Employee travel spend has skyrocketed in recent years as organizations of all sizes develop new global trade relationships, making travel and expense the second largest controllable cost after payroll.  As the economy continues to rebound from the recession, companies are taking a hard look at these costs and investigating ways to control them. Due mainly to the human factor involved, Travel and Expense Reporting (T&E) is error prone and poses a considerable challenge for Accounts Payable (AP), See Figure 1. However, there is much that can be done with T&E to produce savings in spend and time through more efficient practices.

Figure 1: Challenges Faced in the T&E Management Process

Formal Policy

Above all else, T&E policies and procedures need to be documented. T&E policies are low-risk and rarely cover any corporate secrets, so posting online is an easy solution for providing a quick reference tool. An effective policy should include:

• Documentation and reporting requirements
• Approval processes
• Preferred actions/vendors (i.e. specific hotel chains or air carriers)
• Permissible charges
• Enforcement policy (for violators)
• Schedule for updates/review (i.e. annually)

The biggest problem for AP is when enforcement falls on their shoulders. Automated systems should have a compliance feature built in that flags reports needing further investigation. If you aren’t using an automated system, make sure it is well known that AP is just the messenger when it comes to policy do’s and don’ts. Ensure upper management is in support before refusing payment to violators.

Cash Advances

The practice of giving cash before a trip began as a way to help employees who traveled frequently. In this way, they wouldn’t have to pay expenses out-of-pocket and wait to submit a report and receive reimbursements. The biggest issue here is that cash advances work like a loan, yet there is no interest being charged on them, and no limits. Few employees are willing to pay out-of-pocket when their boss offers a no-cost alternative. The incentive to submit reimbursement forms is lost, and abuse is great. Ultimately, a company suffer because of the time that will need to be spent monitoring cash advances, and in some cases, will suffer losses, both monetary and organizational, due to employees who abuse the system.

Ultimately, the best solution is to eliminate cash advances all together. Instead, issue purchase cards or T&E cards to be used for booking tickets and charging expenses while out of town. In this way, employees are assured of a quick turn-around of their expense report; out-of-pocket expenses accrued during a trip are few and encourage timely reporting by the employee. This is a win-win situation for AP because cash advances are cumbersome to administer.

T&E Reporting Forms

The absolute worst practice you could have when it comes to T&E reporting forms is a hard copy that has been photocopied so many times it’s hard to read. One of the easiest ways to get out of the Stone Age in this respect is to create a basic form in a spreadsheet using locked formulas so employees don’t have to do math and errors are limited. This is a common practice, and relatively simple to create. Even mid- to large-sized companies have found that sophisticated spreadsheets can effectively service their T&E reporting needs.

Before sending forms to AP for processing, policy should dictate a completed T&E form be emailed to a supervisor for approval first. While building in compliance issues to the form will cut down on the number of exceptions, there will still be “violations.” Violations aren’t always unapproved spending – sometimes it is as simple as using a non-approved air carrier. Maybe the preferred flight didn’t fit the travelers schedule so an exception was made. A supervisor would have the authorization to authorize this type of variation from policy. Thus, the process is streamlined, AP is eliminated as enforcer, and reports can be easily tracked. An automated form also allows for reports to be generated since the form is standard for the whole company. However, you will still need to educate people to stop using old forms and to correctly fill out the spreadsheets.

Verifying Data

Some corporate cultures dictate every single T&E report submitted be gone over with a fine tooth comb. Instead, it is much more practical and efficient to randomly select and check a set amount, say between 5-25 percent depending on tolerances. If you need to work within a rigid corporate culture, suggest checking half the reports and working your way down. Still, certain reports should ALWAYS be checked: Those from known offenders and rogue spenders, any report with a violation, and any report over a certain set dollar amount (i.e. $10,000). Unfortunately, many supervisors simply sign off on T&E reports without really looking at them, a practice that gets more common the higher up the chain of command you go. This ends up making AP very unpopular when they are repeatedly going back to these supervisors to verify the information. This is another reason top management buy-in is critical.

Processing Receipts

Not much in AP is more annoying than a wad of wrinkly receipts from some traveler’s overstuffed wallet paper-clipped to a T&E report. There are many ways to remedy this situation. For instance, a set limit for expenses will eliminate receipts for small expenditures. The IRS requires receipts for expenses over $75, but most companies find this high and set the amount around $25 instead. The remaining receipts should be taped to a piece of paper and either faxed or scanned in for submission. Better yet, receipts sent to AP in a bar-coded envelope make for easy filing and retrieval. Regardless of how your department choses to deal with receipts, always make sure they are attached in some way to the actual report since it’s too easy for the report and accompanying receipts to be separated. Even so, you still need to be prepared for the employee who, despite your best training, insists on submitting receipts for every nickel and dime spent.

Reimbursing Employees

A set policy for how reimbursement checks are distributed is essential. It can be a hassle for AP when some employees want a hard check and others want direct deposit. Printed checks can cause havoc when they are misplaced or picked up by an assistant. Furthermore, miscommunication can cause second checks to be cut when the first is buried under a pile on a someone’s desk. If you must print checks, have them mailed directly to an employee’s home address. The best policy, however, is to insist on a direct deposit arrangement, typically via ACH. To appease those who may not want their reimbursement checks sent to the same bank account as their payroll, give the option of depositing to a different account.

Travel Reservations

Historically companies routed all travel arrangements through pre-approved travel agents. Large companies often negotiate volume discounts from specific hotel groups or air carriers. But in this day and age, internet surfing can result in booking airfare and hotel rates that are cheaper than what the corporate plan offers. Typically, a company can save $40-60 on each transaction by going this route. The online reservation process is still evolving, however, so the lowest price should always be chosen, compliance rules should be followed, and employees should be guided towards vendors with pre-negotiated rates. Don’t be afraid of allowing employees to find lower rates online. Otherwise expect complaints when/if employees find lower rates that corporate culture won’t allow them to use.

Part of the reservation process includes detailing vendor policies on unused tickets. This happens when plans change at the last minute and can be an area of lost spend that often goes unchecked. Make sure there is a policy in place to deal with situations where tickets are not used. It’s easy in this day and age of e-tickets for a non-refundable ticket to be forgotten if it isn’t used. It should always be applied towards future travel instead of sitting dormant. Refundable tickets need a human to actually perform the process of getting money back. Take advantage of new software tools that track unused tickets. According to American Express, 4 percent of tickets go unused. That amount can really add up.

Despite repeated training and awareness raising, humans will be the downfall of any T&E system. Like the old saying, “You can lead a horse to water, but you can’t make him drink,” you can train employees till you are blue in the face and still, some will continue to charge things they shouldn’t, not get approval to use a different air carrier, or go above per diem allowances. Hopefully, those that are frequent travelers will get on board and become shining examples of proper T&E reporting. Employees who don’t often travel may be more prone to make innocent errors. Still others may use the system to bilk it for a little extra cash by charging a per diem rate for a meal but in reality eating off the budget menu at a fast food restaurant. The more automated your system, the more likely policy violators will be caught, repeated violators will face upper management scrutiny, and the more time and money your company – and AP staff will save.