Why Your Spreadsheet Isn t Expense Management

Transcription

1 Why Your Spreadsheet Isn t Expense Management By Christopher Levush Spreadsheets are the ubiquitous office tool; you can hardly run your business without them. A simple search on Google opens the door to myriad templates for just about any business function you can imagine; calendars, schedules, planning, expense reporting, invoices, purchase orders, billing, asset tracking, employee payroll, time sheets, time cards, vacation tracking, organizational charts, pay calculators, Gantt charts, to do lists, timelines, loan calculations, balance sheets, income statements, cash flow statements, health tracking, gas and mileage tracking, attendance records, and more. There is a commonality to each of these spreadsheet templates and it is exactly what makes them invaluable in business operations: track specific important business activities and/or math calculations for discreet financial functions. Spreadsheets can save companies hours of time to manage the specific business operations for which they are intended. How Far Can Your Spreadsheet Go? Spreadsheets strengths are also their weaknesses. Spreadsheets show answers, but not context. When companies try to get more from their spreadsheets than what they are intended to provide, they are left making decisions based upon incomplete information. For example, employees can save a lot of time filing expenses using a well-designed expense report spreadsheet. Employees fill in the required information and the pre-built formulae 1 Why Your Spreadsheet Isn t Expense Management

2 calculate reimbursements. Often times, this spreadsheet is then printed, receipts are attached and the hard-copy form is forwarded to an approving manager. What this spreadsheet-based expense report cannot provide is the context of the spending a centralized mechanism to manage spending or show spending patterns and trends. Approving managers may or may not have information at their fingertips about whether the expense report complies with company policy, or if the spending is within budget for the given financial period. Finance teams have to manually input the data into an accounting system to schedule the reimbursement. Once in the accounting system, and generally long after the spend has occurred, data can be exported for reporting and analysis. Spreadsheets Are Inherently Error-Prone Another major issue with complex spreadsheet applications and even simple spreadsheet pages is that they often contain errors. The University of Hawaii s spreadsheet expert, Professor Raymond R. Panko, has written, Every study that has attempted to measure errors [in spreadsheet development], without exception, has found them at rates that would be unacceptable in any organization. In fact, 20-to-40 percent of all spreadsheets contain errors according to Panko s Spreadsheet Research Website. 1 Every study that has attempted to measure errors [in spreadsheet development], without exception, has found them at rates that would be unacceptable in any organization. Professor Raymond R. Panko University of Hawaii Rick Butler, an auditor who writes and speaks widely on spreadsheets, asserts that spreadsheet developers miss more than 80 percent of their own errors, and outside testers miss over 50 percent of design logic and 34 percent of application errors. 2 Panko goes on to report in his study: With such high cell error rates, most large spreadsheets will have multiple errors, and even relatively small scratch pad spreadsheets will have a significant probability of error. 2 Why Your Spreadsheet Isn t Expense Management

3 Despite the evidence, individual developers and organizations appear to be in a state of denial. They do not regularly implement even fairly simple controls to reduce errors [in spreadsheet development], much less such bitter pills as comprehensive code inspection. One corporate officer probably summarized the situation [best] by saying that he agreed with the error rate numbers but felt that comprehensive code inspection is simply impractical. In other words, he was saying that the company should continue to base critical decisions on bad numbers. 1 The Hidden Costs of Managing Company Spending with Spreadsheets In study after study by technology and finance analyst firms, businesses continue to rely upon spreadsheets and accounting systems to manage expenses and to forecast cash flow, rather than implement a software program to manage these processes. PayStream Advisors asked companies that have not automated their T&E processes, and who had no plans to do so in the near future, their reason for not considering automation. It reported, The biggest hindrance for automation at 41 percent of companies [surveyed] was the fact that senior management believed that current processes did work, even though they were not the most efficient. Another reason that companies were not interested in automating their manual processes was that they did not think there would be a return on investment. Lack of budget and a lack of understanding of current solutions are other reasons that are holding back adoption of automated solutions. 3 Calypso Technology Calypso Technology administers approximately 5,000 expense reports a year at its San Francisco location. It has implemented an automated expense management system and cites the following benefits it has achieved: Managers are empowered at all levels of the organization to make better business expense decisions and can manage their budgets in real-time. Travelers can cross-charge expenses against different budgets globally, extract the information required and ensure that charges are being applied to appropriate ledger and budget accounts. Employees no longer physically send paper copies of receipts from around the world; instead they scan receipts and attach them to expense reports. Calypso can better budget and forecast its T&E expenses using real-time on-demand reporting. Finally, organizational benefits, process and control improvements and cost savings accrued from its system are significant. But these systems won t give companies what they need to adequately forecast cash positions and manage operational spending, according to Ventana Research. Using an electronic spreadsheet to track spending quickly becomes 3 Why Your Spreadsheet Isn t Expense Management

