As a significant operating expense for most entities, travel and entertainment (T&E) is an easy target for any CFO wanting to drive cost reductions across the organization.
As CFOs, we know that T&E management is about more than saving a buck. Proper T&E management helps us drive value for the business by protecting cash resources that can be leveraged for more important strategic investments.
From number crunching to maximizing value
CFOs are not simply the company’s top number cruncher these days. Corporate boards of directors and CEOs want more visibility and insight into the company’s spending, and they expect the CFO to maximize the value of that spend.
When looking at T&E spend, the CFO’s role is to improve the company’s financial results. That means balancing financial priorities and smart cost management with the needs of business travelers. The board and CEO need their CFO to provide actionable guidance for optimizing T&E with the evidence to back it up.
Delivering business value means streamlining processes, managing risk and changing behavior, not just reducing costs. Don’t get me wrong, cost reduction is a big deal. As a CFO myself, I get it. Every CFO would love to go to the board with a 20% reduction in travel costs this year. But, the strategic-minded CFO will guide their organization to reduce costs without slashing valuable business trips.
After all, not all travel is a waste. Corporate travel contributes to higher client retention and benefits business development. The ROI of business travel is calculated at $12.50 per dollar invested, according to an Oxford Economics report—not something you want to eliminate in order to save on travel costs.
Instead, the strategic CFO will rely more on automation and analytics to find information—as opposed to just data—that can help the business make smarter decisions.
5 Things to Consider
Every CFO needs to know these five things about controlling employee expenses and delivering value from their T&E program.
- Data collection is stonewalling your team. 76% of CFOs think their teams spend too much time collecting data, and they’re right. What makes the T&E review and approval process so frustrating is that companies spend so much time trying to identify the causes of problems - about 80% of their effort - and only 20% taking action on their findings. Too much time goes into the process with too little return on the investment.
- Anything less than 100% visibility is a non-starter. The CFO is responsible for 100% of the spend, but can’t be successful without 100% visibility. The key to controlling employee expenses is to find patterns of behavior and work to change them. The T&E management process must provide context and visibility across expense reports to identify fraud and the root cause of recurring waste and misuse, so it can be addressed.
- Random sample audits can only produce random results. The saying garbage in, garbage out holds true. Commonly, companies only examine 20% of their expense reports to come to a general conclusion on all transactions. Yet for T&E, the goal should be to find risky behavior by specific employees and that’s impossible to do via sampling.
- Fraud is rare; waste and misuse are rampant. Non-compliant spending happens more than you think. 37% of employees have at least one instance of potentially non-compliant spending on their expense report. Companies that use an automated process to monitor employee travel compliance reduce the number of out-of-compliance activities by as much as 70% by influencing traveler behavior, and this typically results in expenditures going down by 2%-5% of their total travel budget.
- Policies don’t always accomplish what you expect. Sometimes policies lead to wasteful spending, but without 100% visibility you’d never know it. We had a client who had a “no in-room movie” policy during hotel stays. After they began analyzing 100% of their T&E spending, they discovered that travelers who watched in-room movies spent considerably less during their hotel stay than those who did not. This led to a change in policy, happy travelers, and reduced expenses.
Automated expense monitoring helps CFOs drive value
Technology that makes it easier to manage and automate the T&E process is a must-have for CFOs focused on adding value. It simplifies the complexity of monitoring employee expenses and translates data analytics into actionable guidance to drive behavior changes and cost savings.
Ready to see how an AI-based technology that automates spending program compliance can significantly improve your business results? Click here to schedule a demo with Oversight.
Geoff Brannon is Chief Financial Officer of Oversight Systems.