Posted by Jessica Kirk // 06.27.17

The ACFE found that 75% of employees who commit expense report fraud are engaged in another form of occupational fraud. These bad apples—employees who are potentially costing companies millions in fraudulent spending—can be found in every organization from large enterprises to SMBs.

But not all bad apples are the same. They come in different varieties. Some are malicious fraudsters, while others simply make mistakes that cost your company money because they don’t know better. There are three ways that bad apples can harm your corporate spending program:

  1. Fraud –items that are intentionally concealed such as excessive padding, untraceable out-of-pocket spend, intentional duplicate reports, and fake purchases and receipts
  2. Waste –extravagant or unnecessary spending including excessive entertainment, donations, gifts, sponsorships, unusual mileage, overstated expenses and unintentional duplicate reports
  3. Misuse –T&E policy violations including inappropriate venues, purchases that violate policies, circumventing receipt limits, and mischaracterized expenses

How does your company spot these bad apples?

If you’re like most, manager approval is a primary control in your expense process. It’s a good start, but on its own manager approval is not an effective control. Bad apples are hidden among all of the good apples in your T&E program, which makes them very hard for managers to find. Relying on manager approval often means the bad apples go unnoticed and stay rotten.

We find five common challenges among companies that rely on manager approval as a primary control in the expense process. We call these the “Troubling T’s” of managers:

Time – Managers spend approximately 10 minutes reviewing each expense report. For a company that processes 5,000 expense reports per month that equals 833 hours that managers could be spending on more productive tasks. At the same time, 10 minutes isn’t a lot of time when you’re manually trying to reconcile expenses, which means managers are likely to miss the details.

Trust – Generally speaking, managers trust their team members to do the right thing. Perhaps they trust them too much. In the expense report process this leads to managers approving expenses more often without looking into the details.

Training – It’s too easy to click on the “approve” button without proper review. Even if managers had the time to review expense reports in detail, they lack the training to spot bad apples.

Total Picture – If your managers are just looking at one expense report at a time or a sample, they’re missing the bigger picture. This makes it nearly impossible to identify patterns of fraud, waste, and misuse over time.

Intuition – Managers rely on their intuition when reviewing expenses. Going with your “gut feeling” only makes sense when you have vast, domain-specific experience to back your hunches; most managers do not have this level of experience in identifying unusual transactions.

Expense report decisions do not benefit from intuition because there are clear decision rules, objective criteria, and abundant data with which to perform an analysis. There is a more rational approach that overcomes the Troubling T’s of managers.

Many innovative companies are using Artificial lntelligence (AI) technologies to automate the analysis of 100% of their T&E expenses. Doing so provides companies with detailed views of their T&E spending habits, not just individual transactions at specific moments in time. AI enables these companies to identify the small number of bad apples engaging in non-compliant activities, and prevent them from recurring.

This level of enriched data and multi-dimensional analysis leads to informed decisions in the expense process. Companies that implement AI technologies reduce the time and effort it takes to review, audit and take action on findings by 50% and decrease the number of out-of-compliance activities by as much as 70%.

Want to learn more about finding the bad apples in your spending program? Download our paper “Take Manager Approval Out of the T&E Loop” for more insight into transforming your expense process with automated transaction analysis.

See Related Blog Posts: Travel & Expense, Purchase Card

Eliminating Manager Approval White Paper

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