How to Determine High-Risk Business Transactions and Reduce Non-Compliant Spending

Our employees are our most valuable assets, however, managing their spending across a growing number of expense categories and payment methods often leaves room for error and non-compliance. These are serious (and time-consuming) issues that can create mistrust, misuse, and an overall waste of your organization’s time. But with clear expense policies and relevant expense type categories, you can reduce most of the ambiguity and non-compliance, saving you time and money while reducing your organization’s risk.

Whether internal guidelines or external regulatory requirements, the way an organization defines and enforces policies determines its risk for fraud and non-compliance. Having checks and balances, in the form of clear expense policies, makes it easier for employees to comply, and simple for you to mitigate, detect, and prevent losses from accidental errors or fraudulent activities. While sound policies are only part of the equation, efficient and consistent enforcement through technology can help close loopholes that could leave you exposed.

Using this interactive expense policy builder, you can create a policy to prevent non-compliance before it happens. Read on for our best practices to optimize your organization’s spending compliance.

Determining High-Risk Expense Types and Business Transactions

Identifying top high-risk expense types in your organization is a great first step to mitigating non-compliance. High-risk expense categories are those with a higher potential to have uncommon expense types that people may be using inappropriately for one of two reasons:

1. They may be used for expenses that should not be submitted at all (a hiding place for non-compliant expenses).
2. There may be confusion about the correct way to submit the expense or the circumstances under which the policy allows for reimbursement.

Here’s a list of the top 14 expense types found with spend in high-risk categories across
SAP Concur customer data. These are categorized as high risk because they have the greatest room for fraud or non-compliant spending. We recommend running your top expense types then using this list to prioritize your auditing process for non-compliant or fraudulent spending:

The Top 14 High-Risk Expense Types

1. Dues and subscriptions
2. Training and seminars
3. Advertising
4. Marketing research
5. Merchandise
6. Guest receivables
7. Mobile/cellular Phone, Skype, VOIP
8. Passport/vaccinations/visa Fees
9. Internet/Wifi
10. Gifts for hosts/guests
11. Bank fees
12. Business license and registration fees
13. Meeting space rental – Marketing
14. Miscellaneous/other

Managing Hidden Spend and Growing Expense Types

While these high-risk spending categories are important to watch, it’s equally important to monitor the category labeled as Miscellaneous/Other, as well as gift cards and the amount of growing expense types.

Jim Coufal, Senior Principal and Advisor from TCG Consulting, sat down with Jason Grunin, Sr. Value Consultant at SAP Concur, during the SAP Concur Conversations podcast and explained that it’s important to “understand what's actually being booked” to the miscellaneous/other category. And that “it will help you determine if you need to add more expense types.”

“Our recommendation would be to err on the side of simplification because the more categories you have, the harder it will be for employees to accurately identify these expenses,” Coufal said. “You want to balance it with the controls and compliance that you need from an organizational perspective, to manage the spend, and to maintain compliance based on policies.”

Another tip? Coufal recommends keeping an eye on gift cards, especially around the upcoming holiday season. For example, he sees “Amazon charges getting booked to office supplies, postage, Starbucks cards into meals, and Best Buy cards for office equipment.”

Grunin shared his own experience, agreeing that gift cards can be risky and hide among different spending categories. One customer in particular “ran some reporting on their travel and expense program and looked for the [keywords] ‘gift’ or ‘card’ in any of the comments. And what they identified was over $150,000 in spend across 12 different expense types.” Grunin said.

Constant evaluation and evolution of your expense policies to accommodate new categories, retire old, retrain employees, or broaden expense types where it makes sense will help ensure your travel and expense program is efficient and accurate.

Eight Best Practices to Reduce Non-Compliant Spending

After evaluating your high-risk expense types, digging through your Miscellaneous/Other category to clean up hidden spend, here are some more best practices to keep your organization’s spending aligned to policies and regulations:

1. Establish clear and appropriate expense policies.
2. Provide continuous and comprehensive training and support for all current users and new hires.
3. Update training materials when new policy guidelines or product features are introduced.
4. Offer employees booking, expense reporting, and authorization tools with functionality to prevent or identify non-compliant behaviors (e.g., lack of documentation, limit spending, unauthorized use of expense types).
5. Encourage mobile receipt capture and mileage tracking with smart phones.
6. Conduct regular audits to check for policy adherence.
7. Use what you learn about your own data to drive policy changes and configuration updates.
8. Assess the miscellaneous/other category to see if new expense types should be created or if training is needed.

What You Can’t See Can Cost You: Minimizing Fraud, Maximizing Compliance

Keeping a pulse on your organization’s Highest Expense Spend categories is an excellent barometer for the health of your overall spend management program. What more could you be doing to guide your employees towards responsibly stewarding your organization’s dollars while protecting your organization from potential risks?

Here are some resources that might help you get started:

• Leverage our handy expense policy builder to keep yours relevant in these ever-changing times.
• Watch the video to learn about healthy financial processes.
• Listen to our podcast: Futureproofing Financial Disruption, 3 Things to Do Right Now