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Using Big Data to Redesign the Expense Report Audit Process

The introduction of global processes for Travel Expenses, combined with new capabilities to collect and analyze data from multiple sources, creates new opportunities for companies to make dramatic changes to how the travel expense report process is designed and administered.  One of the most highly impacted areas is the expense report audit process, where using data analytic techniques can dramatically reduce the need for traditional audits of expense reports.

During a recent Peercast, a global manufacturing company with over $25B USD in annual revenue discussed its ten-year journey to move to a common T&E solution and standardize processes and procedures across the globe.   Even after much time and effort, there remained significant problems with the current audit process, including:

·         Audit findings weren’t significant, as compliance breaches were generally hidden from initial audits

·         The audit process did not include tools to identify fraud

·         Without detailed key words to review, moving to a global center for audit meant auditors didn’t have familiarity with possible problem vendors

·         There was a need for an increased focus on “anti-bribery, anti-corruption” risk, reputational risk, and ethical interactions, and less on insignificant and unintentional mistakes (for example, having a 6 Euro expense supported by a 5 Euro receipt).

Our feature company created a three-step approach to Expense Report Audits in their redesign of the audit process:

Step 1:  Manager Review

Using delegation of authority rules, 100% of expense reports are reviewed by an employee’s manager.  To be effective, managers must be properly trained on the company’s expense policy that all users agree to follow as part of the employee code of conduct.  Formal training was conducted through e-learning for all users, with a detailed module on how to review an expense report. 

In addition, the review process was streamlined based on feedback from reviewing managers; allowing for many line items to have summary totals, with the ability to drill down to review underlying details as necessary.

Step 2:  Random audits at the Shared Service Center

A small percentage of reports continue to be selected for audit to review scenarios that can’t be reviewed through data analytics.  This includes identifying missing receipts, VAT review, looking for fake receipts, and out-of-pocket amounts that don’t match the receipt. 

Step 3:  Data Analytics – Combining Data from Multiple Sources into a Single Database for Analysis

In this step, 100% of expense reports are electronically analyzed each quarter against test questions to identify trends and patterns, with data from multiple systems (CRM, HR, P2P) included.  For exceptions identified, a Local Compliance Officer located in each market follows up directly with the employee.  The savings from reducing staff to conduct audits have been reinvested in more sophisticated data analytics tools. 

A sample of test questions includes:

·         Dates where expenses were claimed when the employee was on vacation, sick, or where it was a public holiday

·         High-value expenses

·         A high cash spend

·         Repetitive charges to the same vendor

·         Duplicate expense amounts

·         Keywords or vendor names that might suggest personal expenses

Based on the supporting iPoll1, while 41% of companies audit 10% or fewer expense reports, 17% are auditing 100% of them.  Here are the details:

 ipolling results on percentage of expense reports selected for audit


The follow-up question asked, “What is the status of performing a formal cost/benefit analysis trading off the cost of the audit with the benefit of fraud detection to determine the optimum expense report audit level at your company?” The results to this question were particularly interesting, with only 13% of companies reporting that they have completed such a review, and a full 50% have either not considered the idea, or they decided not to conduct an analysis.

 status of performing a cost benefit analysis trading off the cost of audit ipolling results


Comments from iPolling participants provide additional insight:

·         Audit annually selects approximately 10% of employee expense reports to review. In addition, Operations Accounting, in certain areas such as Latin America, the USA, and Canada reviews either a sample or many Expense Reports based on what has been “deemed” appropriate. Operations Accounting in the Eastern Hemisphere reviews 100% of employee expense reports. We are looking at a possible transformation in the T&E process to drive greater automation and tools to facilitate random reviews.

·         We audit based on whether or not expense reports meet specific criteria rather than a set percentage. However, the average percentage is about 65%.

·         Our current 100% audit is not reasonable. We have begun the research for determining what is the best practice for a company similar in size.

·         We built Internal Controls into our Travel & Expense System configuration and we hold our Managers accountable for approving an employee’s expense report for payment that is not compliant with our Travel Policy.

·         In the U.S., we were auditing 10-13% of expense reports, but recently reduced the amount to 5% due to the number of low-risk items being found.

·         We have our global T&E auditing centralized and some of our countries are at 100% audit.


Does your company have a global process owner for the Travel Expense Process? 

How does your Travel Expense Report audit process vary by country?  Have you evaluated the cost/benefit trade-off between the cost of the audit with the benefits of fraud detection to determine the optimum expense report audit level at your company?

Who are your peers and how are you collaborating with them?

“PeercastsTM” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer MailTM, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees. 

1 “iPolling” is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from participating or accessing content. Members have full visibility of all respondents and their comments. Using Peeriosity’s integrated email system, Peer MailTM, members can easily communicate at any time with others who participated in the iPoll.


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