What business isn’t aiming for profitable business growth? The chief weapon in a CFO’s toolkit is the ability to identify costs spiralling out of control and pull them back quickly to ensure bottom line is protected at all times. Especially in times of rapid expansion.
“While business expense management isn’t the obvious first choice in controlling costs, fraud in this area contributes to spiralling expenses,” said Murray Warner, Head of Australasian Market at Serko.
“However, it’s not just about reducing expense fraud and reigning in out-of-control expenses. The CFO’s name appears of the financial reports! If it turns out there is fraud that they are unaware of, that means reputational damage as well.”
While most businesses will manage expenses manually, these days it’s now essential to get intelligence, insight and be able to identify patterns emerging from all cost centres, including business expenses.
As your business grows, poor expense reporting will continue to affect your bottom line through:
1. Being unable to identify areas of spending that are driving up costs and react accordingly;
2. Looking at the levers of uncontrolled spend; and
3. Forgoing the benefits of having an automated system to provide insight without contributing to increased overheads.
Using trend analysis to identify drivers of spend
“Being able to identify trends in business expenses is incredibly valuable to decision making. The problem is, most companies don’t have a system in place,” says Warner.
“Most finance teams generate expense reports manually by paper or using spreadsheets that are loaded into the business’ ERP system – the only pieces of information loaded include the amount, date and who the employee was.”
“ERP systems are powerful transactional systems of record to manage costs and revenues for management reporting, however they do not offer a way to manage costs better or detect fraud with the limited set of data they collect,” says Warner.
“The problem with not having more details that this is being unable to take action based on type of expense, supplier, purpose or any other meta data. There isn’t a way to manage costs better or detect fraud with the limited set of data.”
Getting useful data lets you make actionable decisions so that your teams work smarter and curtail spiralling business expenses. Without this insight, the common recourse to escalating costs out of budget controls is to freeze spending before the end of a quarter, or year. This is an ineffective, and often risky strategy to manage business expenses, as it also prohibits legitimate business activities.
What levers are leading to uncontrolled spend?
Getting the right data into the system and being able to report against it is critical to achieve real-time visibility for effective decision making. Assess your options for integrated and automated end-to-end business expense management systems that integrate with your ERP and travel systems to gain true end-to-end visibility.
Good business expense systems should highlight potential savings and enable forecasting. For example, the system should include a dashboard that provides a visual representation of expense trends to enable decisions around operations. Good questions to start with include:
1. Who are my top ten spenders?
2. Who are top ten overall with entertainment expenses?
3. Who has booked most business class flights this year?
For example, Warner cites a company where the policy was that employees could only spend $15 on lunch. “One employee submitted a bill for $14.96 every day. This was never detected until they installed our system and did some trend analysis. Over the course of a year it added up to a lot of money!”
Another example is supplier negotiation by using expenses data to purchase smarter. For example, one company hadn’t crunched the numbers on its travelers using airport parking. Within the manual system was an overall category for travel, but no details on what sub-categories of spending this included.
"Installing our system, they could see they spent $4 million per year on Sydney airport parking alone. This gave them a good negotiation starting point to strike a better rate for all business travelers," says Warner.
Finally, think about how much time your finance team, executives and other employees spend on processing business expenses, from submitting, checking, approving to auditing through to processing payments. Looking at the salaries of high-income earners such as executives and sales people means that spending 5% of their time processing business expenses is a poor use of their value.
Benefits of a system to identify expense scenarios
Having a system in place that enables report on scenario-based business expenses offers many benefits.
Reduced cost and time
By automating your business expense management processes, you can reduce the cost of manual processing from over $35 dollars to under $15 per claim. This is directly proportional to the reduction in time required by your finance staff to process, check and audit claims, which can be reduced by over 50%.
Reduced expense fraud through better reporting
Through the use of automated duplicate claim and policy breach alerts, your finance team can proactively identify outlier incidents and correct low-level fraudulent claims.
Increased policy compliance
Systems that will automatically control adherence to business expense policies at the point of purchase leads to increased policy compliance by over 38%.
Having trouble reporting on business expense costs? Read our eBook for CFOs on managing business expenses to understand how an automated business expense system can help solve your key challenges.