Fiddling with (or simply fiddling) unwieldy expense forms may soon become a thing of the past, says Catherine Chetwynd, as she investigates the paperless rise of the automated expense management system
Bunty sighed as he started to fill in his expenses on trusty Excel. Eventually, he stapled the receipts to the sheet while cursing the taxi driver for refusing to give him some blank ones. He then resentfully walked into his manager's spacious office to get the expenses approved, before trudging upstairs to deliver it to June in accounts. She typed all the information into the accounting system, checked it against the receipts (again) and after the cheque run, five weeks later, delivered a cheque to Bunty, whose next expenses claim was by now nearly a week late.
As has already been documented in this magazine, Excel is still the norm for documenting expenses. According to a study recently undertaken by online travel and expense management company KDS, 68 per cent of those polled in the UK used Excel, and 44 per cent use it in the US. "We believe that is because companies have yet to understand the value of automated expense reports," says Bruno Schreiber, KDS's director of sales midmarket.
There are indisputable benefits to having an expense management system (EMS), especially when combined with a corporate card policy and/or self-booking tools; and overuse of words such as 'transparency' and 'visibility' tend to detract from what is, in fact, a strong argument for automation. Every time a traveller uses their corporate card, expenditure appears in an expenses form. Taking out the manual keying-in process not only removes inaccuracies but also considerably reduces the opportunities for fraud - KDS asked travellers if they padded their expense reports and 13 per cent said yes (21 per cent of those were based in the UK, 29 per cent in the US and 50 per cent in France). UK travellers tended to exaggerate taxi claims (25 per cent), while the French preferred restaurants (20 per cent) - naturellement.
And as David Vine - managing director of one of the UK's leading providers of EMSs, GlobalExpense - points out: "One of the main drivers for employees exaggerating expenses is because it takes a long time for them to get their money back." Automation solves this problem, too, and GlobalExpense will pay expenses to any account - for example, taxi fares to a current account or hotel bills direct to a credit card. "You could be spending money in the US and have the money in the bank by the time you get back," says Vine.
An automated EMS also makes reclaiming VAT easier, something many companies do not bother with because it is time-consuming and difficult to calculate. And travel managers have better control because they can see clearly who has spent what and where they have spent it. This highlights non-compliance, leading to potential savings, and can show up opportunities for negotiating better rates with suppliers.
The more times figures are entered, the more likely there are to be errors. Human resources makes rules and policies, procurement negotiates contracts and bills with the travel management company (TMC), finance processes expense claims - this all amounts to a kaleidoscope of IT systems involved in the process. "The data can be entered into four information systems before getting to the accountant. Expense management systems get that down to one," says Schreiber.
And they make life easier for employees. According to research undertaken by Aberdeen Group, a provider of business-related research services, time taken to complete an expense report was 15 minutes when done electronically, compared to 28 minutes when engaged in a manual/paper based process, representing a compelling case for automation.
To integrate or not to integrate
Although end-to-end systems are the ultimate in efficiency and control, the various suppliers in the market have disparate - and largely self-serving - views as to the necessity of buying an integrated system.
KDS and fellow EMS provider Concur automatically provide integrated systems, and clients can enable or disable the booking tool - perhaps inevitably, then, they both recommend such systems. KDS will integrate its tool with other suppliers' services but does not recommend it; Concur will not. Etap-On-Line Ulysse Travel & Expenses is an EMS only, and unsurprisingly, Etap does not see any reason why a self-booking tool (SBT) and EMS should be provided by the same supplier.
GlobalExpense provides only expense management and according to Vine: "We have never had a client ask us to integrate with a self-booking tool but we would be happy to do so." The GlobalExpense system takes in data from credit card, TMC and taxi companies, for example, and provides add-on services such as a mileage tool, where drivers type in their departure and arrival postcode and the tool calculates the distance, allowing a tolerance agreed by the company.
