The Association of Fraud Examiners estimates that around 5% of organisations’ revenue worldwide is lost due to fraud, which translates into over $3 billion in losses. The biggest transgressors? Employees. While many might breach company policy for personal benefit, most infractions may happen for a myriad of other reasons. However, there are strategies that can be applied to increase compliance rates.
Low compliance rates can lead to unnecessarily high costs and ultimately undermine an organisation’s financial health. Understanding why compliance rates are low is the first step in improving them. Once there’s a clear answer, the issue can be objectively addressed.
In this article, we outline effective strategies to help finance leaders reduce policy breaches. These strategies range from the importance of creating a clear, objective, and easily accessible expense policy to introducing smart expense management solutions to make the process easier for everyone involved, improve control, and increase compliance.
Write a clear and concise policy
Imagine a scenario where you’ve just joined a new company, and HR sends you a 300-page company policy. Pages filled with information, jargon and unclear sentences that employees are likely to skip through without retaining the information are not ideal.
Expense policies need to provide clear guidance on what expenses can and cannot be expensed and how the process works from start to finish. Some examples include approval procedures, points of contact, rules for using company expense cards, and a list of expenses that will and will not be approved.
The information should be clear and easy to understand so all employees can understand the rationale behind the rules. Moreover, the policy must define clear expense parameters aligned with your organisation’s company culture, budgetary goals, and business objectives.
These parameters should be precise enough so your employees know what is expected of them, but they should also be flexible enough to accommodate the business dynamics. The conditions under which exceptions can occur and how they should be reported should be included in your policy.
Finally, provide a detailed explanation of payback periods so that employees know when they will be reimbursed for expenses incurred. While the policy’s content is the most important part, design should not be overlooked. A nice-looking report will be more effective than a messy Word document.
Communicate, communicate, communicate
Your expense policy is only effective if employees know about it. Emailing the policy to your employees is not enough, as most will likely not see it. Instead, leaders should actively engage with employees to make sure they know and understand the policy.
Employees will be more willing to learn about these guidelines and procedures when leaders actively explain them and make it an ongoing conversation rather than a lengthy document. This will also allow employees to ask questions, which will help improve the policy and boost compliance.
Take advantage of every opportunity to remind them of the policy, clearly stating where they can find them and who they can reach out to if any questions arise. It should also be mentioned during the onboarding process of new hires and shared regularly as a reminder, especially during major company events.
Automate your expense management
Managing expenses manually can make it difficult to ensure that the company’s expense policy is accurately applied and enforced. Automated expense management tools like Rydoo’s are tailored to the company’s policy and have built-in controls that automatically flag non-compliant expenses, making it easier to maintain control and keep track of all spending in real-time.
According to a study by Aberdeen Group, using an automated expense report app increases the average compliance rate by 26% while reducing confusion and conflict about why a particular expense item has been declined.
Expense management tools that allow unlimited configuration of business rules, such as Rydoo, enable you to clarify your corporate spending rules. Whenever a user submits an expense that doesn’t comply with internal policy, the system will automatically flag it and send an alert explaining the issue so they can immediately address it.
As an added benefit, automating the expense management process will increase employee happiness and productivity, as the employees no longer have to waste time on tedious and frustrating tasks such as collecting receipts and submitting expense reports.
Choosing the right expense management tool is important. And while some might be resistant to digital transformation, Rydoo provides a user-friendly and easy-to-use solution while guaranteeing full support from the team every step of the way.
Reconsider the way employees book travel
Rather than asking your employees to follow the rules set in the company’s policy, why not make it easier for them right from the start?
Most companies opt to have their employees book their business trips and then submit them as regular expenses. The issue? Approvers have no control over what employees book, meaning they can easily go over budget at any time.
Using a modern travel booking tool allows for more transparency and control and ensures compliance every step of the way. When employees book a trip, the platform immediately indicates whether the trip complies with the expense policy. For instance, if the company policy states that hotel rooms should not cost more than €150 per night, those above that amount will be flagged as non-compliant.
It’s also a way for approvers to gain more control over their team’s budget, as they always need to approve the trips. Employees can avoid spending out-of-pocket to pay for those trips and wait for reimbursement.
Companies using Rydoo’s smart expense management solution can even go further. By integrating with one of the tool’s travel partners, all the information is automatically synced with their Rydoo account whenever a trip is booked. This means they won’t need to worry about submitting an individual expense for every plane ticket or hotel booking, as it will be automatically created with all the relevant information. All they need to do is submit. As for Per Diem rates, they can request them based on the information from that specific trip.
Analyse expense data
Being transparent about tracking all company spending is a great way to increase compliance. Knowing that expenses are being monitored incentivises employees to keep their spending under control. Moreover, expense data is a gold mine of information to get insights on employees’ spending patterns.
Mining data for insights will help improve the company’s expense policy and how it is communicated to the employees and even identify which have frequent out-of-policy expenses. This way, the managers or the finance team can reach out and work to increase compliance rates.
It also provides intel on which types of expenses have the highest non-compliance rates and what patterns exist across non-compliant expenses. Some of the questions it can answer include: What are the top five reasons for non-compliance? Which departments or employees submit the most non-compliant expenses? And which departments or employees are the biggest spenders?
Even though the answers to these questions are crucial, they might be difficult to get, as you might have to collect data from different sources, export it, convert downloaded files into different types of files and merge different files together. Automating your expense management will greatly simplify this process, as good expense management solutions provide easy access to insights into corporate spending.
Once a clear and concise policy has been published and communicated and a transition period has been allowed, it’s time to start reinforcing it with strict rules. Employees who continuously breach the internal expense policy should face the consequences, as they contribute to low compliance and undermine the organisation’s financial health, which can even lead to further issues in case of an external audit.
In such cases, it is essential to reach out to employees and their managers to understand if specific reasons justify the behaviour. However, companies that use expense management solutions have their work cut out for them, as comments and further information can be included within each claim to justify the reasons behind the spending.
It’s important to remember that increasing compliance rates with the corporate expense policy is not a one-time thing. Ensuring higher compliance is an ongoing process, requiring constant care and adjustment. The employees’ needs and wants will keep changing, as will the organisation’s business objectives and culture. To keep compliance rates high, it’s crucial to keep the policy up to date and follow all the necessary steps to ensure all employees are notified whenever there’s an update.