By Al Gordon 07.08.16

Oversight has spent the last 13+ years analyzing the travel and expense transactions for many of the largest business organizations in the world. After examining trillions of dollars of expense transactions there are a few recurring vulnerabilities that we have identified. The experiences of our clients after addressing these issues by implementing Oversight Insights On Demand has resulted in savings ranging from 2-5% of their travel budget due to unintentional waste and premeditated abuse including outright fraud.

Vulnerablilities in Travel Expense Management

Effectiveness of Manager Approval -  In most expense management systems once an employee submits an expense report their manager will receive email notification that they can quickly process with the single click of the “Approve” link. The vulnerability is that most of these systems don’t force the approver to view a report’s details before approving. In a hectic and time constrained business environment it is often easier to take the path of least resistance and click approve rather than take the time to look at the details of a report.

Risks when Reviewing and Auditing Samples - Traditional audit techniques focus on reviewing a sample of expense reports. This sample can be random or based on some high level rules. Typically, companies are looking at 10% to 20% of their expense reports. The purpose of sampling in auditing is to generalize a conclusion about a total population of transactions based on the review of a sample. In travel and expense reimbursement the goal is to find problems in transactions not create a generalized conclusion and it’s hard to detect problems using a sample based approach, unless you get lucky and your sample stumbles upon suspicious activity. The odds are 80-90% you won’t.

Risks of Reviewing Expense Reports at a Single Point in Time - When reviewing expense report transactions at a single point in time you don’t have much context or visibility into an employee’s behavior, and as a result you’re unable to effectively address the root cause of many violations. You also don’t know what’s normal for this employee, or other employees in your organization when it comes to a single instance of unusual spending. In addition, you may not be able to easily access all the previous issues with an employee.

Reviewing is Labor Intensive - When your review process is based on manually looking at expense reports it tends to be very labor intensive and there’s a good chance you’ll fall victim to what our clients call the positive confirmation bias, meaning when you’re used to looking at things that most of the times seem okay, it gets harder to spot anomalies and you can easily miss glaring issues. When 98 percent of tens of thousands of transactions are okay it’s hard to find the needle in a haystack.

Spending More Time on Finding than Fixing – Whether you manually review transactions or even have a semi-automated analysis process we’ve found that most organizations spend quite a bit more time on finding problems than on resolving them. Often times at a ratio of 90/10. 

Lack of Process around Problem Resolution – Because of a focus on finding versus fixing we find it common that there is an absence of a consistent workflow process and resolution infrastructure.

As mentioned our clients have told us that 2-5% of their travel budget was consumed by waste and abuse. What are some of the things that can help address these vulnerabilities? First and foremost, our clients told us their overarching goal is to create a culture of T&E compliance where their employees understood the T&E policies and knew that they would be reminded when they inadvertently deviated from them. Based on our 13+ years of experience in this field the following are best practice components of a solution that helps to achieve this goal.

 

Addressing Vulnerabilities in Travel Expense Management

Automation - Analytical monitoring software should be used to automatically and comprehensively evaluate all expense transactions. The system should automatically assign a priority for each potential irregularity so that analysts can work on the most significant problems first. Automation should be used to take over labor intensive detection tasks so that analysts can spend more time researching and resolving problems versus finding them.

Look Beyond Single Expense Reports – It’s hard to draw conclusions about an employee’s spending behavior and knowledge of expense policies if you only look at one expense report at a time. You can gain a better understanding if you look at past spending to determine if the current problem is a one-off by a good employee or part of a larger pattern of willful abuse. Trend and pattern detection can only be understood by looking at expense reports over a time horizon. 

Cross-Employee Analysis - In order to understand the patterns of behavior it’s important to benchmark each employee against all other employees over an extended time horizon.

Employee Communication – It is very important to proactively communicate with employees and their managers using email regarding potential T&E problems and their subsequent resolution. It’s also important  that all analysts use a set of email templates to communicate a consistent message to all employees. All email communication should be stored in a centralized system rather than on each analyst’s PC.

Resolution Workflow – A research and resolution workflow should be used consistently by all analysts. This should include the assignment of stages such as “problem detected”, “under review”, “email sent”, “email received”, “resolved” with a finding and “resolved” with a dismissal. Resolution codes that identify the specific issues identified would be assigned so that root cause analysis can be determined and T&E policy adjustments made or employee training initiated.

Expense Report Data Mine  - An automated transaction monitoring system that has the ability to store all current as well as previous expense transactions is an important requirement. The data mine will enable the comprehensive expense transaction analysis and case management functions described here.

Comprehensive Centralized System – Traditional methods of expense management error detection and resolution are typically fragmented amongst separate systems such as email, employee hard drives, etc. Using a comprehensive centralized system enables automation, multi-dimensional analysis, employee communications, workflow, file attachments, audit trails and records of all activity taken to research and resolve problems.

 

About Oversight Expense Monitoring

With Oversight, a key differentiator is that we provide you with a centralized system to automatically monitor transactions and enable you to take action on the findings. Our analytics focus on behavioral analysis that enables our clients to enhance their risk detection capabilities. In addition to just looking at one expense report at a time for high risk activity, our analytics look for behaviors or patterns of risk across all expense reports and all card transactions.

We also benchmark each transaction to determine what’s normal for each employee and other employees before flagging any anomalies. The automation we provide around data acquisition and analysis frees up bandwidth to focus on higher value initiatives. With Oversight you’re focusing on making decisions and taking action on the findings, rather than figuring out how to detect issues.

Oversight’s clients have seen a reduction of at least 50% in the time and effort it takes them to review, audit, and take action to resolve findings. Furthermore, by leveraging the built-in workflow in our system our clients are able to proactively communicate with employees and managers and escalate issues as needed.

See Related Blog Posts: Travel & Expense, Purchase Card

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