Businesses can’t operate efficiently if they don’t know how their budgets are being spent. Often, however, companies don’t maintain effective policies and procedures to ensure accurate reporting of expenses. In some cases, expense padding and outright fraud are the culprits. According to the Association of Certified Fraud Examiners, the typical American company loses 5 percent of annual revenue due to fraud, and 15 percent of that is from fraudulent expense reporting.
Most expense management (EM) problems are the result of ineffective policies and procedures. Identifying where policies are deficient and addressing these problems can solve the majority of expense management issues. Following are the five most common expense management challenges, along with suggestions for how to solve them.
Increasing Travel Costs
According to the Global Business Travelers Association, travel costs have increased by 3.6 percent over the past decade, even as business travel has decreased by 22 percent. Rising costs for airfare and hotels are chiefly responsible for the increase. You can reduce travel costs by limiting travel to those trips that are necessary and conducting less essential meetings online.
For those trips deemed essential, it’s important that receipts are accurate, comply with established policies and are submitted on time. The first step is to clarify receipt submission policies. Draft a policy document that outlines policies, vet the document with managers, and distribute it to all relevant employees. Include the time frame for submission of receipts, as well as any items, such as alcohol, that are not approved for reimbursement. List applicable penalties for submission of fraudulent receipts. Finally, to expedite receipt submission, consider adopting an effective mobile technology that allows your people to submit receipts automatically using a mobile app. Some of our favorites include Tallie, Expensify, Nexonia and Trippeo.
Employees sometimes comply with established travel policies at the time they book flights and hotels, but upgrade to better seats or more expensive rooms without permission at a later date. You can solve this problem by carefully comparing initial booking costs with actual expenses and by including in your policies document a clear statement that unauthorized costs will not be reimbursed.
Data Entry Errors
Many companies continue to utilize spreadsheets that require manual data entry of expenses. This is time-consuming and can lead to potentially costly mistakes. One solution being embraced by many companies is the use of integrated expense management and travel booking platforms. A recent survey from Business Travel News found that nearly half of respondents had turned to such an automated system to avoid errors, identify discrepancies between booking and spending amounts and access data more quickly.
Paying Too Much for Travel
How much you pay for travel varies widely, depending on how and when you book hotels and airfare. According to a study from CheapAir, the average difference in the cost of tickets bought at the worst time vs. the best time is $312. In general, according to that study, the best time to book a flight is 54 days ahead of time, but this varies widely. You can be assured of getting the best price by being proactive in making frequent searches for the best fare, as well as by negotiating rates with preferred vendors.
Increased competition and budgetary constraints have made it more important than ever for small businesses to manage expenses effectively. By employing some simple, common-sense expense management strategies and adopting clear policies and procedures, your business can gain insight into how your budget is expended and identify areas where you can save money.