The importance of improving compliance in a cost saving era

In the summer of 2022, after over a year of not travelling due to the restrictions imposed by the pandemic, I was finally able to step foot on a plane and go on a trip. Soon after that, business travelling resumed, and I had to face the music and realise that, unlike on my personal trips, there were some rules I had to abide by during my time abroad for business if I wanted to stay compliant with company policy.

It wasn’t always easy at first, because times have changed since COVID hit. The market has changed, budgets are a lot tighter for most organisations, and this reflects on what kind of costs we can incur when we travel abroad. The same goes for the whole business, and as the majority of companies enter a cost saving era, staying compliant with internal policies is more important than ever.

But it doesn’t come without its challenges, because as much as the market has changed, so have the people, who are often unaware of these new regulations companies are imposing, leading them to make mistakes when submitting their expenses. And whilst for the most part these errors are, in fact, mistakes, there are still a percentage of risky expenses that not only increase spending, but can also lead to issues in case of an audit.

These are the kinds of expenses that Finance teams need to pay attention to. But, for the most part, and in organisations that still use traditional methods to process their spending, Finance teams are getting stuck in the vortex of endless expenses that need to be analysed, when more often than not there are no issues whatsoever. That’s where technology comes in, turning into a beacon of light at the end of the tunnel. But to truly understand how to leverage it, we first need to look at what changed over the last few years.

We live in a time where change happens in the blink of an eye. And proof of that is the changes that we saw in just two short years, when the pandemic hit. As we’re now in this era most have dubbed “the new normal”, there’s no denying that things have changed, and pressure to not only stay afloat but also achieve great results is higher than ever before.

As a Chief Client Officer at Oversight, where I’ve worked for over 15 years, I’ve seen a lot of change happen throughout the years. Working closely with a lot of different clients around the world, I’ve seen the amount of financial pressure they’ve been facing as of late. Inflation has become a real problem, not only for people but for corporations alike. And while governmental organisations are increasing their loan lending rates, most companies have changed their financial strategies to try and control their spending as much as possible.

The great fear of recession most companies faced last year is one of the causes for that. And while most thought the hard part was over, the reality is that recession might be making a comeback, both in the US and abroad. The effects of recession and inflation have been obvious around the world, especially when it comes to tech corporations, who were hiring a lot of new employees during their high growth periods, and have now started doing layoffs so they can control their costs.

“As organisations find a way to navigate through these changes, compliance regulations are on the rise across the globe. “

On the other hand, this shift in the market has also led a lot of companies to become more cautious over spending so they can achieve profitability and become more interesting to investors. Pressure for growth has always existed in the corporate world, but as the private equity market makes a turn, companies are now aiming not only for a top of line growth, with sales increases, but also at controlling their spending to achieve positive EBITDA.

As organisations find a way to navigate through these changes, compliance regulations are on the rise across the globe. Most of them come straight from governments, like the European GDPR. Their goal? To protect consumers.

In the era of Artificial Intelligence (AI), more and more companies are leveraging its abilities for their businesses. It provides them with a simple way to automate mundane tasks like making predictive analyses or processing large amounts of data at lightning speed. But with all its benefits, the use of AI has also raised some questions, especially around how these organisations handle and process data. The main questions are: Are these organisations implementing AI responsibly? And do their AI systems uphold the principles of data privacy and protection?

To address these concerns, many companies are adopting a transparent approach to AI, where they clearly communicate how their systems work and the measures in place to protect user data. This includes rigorous internal audits, adopting ethical AI principles, and collaborating with third-party institutions for unbiased reviews of their AI strategies.

Aside from all this, the current geopolitical landscape has also led to an increase in compliance regulations across the globe. Many countries have, for instance, created specific sanctions to demonstrate their opposition towards conflicts that are currently unfolding.

But there’s a third element that needs to be added to this equation: the rise of out of policy spending, which has been putting an even bigger strain on organisations all over the world.

There’s no denying that travel and expense has seen a lot of changes over the last few years, most of it due to the pandemic. During COVID, everything was shut down, travelling was mostly non-existent and the majority of employees worked from home, which led to the introduction of a lot of new policies.

But now that we are returning to normal and adjusting to these new work settings, some of these policies are in flux, which has led to some confusion amongst employees, creating a lot of out-of-policy spending.

A good example of this are the policies that allowed employees to expense home office supplies. In a time when most people were working from home, some organisations and even governments started allowing employees to expense things such as monitors, internet plans and even electricity bills, given that those were necessary for them to work from home. But now, policies are constantly changing, and employees are often unsure of what they can and can’t expense, which can lead to out of policy spending and extra costs for organisations.

Travel expenses have also become quite confusing for most people. As regulations and company policies keep changing, even long-standing employees who are used to pre-pandemic rules are finding it hard to understand what they can and cannot expense when travelling abroad.

For those who joined an organisation during the pandemic, the challenge might be even greater, as they didn’t know the policies beforehand, but are now able to travel. Being unfamiliar with old regulations and having to deal with changing guidelines can add to their uncertainty, which can lead to more out of policy spending.

