Artificial intelligence can play a role in improving your internal audits.
The back office is arguably the most outdated department of the modern enterprise. Many companies have large accounting teams in place to control spending, but these processes can be tedious, time-consuming and wasteful. A huge source of leakage is travel and expense (T&E), which is the second-largest controllable business expense after salaries and benefits. Unfortunately, it's also one of the most complex and difficult to control. Over a third of T&E spend is wasted on out-of-policy expenses, mistakes and even outright employee fraud, according to proprietary data published in AppZen’s latest report, The State of AI in Business Spend.
While juggling so many other priorities, how do modern finance teams tackle the issue of T&E spend? It's illogical, and likely not even feasible, to check every line of every receipt attached to an employee’s expense report. Below are three recommendations to reduce T&E spend based on real-world insights from aggregated, anonymized enterprise data from close to 1,000 enterprises.
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1. Outline what employees can and cannot reimburse.
First, setting clear expectations and guidelines around travel and expense is crucial. If you don't already have one, it's imperative to create a well-defined policy and clearly communicate to your employees what can and cannot be reimbursed. To create some useful benchmarks, we dug into our data to understand reimbursement trends. What do other companies allow? What thresholds do companies set without having to do approvals on a case-by-case basis?
Here's what we found.
Expenses that increase connectivity and collaboration are very likely to be reimbursed: 41 percent of companies reimburse cell phone services and 37 percent reimburse internet services. Additionally, the majority of business travel expenses are reimbursed – air travel upgrades, which used to be considered a luxury, are increasingly being approved. Twenty-eight percent of companies will approve a flight upgrade within reason –under $50. However, less essential travel perks like room service (16 percent of companies reimburse) and minibars (15 percent reimburse) are still scrutinized. Non-essential items such as clothing (19 percent reimburse) and coffee card reloads (9 percent reimburse) are also less likely to be approved. We recommend you keep these spend averages in mind as benchmarks for a new or more thorough policy.
Another consideration for your expense policy is items for recognition and perks, which are increasingly being reimbursed. Health club visits (11 percent reimburse) and gifts for employees and customers (46 percent reimburse) are becoming more common and might be worth including in your standard policy. Although it may seem counterintuitive to recommend approving more of these seemingly frivolous expenses, in the long run, it will save your accounting team valuable time they would otherwise waste getting additional approvals back and forth in an endless chain of emails.
2. Stop manual audits and start using artificial intelligence.
The next step is to gain visibility into your expenses without manually reviewing each report. On average, accounting departments at large enterprises processed 4,374 expense reports last quarter alone. With such a high volume, accounting departments just don’t have the resources or time to manually research the legitimacy of each expense report – and even if they did, finding an out-of-policy item can seem like finding a needle in a haystack. Today, most companies only review about 15 to 20 percent of their expense reports, and in an attempt to reach 100 percent audit, many organizations resort to offshoring their expense audit to outsourced teams. However, this process is usually after-the-fact when the money is already unrecoverable and is still tedious and costly.
What's the solution? If you randomly sample expense reports, as many companies currently do, it's mathematically impossible to catch every fraudulent expense. However, catching them is crucial. These items add up to over one-third of total reimbursed dollars. We recommend companies implement artificial intelligence (AI) into their spend audit process, which over time will help identify spending trends, stop leakage, and influence T&E policy changes as needed. AI allows companies to reduce their expense costs up to 5 percent and cut down processes by over 80 percent – a win-win.
3. Catch unnecessary spend before reimbursement.
Submitting business expenses may seem like a straightforward process. You go on a trip, expense the flight, hotel and meals and get reimbursed in two weeks – simple, right? However, for some unscrupulous employees, it's not so straightforward. We've seen it all – strip clubs, dog kennels, jewelry, cigarettes and gambling losses being among the most notable expenses submitted and caught by AppZen. Although these charges may seem like obvious violations that a human auditor could find, they often fly under the radar with generic names on their receipts, such as "K-Kel, Inc."” which is actually a strip club, submitted under the guise of a business meal. AI systems can cross-reference online systems and learn over time which organizations fall into which categories, flagging fraudulent spend that human auditors would likely miss.
With a clearly-defined policy, visibility into expenses and a method for identifying fraud, your company will be well-equipped to innovate its back-office processes and reduce spending.