With the introduction of sophisticated Travel Expense software, complete with pre-populated expense line items, and automatic checks of merchant category codes (MCC) for appropriateness; combined with the move from cash advances and the requirement to have all expenses on a credit card, the risk of loss due to errors or intentional fraud has been reduced dramatically.  Yet, when you consider how the expense report audit process has changed, many are still performing extensive compliance audits of travel expense reports.

There are a number of reasons cited for requiring frequent audits, including the policy of auditing all key employees. Because of their position in the company, it may not be as easy for another employee to review and challenge the appropriateness of expenses. Also, a glaring transgression risks embarrassment to the company, resulting in the board of director level exposure; an outcome that isn’t fun for anyone, and particularly unpleasant for the organization responsible for expense report processing. 

Another common reason for performing extensive T&E audits is related to compliance with Value-Added Tax (VAT) requirements.  For companies carrying out significant operations in Europe, the amount of VAT recapture can be in the millions of dollars, which certainly gets the attention of management as they strive to make the company as profitable as possible.

It’s important to note that any audits by those responsible for processing the expense report are almost certainly duplicate reviews of expense reports that were approved by the traveler’s manager.  Obviously, the best point of control is a well-trained manager with budget authority for the expenses, who is motivated to ensure policies are followed and appropriate outcomes are achieved.   No one else is in a better position to deem expenditures as “ordinary and necessary business expenses”. 

Recently, Peeriosity’s iPolling^TM functionality was used to perform custom research in the Corporate Card research area to understand the approaches that member companies take regarding the audit of expense reports.  The results indicate that 25% of member companies’ audit less than 20% of expense reports, with 54% auditing less than 40% of expense reports submitted for processing.  Interestingly, even with many compensating controls in place, 19% of member companies are auditing 100% of expense reports.  Here are the details:

The follow-up question looked at the frequency of performing audits, with 71% indicating that they perform audits on a daily basis.  The next most popular frequency was monthly at 14%, which implies that the audits are taking place after the expense reports have been processed with associated expenses reimbursed.

Here are a few of the comments from responding companies:

• A third party performs the audits.
  

• We have largely automated expense auditing so fewer manual audits are required.

• If an expense report only contains employee mileage reimbursement, these bypass the processors and are only approved by direct managers. All other reports are reviewed and approved by direct managers, as well as audited against policy before approval by the processors.
  

• There are countries that have a higher audit percentage due to statutory compliance.
  

• In the U.S., we visually audit 50% of all reports. Outside the U.S., we are auditing 100%, which includes receipt verification for VAT purposes before processing the trip.
  

• For our Latin America operation, the manager is the one approving the expense report and overruling any inconsistency with the current policy, so we don’t perform an additional review in Shared Services.
  

• Once a year we perform random checks.
  

What approach does your company take to auditing expense reports?  Are they reviewed for all employees, or only for specific employees? 

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

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 “iPolling^TM” 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 e-mail system, Peer Mail^TM, members can easily communicate at any time with others who participate in iPolling.