"The jury is still out on the benefit of a totally integrated system rather than the best in class self-booking tool and expense management system," says director (consulting services EMEA) for American Express Business Solutions, Mike Parker. "A small percentage of clients has gone for the total system, but often customers have invested in an ERP [enterprise resource planning system] such as Oracle or SAP and have an online booking tool like KDS."
Cash, no longer king
The main protagonists all handle multiple currencies, allowing travel and expenses reporting in any part of the world, but a sticking point is cash advances. "We aim for the elimination of cash advances where possible," says Chris Juneau, Concur's EMEA product marketing director. "Cash is a great vehicle for potential malfeasance and it is difficult to track." It is definitely not best practice, and the efficiencies of automated expense reporting and claims generally obviate the need for cash.
"We can define whatever expense types our clients want and can track cash advances so that when travellers claim expenses, they can be offset against advances, but only a very limited number of our clients are giving them," says Etap's managing director Pierre-Emmanuel Tétaz. "With corporate cards and the faster reimbursement process facilitated by the tool, there are fewer reasons for travellers to ask for advances."
There is debate as to whether corporate card bills should be paid centrally or by the individual. The advantage of the latter discipline is that individuals have to take responsibility for how they have spent the money and to justify it when they submit their expenses. It also allows companies to impose the threat that if expenses do not comply with company policy they will not be paid.
Most of the card companies offer a lodge card, corporate cards and even dedicated products for small to medium enterprises (SMEs). A lodge card is, in fact, an account lodged with a TMC, where the agency houses air fares, keeping spend in one place.
BT has recently taken on AirPlus's lodge and corporate cards to pay for its business travel worldwide. In addition, it will use the AirPlus online management information system that will allow it to consolidate and analyse spend. AirPlus has traditionally worked with a bank partner to issue corporate cards but it is to launch its own by the end of this year.
Where a company has a lodge card with a TMC, there are additional benefits to an integrated system, as management company for insurance businesses Thomas Miller discovered when it installed Infor's Expense Management solution for the automation of pre-trip approval and expense claim processes. This is integrated with the company's TMC Reed & Mackay, whose invoice data is brought into the system via a daily electronic transaction file.
"It's a win-win for both Thomas Miller and Reed & Mackay," says Infor business manager Nick Fearn. "Thomas Miller can ensure that invoiced travel items are properly accounted for with any exceptions being automatically highlighted, while Reed & Mackay benefits from the prompt payment which this process enables."
Barclaycard Business uses Spendvision technology to display expenses. "We have developed our services to enable customers to view all their card expenses online and to run reports to help them monitor spend with strategic suppliers," says director of commercial cards at Barclaycard Business, Denise Leleux.
Big or small?
When EMSs were launched, they were complex IT systems that were installed into the client's offices. They took a major bite out of the corporate budget and were suitable only for multinational companies that had the resources and the infrastructure to host them. These days, however, they are 'software as a service' (SAAS) and are hosted by the supplier.
As a result, EMSs can now reasonably be bought by SMEs. "As we drive down implementation, a company as small as 50 employees can automate the travel and expenses process. We go as low as 25 claims per month," says Concur's Juneau. "Five years ago, only a FTSE 100 company had the resources to do it. We can have a company up and running in four to six weeks."
KDS offers a corporate service for companies with a spend of between £3 million and £8 million, which takes between two and six months to install, depending on the complexity of the format required. A mid market version is targeted at SMEs, which goes down to a spend of £20,000 and can be set up in just four weeks.
Etap-On-Line provides a hosted service - 80 per cent of clients chose that in 2007; and sells a licence to clients who have the software installed, although the tool is identical. Etap's smallest client processes 30 claims per month and according to Tétaz, using the system for anything smaller would not give a return on investment (ROI). Etap's largest client has in excess of 50,000 users in 150 legal entities, creating 25,000 expense reports per month.
Companies of all sizes use the same GlobalExpense system but for different reasons. "Our smallest customer has five users and our largest 10,000 a month. Smaller companies are using it as a convenience tool but if they are looking for ROI, they need around 100 employees," says Vine. Installation time depends on the company. "We got Asda up and running in four weeks, but you need have the data and procedures in place before you start."
