How we buy for business is changing. Spend categories formerly under company control have shifted to employee control, creating havoc on managed travel and expense programs. The impact this has on an organization's spend visibility and management, internal controls, and compliance and workforce engagement will be explored in follow-up articles in the coming months.
The spending decisions your employees make on behalf of your organization every day, what we call employee-initiated spend, are expenses where the employee has the freedom to select what to buy, when to buy, from whom to buy, and for how much. Usually these expenses are associated with indirect purchases that are typically reported in the selling, general, and administrative line item of a company’s financial statements and come in any myriad of categories from airfare and hotel, mileage, local transportation, and taxis to trade show expenses, conference room rentals, office supplies, home office expenses, consulting services, internet and mobile phones, subscriptions, and training. As you can see, these expenses are diverse, and sometimes not actually traditional travel and entertainment expenses at all.
Due to the diverse nature of employee spend today, it is easy for expense and travel spend to get out of control. And if you think we’re talking about a few bucks here and there, just last year alone we processed at SAP Concur 238 million of these transactions worth nearly $109 billion. This is a lot of spend that can easily get out of hand without a comprehensive understanding of how to make employee initiated spend visible, compliant, and controlled, while simultaneously facilitating employees’ handling of expense payments, invoice processing, and reporting.
While most organizations have policies that guide employees toward making the right purchasing decisions and budgets that department heads need to comply with, the actual timing and magnitude of the expense is not always visible until after the expense has been incurred. Even when using a connected, automated solution such as SAP Concur to make and purchase airfare reservations, report expenses, or process vendor invoices, there can be a substantial amount of “invisible spend” that is made outside the “closed circuit” of predicted expense magnitude, timing, and vendor.
For example, according to a recent study by Phocuswright, only 36% of surveyed travelers use their approved corporate booking tool to book travel products such as hotels, airfare, and rental car. This leaves a significant amount of travel spend unaccounted for. For instance, when an employee books a hotel reservation directly with the hotel, using cash or a personal card instead of a corporate card or p-card, the charges are “invisible” until the expense report is submitted for reimbursement, which can take place weeks after the expense was originally incurred.
As a result, these practices can result in an:
- Inability to predict how much will be spent or potentially saved over a time-period
- Inability to take advantage of discounts associated with timing of payment
- Inability to fully measure how much is being spent by vendor, information that could be extremely useful for contract negotiations and discounts
- Inadequate fraud identification and mitigation, with high-risk of non-compliant spend
Here at SAP Concur, we formed a Value Consulting group to help our existing customers benchmark themselves against best practices. We have developed a best-practice maturity model that shows our customers how they measure against others in their industry group and suggest ways in which they can obtain more value from the tools and services that SAP Concur can provide.
This is the first of a series of articles in which we will focus on several aspects affecting control of spend and value realization, where we’ve defined employee-initiated spend as spend categories formerly under company control that have shifted to employee control. Making this spend more visible to your finance organization can save your company money by increased compliance to budgets, fraud mitigation, better negotiating position with suppliers, better payment terms – all while employees carry out their spend across more spend categories, using more payment methods than ever before.
Additional themes we’ll cover in upcoming articles include:
- Reducing employee-initiated spend
- Fraud mitigation
- Controlling invisible spend
- Value Consulting at SAP Concur
- Budget management
- Travel and non-travel spend optimization
- Use of corporate credit cards and p-cards
- Managing paper and non-PO invoices
- Best practices maturity model for employee-initiated spend
Be sure to check back with us each moth as we continue our discussions around the business challenges associated with managing employee spend in today’s landscape.