4 unwieldy and can generate errors because there s no way to ensure you ve entered all commitments and contingencies. 4 There are a number of other problems with paper and/or spreadsheet-based expense management processes that can emerge, especially as a company grows. These include: Lengthy reimbursement cycles for expense reports and invoices It can take longer to process expense reports causing lower employee morale and the potential for late payments to credit card companies. It is also much harder to track invoice payments manually, meaning early payment discounts are often missed. Poor spend visibility across the board Paper based systems make it hard to consolidate purchases for business travel and operations, or to track compliance with spending policies and preferred vendor agreements. Companies miss opportunities to leverage volume purchases and negotiate better pricing. The biggest hindrance for automation at 41 percent of companies [surveyed] was the fact that senior management believed that current processes did work, even though they were not the most efficient. Paystream Advisors Losses from fraud spreadsheets and paper-based systems make it easier for employees to fudge on expense reports. Certainly reports of corporate expense abuses continue to make headlines. While most small and midsized businesses won t suffer the same fate as one large company recently experienced losing not only its CEO, but billions of dollars in value in one week over questionable expense reporting the losses can still mount up. Inability to comply with regulatory requirements auditing spending for compliance to IRS, Sarbanes-Oxley or other regulatory requirements is a lengthy, manual process when paper-based systems are employed. 3, 4 It is by far much slower and more costly for companies to manually process expense reports, spending requests and invoices when using spreadsheets or paper. PayStream 4 Why Your Spreadsheet Isn t Expense Management

5 Advisors research indicates on average, a company spent approximately $28.21 to process an expense report, if the process was entirely manual. This was four times as much as the processing costs accrued by companies that have automation in place. Organizations that have some automation in place have been successful in driving down processing costs per transaction to $7.42, whereas companies that are fully automated and using an integrated system have a per transaction cost as low as $ In its benchmark survey on travel and entertainment expense management, Aberdeen Group reported similar findings: Laggards, the bottom 30 percent of [survey] respondents, indicate that companies are achieving 47 percent compliance to T&E expense policies, with it costing the organization $51.35 to process a single report; Best in class, the top 20 percent [of survey respondents] achieve 90 percent compliance to T&E expense policies and have reduced costs to process a single expense report to $ Making the Case for Expense Management Automation The hidden costs of manual, paper-based systems alone could make a good case for automating expense management processes. For example, it typically cost less that $16 per month for one person to submit expense reports with an automated expense management system. Using the average expense report processing costs provided by PayStream Advisors in the previous section, a company would save at least $6 if that one employee filed one expense report in the month using an automated expense management system. Clearly, a return on investment can be achieved with the first transaction processed through an expense management system. Baker Communications, Inc. Over a three year period, the number of expense reports Baker Communications processed grew from 30-to-40 per month to more than 200. Its training consultants, who are rarely in the office, would handwrite expense reports, attach receipts and mail them in. The reports were painstakingly reconciled with receipts and audited for overspending or fraud. Reports were then entered into the QuickBooks accounting system for reimbursements to consultants and employees and billings to clients. Since implementing an automated expense management system, Baker Communications: Saved $35,000 per year off the top by not having to hire additional staff to manage the increase in the number of expense reports; Decreased the time it takes to bill out-of-pocket expenses from as much as 30 days to an average of two days; Virtually eliminated out-ofpolicy spending; and Improved cash flow. 5 Why Your Spreadsheet Isn t Expense Management

