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. In the coming months, we will explore the impact on an organization’s spend visibility and management, internal controls, and compliance and workforce engagement.
The spending decisions your employees make on behalf of your organization every day, which 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. They come in myriad 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, 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, last year alone SAP Concur processed 238 million of these transactions worth nearly US$109 billion. This is a lot of spend. What’s needed is 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.
Most organizations have policies that guide employees toward making the right purchasing decisions and budgets that require compliance from department heads. But the actual timing and magnitude of the expense are not always visible until after the expense has been incurred. Even when using a connected, automated solution to make and purchase airfare reservations, report expenses, or process vendor invoices, there can be a substantial amount of “invisible spend” 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 tool to book travel products such as hotels, airfare, and rental cars. 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. That 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 early-payment discounts
- 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 noncompliant spend
SAP Concur’s Value Consulting group helps customers benchmark themselves against best practices. We developed a best-practice maturity model that shows customers how they measure against others in their industry group. We can suggest ways to obtain more value from the tools and services that SAP Concur offers.
This is the first of a series of articles focusing on control of spend and value realization, where we’ve defined employee-initiated spend as 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 increasing compliance to budgets, mitigating fraud, negotiating better positions with suppliers and payment terms, and more – all while employees carry out their spend across more 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
- 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
For additional reading on this topic, read The Top Five Ways in Which Employees are Decentralizing Spend.
This post originally appeared on the SAP Concur Newsroom.