Top 5 Spending Behaviors That Increase Your Company’s Risk

For enterprise organizations, spend risk comes in many forms. Waste, misuse and fraud can result in devastating losses as the cost of these discrepancies begin to increase. Without any insight into spending behaviors and trends, finance teams may not detect a suspicious payment.

In our recent blog post, What Is Spend Risk?, we identified the importance of understanding organizational spend risk and the appropriate AI-powered strategy. But what spending behaviors should finance teams flag?

These are the Top 5 behaviors that increase risk:

1. Data Entry Errors: Maybe the spend was perfectly compliant, but a simple misspelling or keying of a transaction can cause a serious problem. This can result in duplicate vendor or customer accounts, which makes room for duplicate payments, errors and fraud. In fact, data entry errors can cause you to pay one vendor multiple times for the same invoice.
2. Personal Expenses: It can be hard to determine when an expense is legitimately business-related or if an employee is submitting a personal expense. This ambiguity becomes incredibly complicated during “bleisure” trips when business and personal travel overlap. Some employees take advantage of the situation, knowing that it will be difficult for a reviewer to recognize fraud.
   During the coronavirus pandemic, spend risk took a new form as employees set up their home office spaces. Oversight found that some employees expensed big-screen TVs and soundbars, bending the rules on appropriate purchasing behaviors.
3. Out-of-Pocket Expenses: Sometimes, an out-of-pocket expense is unavoidable. Similar to personal expenses, this risky behavior takes a new meaning during the COVID-19 outbreak. Many employees who began to work remotely did not have a company card, had never submitted expenses, and were unfamiliar with spend policies. With this, Oversight saw a 12% increase in first-time spenders in April 2020 compared to April 2019. Even more noteworthy, out-of-pocket expense submissions increased more than 80% from January to April 2020.
4. Miscellaneous Spending: This spend category is the perfect place for those expenses that don’t fit neatly into the usual categories. It’s often the place where some employees may bury questionable expenses and try to slide in a few personal items on the company’s dime no less.
   Some of the miscellaneous stores frequently purchased from include Amazon, Best Buy and Apple. These merchants sell a wide array of items, some of which could be purchased for personal use or resold for personal gain.
5. Off-Contract Spending: e-Procurement comes with inherent risks related to fraud, waste and errors, primarily when related to off-contract spend. Instead of optimizing the value of catalog spend, employees may make sub-optimal decisions, resulting in risky activities, such as excessive purchasing and fraud.

These behaviors and spending decisions can have a drastic impact on an organization’s financial performance, especially when all these varied non-compliant activities begin to add up. It’s essential to look for patterns in spending behavior to address the root cause of an issue.

Sometimes, this might boil down to an employee who doesn’t understand the policy. Other times, an employee might be purposefully abusing policy and finding loopholes.  

No matter the case, it’s critical that organizations have a complete view of their spend risk to adapt policies, inform employees and create a more compliant culture that mitigates the chance for future fraud and misuse.