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Travel & Expense

Automating the Expense Process: How long before you can eliminate manager approval?

on April 11, 2017

Most of the companies we talk to recognize that manager approval of expense reports is a very ineffective control. It’s easy for managers to just click approve without taking the time to review everything. Even if all managers looked carefully at expense reports, they can’t remember what an employee submitted last month or see the underlying patterns that could be hidden across multiple expense reports.

It’s also a colossal time suck. On average managers in large companies spend over 800 hours reviewing and approving expense reports annually. Manager approval introduces a delay into the business process of getting expenses paid and employees reimbursed.

Overall manager approval is a weak control. But, it is also a hard control to move away from because often it is one of the only controls companies have.

I’d like to share the story of one of our customers that successfully transformed their expense process and the steps they took to eliminate manager approval as their primary control.

The Situation

As a Fortune 500 organization with over 300,000 employees and an estimated $2B in T&E spend, our customer was no stranger to T&E losses. Their T&E program relied on audit conducted by a 50- to 60-person team using reports, queries and manual, random samples along with manager approval of expense reports. This team spent 80% of their time on data acquisition and identification of risky transactions, and only 20% on taking action. They were wasting a lot of manpower on their expense process—both the auditors’ and managers’ time—with no measurable impact on employee behavior.

The most effective way to change employee behavior is to have a broader view of behavior. In T&E, for the most part, all transactions have already happened, payment has been made, and almost never does a company not repay an employee except in case of total fraud, which usually results in a personnel change. Effectively changing behavior is best done at post-payment.

Effecting Change

Transforming your expense process takes time. It’s not something that you flip the switch on one day and eliminate manager approval the next.

This large customer spent about a year fine-tuning its process before it was ready to eliminate manager approval altogether, but they began seeing the impact of automated transaction monitoring immediately.

It’s important to follow a few best practices to transform your expense process with automated transaction analysis:

  1. Implement a tool that can identify risk in your T&E data. Establishing an effective control begins with using automation to detect errors, waste and misuse, looking for employee behavioral problems and patterns in your T&E data. Standing up Oversight Insights On Demand is quick (approximately 4 to 6 weeks), which includes data acquisition, setting up rules, testing and tweaking rules.
  2. Integrate use of the tool into your business process. This customer spent 2 to 3 months integrating automation with a focus on eliminating barriers in the business process.
  3. Test the new control, and test again. Automation technology combined with business process owners becomes your new control. It’s important to test how well this control is performing before eliminating other controls. Our customer tested their process over the course of 6 months to ensure risk is being properly mitigated and employee behavior is changing. You need to see that the control is actually working before eliminating other controls.
  4. Reduce what managers need to approve. You won’t eliminate all manager approval at this point, but you will cut down what managers must approve. Typically, this is only expense reports over a certain dollar threshold or that contain only certain risky types of transactions.
  5. Eliminate other controls. Once you have gone through the above steps, you will be in a position to eliminate other controls such as pre-payment audit and/or manager approval.

Some companies are not comfortable with this last step, and that is OK. Some of our clients continue to use specific pre-payment tools to stop things that are very black and white at the time when employees enter expense reports—the “thou shall not do this” items. But they’ll replace random sample pre-payment receipt reviews with risk-based post-payment audit to look at the gray areas—the receipts that are identified as risky based on analytics. The gray area is where employee behavior change takes place.

The Results

By leveraging automated transaction analysis technologies, this Fortune 500 company was able to eliminate nearly all manager approval from the expense process and devote more time to addressing risk instead of searching for it. They reduced the time and effort it takes to review, audit and take action to resolve exceptions and reduced T&E audit staff by over 80%, redeploying these staff members to more high-value, business-critical tasks. Today, their 10-person audit team uses Insight On Demand to automate the data acquisition and the analysis and identification of risk, so 100% of their time can be spent on taking action on risky transactions, instead of just 20% a year ago.

Are you ready to transform your expense process? Download our white paper “Transform Your Expense Audit & Compliance Process with Automated Transaction Analysis” to learn more.

Jessica Kirk

Jessica Kirk is Vice President of Marketing at Oversight.