Reducing Costs--and the Likelihood of Fraud--Through New Expense Management Software

By John Tangredi

Despite the popularity of Skype, videoconferencing and other interactive communication technologies, in-person meetings with clients are still essential for sales, relationship cultivation and customer service. In today’s electronic age, it is all too easy to overlook this timeless fact.

That is why many companies still allot substantial budgets to travel and entertainment (T&E). According to the analyst firm Aberdeen Group, the average organization spent at least 10% of its budget on expenses related to business travel in 2013.

Most companies are willing to invest in T&E because they know that the typical return is increased business and greater client retention. However, there is increased risk and exposure when employees are empowered to spend company funds. The administrative burden of documenting and tracking the spending and the potential for fraud are heightened.

Disadvantages of the Traditional Method

The traditional method of facilitating T&E spending in the field of expense management has involved either issuing corporate-backed credit cards to employees with wide-open spending capabilities or requiring them to use their own personal credit cards. Both of these traditional methods provide very little control over when, where and how much money is spent.

Additionally, the processing of T&E expenses can be frustrating and time consuming for both employees and accounting staff. Since time immemorial, this reporting method has required employees to save paper receipts during their travels and complete reports upon their return. But these reports are then subject to approvals, which can delay reimbursement. And the dangers of this “paper trail” method are many, including numerous opportunities for human error and the loss of backup documentation, either accidentally or intentionally.

New Alternatives

Fortunately, the situation is finally changing. Thanks to recent technological advances, there is now a way for companies to have front-end control of spending and greater efficiency of the tracking and reporting process. The new advances are expense control solutions that combine new payment technology, mobile device capabilities and robust expense report management automation. These solutions reduce the risk of fraud and exposure while simultaneously limiting the administrative burden of expense tracking. As a result, employees have more time to focus on revenue-generating activity.

Front-End Control

It is now possible for companies to issue prepaid expense cards, similar to debit cards, which are fully integrated into expense management software programs and allow companies to allocate funds for specific expenses in advance. The cards not only negate any need for future reimbursement but also ensure policy compliance on a proactive, rather than reactive, basis. This level of control is nearly impossible with traditional credit-based payment mechanisms.

Associated cost reductions can be significant. A recent test of prepaid expense cards showed that they generate savings of up to 30% of total employee expenses.

Seamless integration of the cards with automated expense tracking and reporting saves time and budget not only for a company’s accounting staff, but also for employees who submit expenses. Instead of having to save hard-copy receipts and enter them into paper reports, the employees need only upload receipt images via a smartphone to create a computerized report.

In addition, the reports generated by expense management software can yield valuable insights that lead to further cost savings. For example, companies can easily determine which merchants (e.g., hotels, airlines, or rental car services) are used the most and, accordingly, can often negotiate better rates.

Companies have the ability to identify employees who are spending the most and assess whether or not the performance of these employees matches their level of spending. If it does not, employers have the option to set lower limits on the spending of these employees, or perhaps set higher performance objectives for them.

Furthermore, the insights can be used to structure future budgeting and policy development, both of which can lead to further cost savings.

Fraud Reduction

As mentioned earlier, a fundamental benefit of expense control is fraud reduction.

According to the 2012 Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners, organizations typically lose about 5% of their annual revenue to fraud--and, what’s more, 40 to 50% of these organizations never recover these losses. The Association also notes that 86% of fraud results from “asset misappropriation schemes,” one of which is inflated expense reports.

End-to-end expense control systems help to prevent and combat this kind of fraud in several ways:

The expense cards, which allow companies to allocate funds for specific expenses in advance, also enable companies to rescind unused balances at any time, further decreasing ambiguities and oversights that can hide fraud.

The systems make it more difficult for employees to tamper with or claim that they have lost digital receipts.

Companies can quickly identify suspicious expenses or trends through easy-to-create and easy-to-read reports. For instance, one employee spending much more on every business trip than others in a similar role might be a red flag.

Conclusion

Although real-time communication between people in different offices, cities and countries is easier than ever through technology, personal relationships cultivated through in-person, face-to-face interactions remain essential for business growth. This means that T&E spending is here to stay. Expense control solutions are newer to the scene; however, with their front-end control and fraud-prevention capabilities, they, too, have staying power.

About the Author(s)

John Tangredi is division president of Insperity® Expense Management. For more information, call 800-465-3800 or visit http://www.insperity.com