6 The good news is that companies can gain so much more. By far, the biggest benefits companies achieve by implementing software for expense management are time savings through automation, visibility and control, all of which can translate into significant cost reductions. Automation The time savings through automation can be significant, especially for small and midsized companies where employees end up doing multiple jobs. Automation means less time filling in paper-based forms, automatic routing of documents for faster approvals, and streamlined processing through the accounting/finance department for quicker payments and reimbursements. Automation introduces additional cost savings for companies. Documents no longer have to be shipped via mail or courier for approvals. There are fewer errors, meaning less time is spent fixing and/or reconciling mistakes. Because company policies are built into an expense management system, managers can review by exception, when out-of-policy items are flagged. Many companies with automated expense management processes say they don t have to hire additional staff to manage processes as they grow and also save time and money during audits and reviews. Visibility One of the primary benefits of automating company spending is the ability to open the window into all spending. Companies can see how money is being spent who is spending it, what it is being spent on, and with whom it is being spent. Most accounting systems can only track spending after it occurs. An expense management system captures spending commitments far earlier in the process. This can be especially attractive for companies because it enables them to better manage cash flows and avoid surprise expenses. What s more, all expense management data is centralized in one place making it easier to report on and analyze for better decision-making. 6 Why Your Spreadsheet Isn t Expense Management

7 Control A big issue companies face as they grow is maintaining control over company spending. An automated expense management system is a partner to finance teams, enabling them to implement already existing, well-defined corporate policies or by helping them define a set of policies that works best for them. It is much harder to fudge expense reports and spending requests with an automated expense management system. What s more, compliance to spending policies and regulatory requirements are much easier to enforce. Other tangible benefits of an automated expense management system have been cited by companies as well. Respondents to PayStream s Travel & Expense Management Adoption Survey 3 have reported: Lower processing costs Improved visibility over spend Better enforcement of travel policies Quicker reimbursement of employee expenses Improved employee satisfaction Better fraud detection and prevention Increased card usage and rebates Better regulatory compliance Ability to negotiate discounts with vendors Fewer late payment penalties and interests Control Spending Improve Company Value When you can save money through process improvements, you improve the value of your company and gain competitive advantages. Triple Tree, a strategic advisory services firm, reported that a one percent decrease in spending can equate to a 10 percent increase in revenue for a company. 6 This is especially compelling if economic conditions make revenue growth rates less predictable. One of the fastest ways companies can manage and reduce company spending is by automating expense management processes. Automation brings increased visibility and control, and lower costs across the board. 7 Why Your Spreadsheet Isn t Expense Management

8 Christopher Levush is Vice President of Finance for ExpenseWatch.com, which provides a comprehensive system to automate expense management processes. References: 1 Raymond R. Panko, What We Know About Spreadsheet Errors, Q3 2000, The Spreadsheet Research Web site, 2 Rick Butler, The Subversive Spreadsheet, Nov. 2002, European Spreadsheet Risks Interest Group. 3 PayStream Advisors, Inc., TEM Adoption Benchmarking Survey, Q Ventana Research, Establishing Better Control of Spending, Aberdeen Group, Inc., The State of Travel and Entertainment Expense Management, Feb Triple Tree LLC, Spend Management, Q Other resources: PayStream Advisors, Travel & Expense Management, Leveraging Automation to Optimize Expense Management Processes, Q Ventana Research Ventana View, Spending Wisely, Q Why Your Spreadsheet Isn t Expense Management