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Finding The Right Expense Management Solution For Your Company
In recent times, initiatives such as the Sarbannes Oxley Act in
the US have dramatically raised the profile of compliance within
the corporate world. As a key element of any corporate
compliance policy, expense management has shared some of the
limelight. As a result, an Expense Management Solution (EMS) is
now critical to any business concerned with corporate
compliance. But what is an Expense Management Solution (EMS)?
Does your company need one? And where do you find a good one?
Just as importantly, how do you successfully implement and
integrate an Expense Management Solution (EMS) into your
corporate environment. This article sheds some light on these
issues.
What is an Expense Management Solution (EMS)?
The term "expense management solution" has been used to describe
quite different commercial products and services. In the context
of this article, an expense management solution is defined as a
technology based system that processes:
(i) transaction records received from a credit card issuer
(detailing employee use of corporate credit cards0; and
(ii) cash reimbursement claims originated by an employee.
In practice the target application is Travel and Entertainment
expenditure. A robust Expense Management Solution (EMS) will
also support procurement (pCard) activities as part of a broader
strategy of effectively managing lower value, high volume
business-to-business transactions.
The three core steps of any expense management process are: 1.
the acceptance/input of validated source data; 2. the
application of predetermined rules of handling expense records;
and 3. the posting of transactions to a corporate repository
such as an ERP system.
What is the purpose of an Expense Management Solution (EMS)?
The objectives of an expense management solution implementation
should include the following: 1. to automate the preparation,
submission, approval, and auditing of travel & entertainment
claims, thus improving the productivity of account holders and
reducing the time and cost of accounts staff;
2. to support the implementation of a standardized best practice
method of managing high volume expenses through the use of
corporate credit cards; and
3. to increase the transparency and enhance the governance of
financial transactions conducted on behalf of the enterprise.
Sources of Expense Management Solutions
Australian and international organizations now have access to a
range of quality expense management solutions which are well
suited to driving down administration cost whilst meeting
corporate compliance requirements. There are essentially three
sources of "expense management solutions": 1. ERP systems; 2.
systems offered by card issuers; and 3. best-of-breed solutions.
Each will have their own merits and will suit organizations in
different circumstances.
Enterprise Resource Planning (ERP) Systems ERP sourced expense
management has the attraction of being fully integrated within
the financial suite of software, therefore offering a standard
look and feel to all users of the ERP. With ERP sourced expense
management functionality, the ERP supplies the core software,
and the enterprise needs to customize and configure the system
to reflect its own structures and rules regarding the management
of staff expenses. If you're considering the option of using
their ERP for expense management, you need to be conscious of a
number of factors, including:
* the actual functionality available within their specific
installed ERP system; * the backlog of work on the ERP system
accumulated for the IT department; and * the deployment time and
the cost of the project (which will usually be substantial).
License costs can be an issue if an enterprise if your company
has not paid a license fee that will cover all card account
holders and cash claimants.
Card Issuer Systems
Some card issuers promote "expense management" solutions which
can range from a computer generated report through to an online
system with some embedded workflow concepts. The attraction of
card issuer expense management solutions is that they are
offered as part of a card deal, sometimes (apparently) for free.
If you're considering a card issuer expense management solution,
you need to know:
* will you be 'locked in' to the card issuer?; and * will you be
able to configure the expense management solution to
adequately
reflect internal requirements?
Best-of-Breed Solutions Best-of-breed expense management
solutions from specialist providers can be relatively seamlessly
interfaced to an organization's internal systems such as HR and
ERP, but will not present a common look and feel to the ERP
system. You would usually choose a best-of-breed expense
management solution if you want:
1. your company to be independent of a particular card issuer;
2. to achieve a fast implementation; and/or 3. to configure the
solution to its own unique rules and policies of expense
administration. Best-of-breed expense management solutions are
typically deployed as either an ASP (Application Service
Provider) or self hosted solution. Although exceptions are
common, small to medium enterprises tend to appreciate the lower
up-front cost of an ASP expense management solution, and larger
enterprises are attracted to the control available through a
self-hosted expense management solution. ASP expense management
solutions are typically paid for on a per statement per month
basis, and self-hosted expense management solutions have a range
of options available from up-front license fees to monthly
license rentals.
Overcoming the Cultural Resistance to Expense Management
Solutions
Some Finance Directors still have an aversion to corporate
credit cards. It's not uncommon to hear a finance director say
"if I give everyone a card, they'll spend us broke!"
However, the benefits of an Expense Management Solution are
apparent as soon as the Finance Director considers the
difficulties of controlling the expenditure behavior of
thousands of employees using a manual system of reimbursements
which is largely based around a set of uncoordinated
spreadsheets. Basic activities such as enforcing travel
policies, calculating tax implications, reconciling, posting to
a chart of accounts at a detailed level and auditing, are so
difficult as to be more honored in the breach than the
observance...
Viewed from a different perspective, a company with revenues of
$700m $50m in EBITDA, and $20m in annual employee business
expenses, can make a dramatic impact on its bottom line using an
expense management solution without increasing revenue. If
automation reduces these expenses by only five per cent in the
first year, the savings alone have the same impact on the bottom
line as $14m in new revenue. It isn't surprising that the return
on investment of an expense management project is often achieved
within its first 12 months of operation.
Expense Management Solutions also play a vital role in Fraud
Control. "Fraud" in this context takes many guises, not all of
which are the sort that land perpetrators in court. Information
taken from our own customer experience and from publications of
the USA Association of Certified Fraud Examiners identify the
top four categories of fraud: 1. Mischaracterized expenses 2.
Overstated (exaggerated) payments 3. Fictitious expenses 4.
Multiple reimbursements
Research in the USA has pointed to as much as 1% of company
revenues being lost to employee expense mismanagement. Expense
Management Systems will not, in their own right, eliminate this
but they are a vital tool in creating an environment that drives
down the level of mismanagement.
Conclusion
Over the past 18 months, our company has observed a change in
motivation for expense management projects. Whereas formerly
expense management solutions were an exercise solely in the
reduction of administration costs, now governance is equally a
driver to implement technology based controls around high volume
expenditure. The Sarbannes Oxley (SOX) act in the USA has
captured the attention of any enterprise active in the USA.
However, inside or outside the USA, the senior executives must
warrant that their company has implemented adequate financial
controls that prevent fraud and give a true and correct record
of the enterprise's financial activities. As a result, the
Corporate Travel Manager who pitches a proposal on expense
management to the senior executive team currently finds a
willing audience.
About the author:
* Peter Granger is the CEO of Inlogik Pty Ltd. Inlogik owns
and distributes ProMaster, an Expense Management Solution
used by major corporations in 40 countries. See www.InLogik.com.
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