Adding all of these things together creates a real struggle for organisations, particularly the Finance teams. Because as teams face the pressure of keeping costs at bay, employees are often confused and unable to keep up with all the different policies on the rise. And in a world where a lot of companies are still managing their expenses by hand, it can become quite overwhelming and make it almost impossible for people to do their jobs.

Enter… technology.

Tension has become so much more than a buzzword for Finance teams over the last few years. The constant changes in policies, the need to stay compliant with internal policies and local regulations, and the pressure to achieve outstanding results whilst saving costs have been making it almost impossible for Finance teams to do their jobs, especially the ones that haven’t made the shift to digital processes.

Many organisations around the world still use paper and Excel files to manage their expense reports, which leads to a myriad of struggles such as loss of receipts or end-of-month peaks. On the other hand, it takes time away from other pressing matters, as reviewing these reports is often a lengthy task for the teams.

By following these traditional methods, Finance teams quickly become overburdened and unable to focus on more pressing matters, such as working on the company’s growth strategies. And that’s where technology can help, by easily automating numerous tasks that facilitate both the employee’s and Finance’s jobs, whilst also streamlining data for auditing.

For that, a good and solid smart expense management foundation needs to be set in place. Leveraging tools like Rydoo can help employees submit their expenses in a clear and easy way, reminding them of their internal policies and also providing access to current legislation in multiple jurisdictions across the globe. At the same time, it makes it easier for managers and Finance teams, as it provides them with visibility and other capabilities that are crucial in the cost savings era.

“By following these traditional methods, Finance teams quickly become overburdened and unable to focus on more pressing matters.”

Beyond that, having robust analytics systems like Oversight, an AI-based tool with pre-configured rule-based analytics, can help manage the complexity of expense reports. The tool’s robust analytics simplify the team’s workload.

The way the software works is that it looks at all the necessary data and highlights all the expenses the team actually needs to focus on, rather than having them look at all the different expense stacks where, for the most part, all expenses will be compliant.

Over the years of working closely together with clients from different industries, what we found at Oversight is that around 70% of our clients’ employees are submitting their expenses according to company policy, but there’s still quite a big percentage of out-of-policy spending.

Typically, about 20 to 25% of those expenses are accidental, such as going a bit over budget on a client meal or a new employee who was still unaware of the company policy and spent a bit more than they should. But aside from that, there’s still 5% of employees engaged in high risk activity that need to be carefully watched, as it can become a compliance issue and cause problems in case of an audit. A good example of this is when an employee submits an expense for something they bought at a jewellery store. In principle, those expenses would be considered out of policy, but the truth is it can simply be a gift for someone who’s celebrating their 10th anniversary at the company, and the team decided to offer them an engraved pen.

In a traditional setting where Finance would manage expenses with manual expense reports, finding these 5% of expenses would be something similar to finding a needle in a haystack. And with all the responsibilities falling under Finance’s scope, they no longer have the time to focus on spending that is, in fact, compliant with company policy. That’s where technology such as the one Oversight uses comes in.

The tool will take the company’s pre-configured policy and analyse all the haystacks of expenses, just to pull out all of those sharp metal things. They might not even be needles, they can simply be some piece of barbed wire from a fence. But they’re sharp enough to look at. By using this type of technology, all Finance teams need to focus on are the expenses that the software flags as non-compliant or risky spend.

It creates less friction for Finance teams, but also for employees, who no longer have to face the dread of endless reimbursement cycles. On the other hand, it can make it easier for both managers and auditors, because as the tool gets smarter, it provides them with the information that they really need to look at. This way, they can spend their time working on what to improve, instead of wasting countless hours looking for errors.

Saving costs in an effective way goes way beyond identifying discrepancies. It’s about fostering a culture of responsibility and accountability amongst employees. And combining the power of tools such as Rydoo and Oversight can help change those behaviours.

Take those 25% of employees that keep spending out of policy, even if by mistake. The software will analyse the data and understand if there is a reason behind it and will not penalise employees for isolated incidents. However, when the behaviour becomes systemic, both the employee and the manager will be notified of the situation. A simple in-app notification is often sufficient to get them on a path to self-correction.

“A proactive approach to compliance is not only a responsibility, but a strategy to ensure sustainable growth and, ultimately, profitability.”

The technology both platforms use can also track how many of these reminders have been sent. This, in turn, makes it possible for both the managers and the Finance teams to understand if there’s progress and change in behaviour over time.

These simple interventions not only change behaviours but will, in the long run, contribute to substantial savings. Over the last few years, we’ve seen that companies have been able to save about 2% to 5% of their overall yearly spend. It might not seem much, but in the context of 100 million in travel expenses, that can translate into a significant 5 million in savings per year.

Maintaining compliance with both local regulations and internal company policies has become crucial in the financial landscape. In a time where every penny counts, leveraging technology and AI-driven platforms can be pivotal in making the necessary changes within organisations, not only by modifying behaviours but by also making it easier for Finance teams to know where to look when it comes to out of policy spending.

Every moment Finance can save by streamlining their routine tasks, whilst still efficiently identifying all the necessary risks in spending, can be used working on growing the company to higher grounds. A proactive approach to compliance is then not only a responsibility, but a strategy to ensure sustainable growth and, ultimately, profitability.