliance to T&E policies; 3. Reduces the cost of processing T&E expense reports; 4. Improves reconciliation between travel booking and expense management 5. Increases the accuracy of T&E data; and 6. Improves Treasury efficiency.There can be no doubt that a corporate card program, combined with a web-baseddata management solution, provides the quickest, most cost-effective means to achievecontrol, cost savings and transparency for the organisation’s T&E expenditure. In thecurrent economic climate implementing an automated expense management solutionshould be a priority for every organisation.© 2009 TRANSACTION TECHNOLOGY SOLUTIONS -5- 19 February 2009
  • 6. SMARTPROCUREMENTReferences: 1. Best Practices in Expense Management Automation – Aberdeen Group 2003 2. Travel and Entertainment Expense Management Report – Aberdeen Group 2006 3. T&E Expense Management Report – Aberdeen Group - 2008About the Author: Julian Curtiss is Managing Director of Transaction TechnologySolutions, specialists in Expense Management Automation. He has consulted to some ofSouth Africa’s largest corporations on the benefits of process enabling technologies.Julian has been involved in the business end of IT projects for over 12 years, incorporatingwork in the UAE, United Kingdom, Zimbabwe, Kenya, Uganda and South Africa. This hasincluded the implementation of Business Management Systems such as Sage Software,ERP systems such as JDEdwards (Softline), E-Procurement systems such as SAP EnterpriseBuyer, and card management systems such as VISA’s Information Source ™ andMasterCard’s SmartData Online ™.Contact Details: +27.83.413.5737 Julian@curtiss.co.za© 2009 TRANSACTION TECHNOLOGY SOLUTIONS -6- 19 February 2009