It is difficult to pin down the cost of these systems because charges vary according to the complexity required and the number of users, and some suppliers use a different model to charge for an SME version than for a corporate. Implementation fees for different companies can range from £6,000 up to £15,000. Some companies charge a transaction fee (from £3.50) and others a user fee (from £3).
GlobalExpense charges for active users, so a client company may have 10,000 registered users but only £1,000-worth active and will be charged only for the latter. KDS applies a transaction fee for its corporate system but a user fee for the SME version. In addition, there can be extra charges - KDS applies a hosting fee and GlobalExpense a fee for each receipt processed. GlobalExpense also does audit checks - as use of the system grows, the unit price goes down but the overall cost goes up.
Getting it right
To paraphrase Bill Gates, if you automate a flawed manual process, you will only magnify the flaws. It is crucial, therefore, that companies about to install an EMS examine carefully their paper processes in order to ensure best practice. Best practice is implementation of corporate cards, receipt requirements in line with local tax exigencies and, once automated, regular audits thereafter. Concur's Chris Juneau advises that although many companies that have yet to automate their expense process do 100 per cent audits, once automated that can be reduced to 20 per cent.
And as with all major changes, change management and buy-in from the very top of the hierarchical tree are crucial. "It is important to get the active support of senior management when undertaking the implementation of an expense management system," says American Express's Mike Parker. "And a strong project team is also required - it should not be led by just one function. An expenses claim process can be seen as a finance-led initiative but it needs to involve purchasing, HR, legal and tax." Parker also recommends undertaking a travel policy review as part of the automation project to get the full benefits of compliance.
Breaking with tradition
Spendvision's director of sales David Smith, however, suggests that the best way of improving the process may not simply be the automation of traditional expense reports - a new way of thinking is needed. "People try to qualify a system by the number of expense reports put through but they are a historic batch process," he says. "Other expenses such as bank, utilities, credit card and mobile phone, for example, are provided in a statement."
Smith says the statement format makes it easier for employees to attribute expenses from one trip to a number of projects and provide additional information such as marking those expenses that are chargeable to clients. "Expense reports may be created on a per trip or per week/month basis because finance can handle batches of expenses, but that means travellers have to create separate project expense reports, and each expense report costs money," he says.
And Smith believes that the reason for automation is not always visibility or control but geography. "If people rarely go back to the office, they do not want to put in an expenses report at the end of the month in the hope someone will be able to approve it." he says. "The same company can use the system for small purchases such as requisition for anti-viral software or a new telephone. They can order it on their credit card and reconcile and get it approved on line. This gets expenses completed and approved in real time."
Advanced Medical Optics (AMO) Ireland started installing Concur EMS in Asia/Pacific and Europe in 2006, where between 1,800 and 2,000 people have been moved over from a manual system involving the use of Excel spreadsheets. AMO processes 1,000 expense reports per month in Europe, and Concur is integrated into its expense reporting system SAP.
"The biggest benefit is visibility into expenses and the ability to slice and dice easily, which allows us to compare different business units, markets and cost centres; to approve online and to conduct internal audits," says AMO Ireland's finance manager Fergal O'Connor. "Also, there are considerable time savings against manually inputted expense claims and fewer errors," he adds.
There were inevitable teething problems and O'Connor was careful to ensure the necessary time was invested to get people up to speed. "After six to eight months, we started to get payback by putting in internal controls and compliance reports."
And was there much resistance? "Yup! Some countries do work better than others, where employees were sticking items down on Excel and slapping them into an envelope with receipts. In Germany, they did not even have to go as far as using Excel. Now there is more onus to document and code expenses and scan in receipts," he says.
O'Connor set up pilot groups that included senior executives. "They were on side straight away and that was a huge help," he says. AMO gives cash advances in some cases but also has a corporate card programme.
The entire roll-out took around 18 months but as O'Connor points out: "We had a small project team: you could do it in nine months with more people."