Employee expenses: A waste of time or a way to save?

The MPs’ expenses scandal may have focused the country’s attention on the public purse; but it has also raised a very real issue for the UK’s business leaders. Employee expenses represent a major business cost: from the average £30 - £80 processing cost per expense claim, to the very real risk of abuse and fraud and the anarchic, uncontrolled spending that can only be monitored through time consuming manual audits.

In an economy that remains extremely challenging, organisations continue to impose greater control and attain a far clearer picture of committed expenditure and cashflow position on a daily basis. Taking a proactive approach to tightening up employee expenses by implementing clearly defined expense policies and procuring tools to enforce those rules, offers FDs a chance to make a real mark on the organisation, argues Neil Robertson, CEO of Compleat Software.

Outdated Approach

For the past 18 months organisations have focused heavily on cutting costs and imposing tighter financial control. Even now, as the economy begins to improve, margins remain low and most businesses are striving to make the most of every available resource. In many cases, purchasing processes have been tightened up, enabling organisations to consolidate suppliers and negotiate excellent discounts, whilst also achieving far better and earlier insight into procurement costs and commitments.

Yet one area that organisations have yet to truly master is employee expenses. Despite the significant contribution to corporate costs, employee expenses are, in the main, still handled in the same, manual and uncontrolled manner used 30 years ago.

Indeed, while companies may have created strict rules for employee expenses, from limits on the cost of overnight stays to defining regular journeys, imposing these rules is extremely challenging. Manually filing an expense claim – whether on paper or spreadsheet – and attaching receipts, is time consuming. And, for those employees typically incurring costs, such as senior managers, sales and marketing personnel, expenses often build up significantly before the individuals are in a position to file the claim in person with either a line manager or finance team.

Changing Attitude

It is no surprise that this approach is inefficient and unpopular: employees hate filing expense claims, managers hate checking them and finance departments hate validating them. Yet employee expenses can prove to be one of the biggest drains on both productivity and cash, often used as a means of purchasing from unauthorised sources and reimbursement taking place without proper authorisation.

Indeed, the endemic haphazard approach at best condones employee incompetence, at worst leaves the organisation open to employee fraud. From exaggerated mileage claims to false hotel receipts or the same item bought by several different employees from several different suppliers, human error or human nature has a big part to play in the amount of waste an organisation is exposed to when it comes to the end of the month.

But employee expenses are also a sensitive area: employees are incurring expenses on behalf of the company – failure to repay these expenses within an agreed timeframe can seriously affect morale and undermine corporate confidence.

Imposing Control

So how can organisations impose greater control whilst also streamlining the process to drive down the cost of expense management and still ensure employee expenditure is efficiently repaid?
As the body overseeing parliamentary expenses has now agreed, automating the capture of expenses is essential to impose control and attain a clear, auditable view of expenditure. Using a web-based approach to allow expenses to be logged anytime, anywhere, frees up employee time and enables individuals to incrementally file expenses rather than waiting until month end. Receipts can be scanned to further remove the need for mobile workers to make specific visits to the office; and, using workflow, line managers can be alerted when expense claims are due for review.

Furthermore, the process of enforcing expense rules can be automated: organisations can place checks at the point of expense entry, with automatic mileage verification and preferred supplier recognition automatically rejecting exaggerated claims and claims made from non-authorised goods and service providers. Simply imposing these rules is proven to deter people from embarking upon fraud, whilst also minimising the problems caused by employee error.

Corporate Value

Streamlining employee expense management in this way reduces the cost of claims processing dramatically – typically down to around £6 per claim. In addition, the process is speeded up significantly; ensuring employees can recoup costs rapidly. Indeed, some organisations move from monthly to fortnightly expenses payment runs, further improving employee relations.

With approved expense information automatically posted into the Purchase Ledger and then GeneralLedger, claims can be automatically checked against agreed budgets, with any overspend immediately escalated to provide senior level visibility. Rechargeable costs – such as those incurred on behalf of a client – can be automatically captured and recharged, further driving down administrative costs. In addition, budget managers and the FD now have real- time understanding of committed costs, providing far better cashflow forecasting.

Conclusion
Properly managed, employee expenses are considered the second most controllable expense after payroll and benefits. Yet to date organisations have struggled to impose control over this significant cost centre. Solutions have been too complex for users to adopt and too expensive to justify. Indeed, the current rash of SaaS based solutions that charge on a per submission model are prohibitively expensive for the majority of organisations.

Yet now, more than ever, a business cannot afford to waste money on an archaic paper-based system that leaves it open to fraud and fails to deliver the required real-time cashflow visibility. Organisations cannot expect employees to follow the rules; whether intentionally or unintentionally, over-spends will always occur. The only way to achieve a change in expenses culture is to make it easy; to provide a simple-to-use system that automatically imposes corporate rules and minimises the effort required by staff.

An intuitive, web-based system will not only enable a business to impose control over expenses but also encourage employees to post expenses more frequently, providing the ability to incorporate committed costs into the accounts as the commitment occurs, whilst also delivering an up-to-date picture of the company’s cash liability. By driving down the cost of processing claims, driving up financial control and, critically, providing far greater and more timely visibility over expenditure, the FD has a real opportunity to make an impact on the bottom line and improve the economic stability of the business.

For further information, please contact:
Clare Granville
itpr
t. +44 (0)1932 578 800
www.itpr.co.uk

Neil Robertson
CEO Compleat Software Limited
t. +44 (0) 8458 90 20 30
www.compleatsoftware.com