Expense reports can result in serious compliance and fraud issues. Here's What To Watch For...
How often do your employees make mistakes or forget to include original receipts when they are filling out expense reports?
And how much time and money do you and your team spend sifting through expense reports to catch and correct errors for travel and entertainment expenses?
It’s not cost-effective nor practical to have your team go through every expense report one at a time, but if you’re not thorough enough either, you are leaving yourself open to potential abuse and even possibly millions of dollars in fines and legal action from the SEC and IRS.
For example, Goodyear Tire and Rubber Company was fined under the FCPA in 2015 -- for a staggering $16 million. Companies both large and small can’t afford to ignore the serious legal troubles that expense reports can create if neglected or abused.
In order to see how prevalent compliance issues are in T&E spending, we analyzed employee spend data from 7 companies with more than 10,000 employees and over $300 million in annual spend from a variety of sectors including technology, food services, and media.
Here are our top five insights that every CFO should know about expense reports to ensure compliance and minimize costs:
Always be proactive with enforcing expense policies
Good expense policies start and end with enforcement. If you’re failing to hold employees to your company’s policy, you’re letting money slip through the cracks. We weren’t surprised to discover that 41% of companies don’t fully enforce their travel and expense (T&E) policies, leaving themselves open false claims (Paystream Advisors 2015 report). It’s also important to enforce these policies in real-time so you can catch mistakes and bad behavior early, before situations escalate to an SEC or IRS investigation.
Random auditing results in random results -- and isn’t enough to keep you safe
Many companies still rely on random sampling for auditing expense reports and monitoring compliance. Unfortunately, with random sampling they only wind up checking 10-60% of reports, leaving a majority of the expenses to chance. You can increase your auditing accuracy 200% by automating your expense reports and having them all automtically cross-checked.
Travel expenses are the most prone to violations
Because travel expenses are the biggest piece of the expense report pie, it’s not surprising they account for about 50% of employee spend violations. These type of abuses may seem totally innocuous: upgrading to a luxury suite, or extending a trip into the weekend on the company’s dime. Pay particularly careful attention to all foreign expenses: foreign country expenses are the most vulnerable to violating the FCPA, which can cost you as much as $19 million for a single violation.
Pay extra attention to holiday and weekend expenses
It’s tempting for an employee to just casually swipe the company card when business ends on a Friday but the employee decides to stay through the weekend. In fact, we discovered that 17.4% of expenses employees claimed during a weekend or holiday were not business-related at all. Automating your auditing processes with artificial intelligence (AI) software can help you catch personal expenses that otherwise go unnoticed.
Ask for a list of attendees and verify the numbers
Verifying that a bill is an eligible business expense and adds up correctly is impossible without knowing who attended. But 70% of businesses don’t ask for this information, severely limiting their options for validating that all attendees were there for actual business purposes. Stay ahead of the game by asking for a list of attendees in advance, and confirm the list after reports have been submitted to ensure the numbers really add up.
For more information on how to keep your expense reports from costing you millions, download the full whitepaper “How to Avoid Accidentally Violating Anti-Bribery and Corruption Laws.”