Did you know that expense reimbursement is one of the easiest ways for unscrupulous employees to steal from your organisation? Most likely being in finance you have come across such instances, maybe in the nick of time or more likely too late to take action. You may not be alone in this as T&E frauds are the most often overlooked ones. The reason: These are small frauds that do not make such a significant dent in your overall budget. After all, cancelled flight tickets or pay per use facilities in hotels may not make such a huge difference to a company budget. Right?
As says Anshul Rai, Co-founder & CEO, Happay, “Companies are aware that frauds happen but they are usually not aware of the quantum of frauds since they don’t have the necessary data in realtime. Companies who are handling expenses manually (using paper and spreadsheets) are not aware of where and how employees are spending until employees submit expense reports, which is typically towards the end of the month. As expense reports pile up at the manager’s and the finance team’s end, the sheer amount of approvals and paperwork to be done leaves rooms for a lot of errors.
Many a time, the approvers might miss or overlook discrepancies and approve expenses anyways. Since policies are on paper and not on the system, each line item in the expense report has to be manually verified with the bills and the eligibility requirements of different employees - this is a very tedious process and again some violations may go unnoticed. During the audit, if the balances don’t match, then tracking and scrutinising the entire paper trail is almost impossible.”
Why expense reimbursement fraud matters
As a matter of fact, expense reimbursement frauds have substantial impact on a company’s budget when seen cumulatively. And, for this reason you need appropriate tools to combat this type of fraud. Farid Kazani, Managing Director & Global CFO, Majesco Limited points to an instance of wrongdoing in lunch coupons being issued to the employees. There were cases when the administration department that was the issuing authority, was encashing the lunch coupons of absent employees.
“There was embezzlement of coupons and over time it became a huge amount,” he said and added, “Obviously, we took steps and began issuing electronic cards to employees in place of coupons. Now, every employee has an electronic card, with their own name and a clearly defined number and password... So, there is no human intervention, no physical reconciliation, and no physical vouchers to be submitted. Everything is on the card. The employees can swipe their cards and use their coupons.”
In today’s globalized business environment and economic instability, companies need to exercise strict control over costs and save very penny wherever they can. Travel and entertainment (T&E) expenses is one such area which concerns companies of all sizes. Hence, it is important for businesses to control abuse of T&E reimbursement. Every voucher presented for reimbursement be it for air travel or meals, cabs or shared rides needs to be scrutinized and monitored to reduce misuse and frauds. Unfortunately, for majority of Indian companies monitoring these expenses is a daunting task given the fact that only 18% of the CFOs surveyed under the ‘State of the Indian T&E Management 2018’, said that their companies have fully automated T&E management system. With 53% companies only partly automated and 29% totally dependent on manual system, it is anybody’s guess as to how companies reliant on spreadsheets and paper receipts are plugging the gap in T&E management and combating frauds.
Such a manually dependent T&E scenario is a fertile ground for T&E frauds. To compound matters in 42% companies vouchers are routed manually from one approver to the next! No wonder, for 93% of the CFOs surveyed, auto flagging of policy violations by the system is critical.
However, as governments across the world are tightening compliance norms, companies in India need to take stricter measures to ensure that their travel and entertainment expenses are not being misused. Companies that do not have fool proof T&E controls, need to urgently upgrade their T&E management systems to create a sanitized T&E environment.
What is the solution?
In one word – automation.
“With Happay, policies of the company are available on the system and the system alerts both employees and approvers in case any expense item violates policy. Companies can easily track the top violators, the spend categories on which violations typically happen and then optimise policies accordingly,” says Rai.
But managing expense electronically is also a simplistic solution that though may provide spend reports and minimize paper trails, costs and time of approval and reimbursement cycle, it may not be smart enough to provide the analytics required to detect fraud. The complexity of frauds calls for advanced analytics platforms bundled with T&E automated platforms.
In this age of innovative data analytics and forensic techniques, a T&E platform must provide insight and business intelligence to detect frauds. Automated T&E systems allow you to enforce your T&E policies automatically. The automated program not only seeks receipts for expenses but can also prompt employees to submit the required reports on time, and comply with expense policies by ensuring that the system accepts only those reports that comply with policy.
Organizations should therefore deploy robust T&E platforms.
Automated systems do not stop at simplifying the process of submitting reports and enforcing policy. They make accessing and tracking historical data automatic and generate analytics based insights into expense trends. Notably, tracking historical data was cited as a pain point by 55% of CFOs surveyed as it requires multiple people and a long time to put data together that is urgently required during audits. Revealingly, for 90% visibility into spends anytime is fundamental to automated T&E system. Further, for 88% real-time access to historical expense management data is significant.
CFOs understand the importance of tracking expense reports flowing through the company. However, doing this in a manual environment is a Herculean task as unlike automation, which gives you tools to track and hence catch problems, there is none here.
As is apparent, for any company, after salaries and benefits, what they can control is T&E, which is the second largest controllable expense.
A haven for frauds
T&E is a hub for frauds and spend violations. But why is this so?
With organizations and employees having differing priorities on T&E, as the former focus on cost, compliance, and safety, while the latter look for comfort, luxury, and convenience, all at company cost; maintaining a fraud free environment becomes a difficult task. The common modus operandi for T&E frauds adopted by employees includes presenting personal expenses as business expenses; modifying, inflating or presenting false receipts; seeking reimbursement for cancelled trips and flights; exaggerated mileage claims for road travels; reimbursing the same claim several times, etc.
The survey reveals that 48% companies cannot even put a number to the T&E fraudulent claims; though an industry reports say that in every company 14.5% of reimbursement value is misappropriation or fraudulent claims. Further, while 95% have a T&E policy in place, 65% check for policy compliance manually. A look at the following points brings home more clearly as to why T&E is harbor for frauds.
Mahindra & Mahindra created an in-house tool 7-8 years ago, which helped curb fraud in the organisation to the maximum possible extent. Nikhil Madgavkar, CFO, Farm Equipment Sector, Mahindra & Mahindra said that the expenditure, which an employee claims, is automatically approved if it is in line with the company policy.
95.1% companies’ employees do not have the provision to record expenses automatically via SMS
86.7% cannot record from Gmail
76.8% cannot do it from receipt auto scan
78.8% cannot import from credit cards automatically
70% cannot import expenses automatically from corporate cards
70.9% cannot record expenses automatically from ride services Ola and Uber
60.1% cannot record expenses automatically from travel portals
However, if there is any deviation from the policy, the system reports this to the approving authority. “The moment it (T&E system) is manual, you are dependent on a person and it’s prone to an error. The moment you automize it, you are relying on a system.”
As the survey reveals, realizing the importance of regular review of data and expense reports, 90% of the respondents cite detailed spend analysis and actionable insights in real-time as a big priority.
CFOs are looking for not just any T&E expense management system but one which has the ability to manage everything related to T&E from one platform. For 90% of the respondents this is a top requirement.
As finance is digitizing and transforming at a rapid pace, CFOs are also looking at flexibility of software to support dynamic changes or growth of the company, which for 91% is a top need.
Companies must pay heed to the T&E expense management system requirements of finance and help them stop the frauds.