Travel and Expense (T&E) System: Automated Expense Claim Reimbursement and Electronic Funds Transfer (EFT)

Travel & Expense System: Automated Expense Claim Reimbursement and Electronic Funds Transfer Business Case A joint submission from Finance and PRASE Submitted to PRASE Executive Sponsors: G. Brewer & P. Monahan March 30, 2012

PROJECT OVERVIEW Title: PRASE Executive Sponsors: Project Sponsor: Prepared By: Travel and Expense (T&E) System: Automated Expense Claim Reimbursement and Electronic Funds Transfer (EFT) Gary Brewer, Vice President Finance and Administration; Patrick Monahan, Vice President Academic and Provost Trudy Pound Curtis, AVP Finance and Chief Financial Officer Aldo DiMarcantonio, University Comptroller, Finance Department and Renata Faverin, PRASE Project Director, Finance/HR/Procurement/Services for Researchers Date Submitted: March 30, 2012 Project Type: Project Description: Project Financial Overview: Alignment with PRASE, Phase 2 Institutional Objectives Deploy an automated expense claim reimbursement and electronic funds transfer solution to reduce operational costs associated with these activities while enhancing service delivery that is more sustainable over the longer term. Quantifiable benefits per year $ 630,000 Annual cost for system** (250,000) Net benefit to York per year $ 380,000 Investment** $ 100,000 Pay Back Less than 1 year Return on Investment 380% ** Costs to be further validated through the RFP process ROI to be achieved by: Decreased processing costs for expense reimbursement and funds transfer by 50% to 70% Increased policy compliance by up to 30% Reduced reimbursement cycle times by up to 40% Estimated Project Start Date: May 2012 Estimated Completion Date: February 2013 2

TABLE OF CONTENTS Executive Summary Page 4 1.0 Recommendation 6 Executive Sponsor Approval 17 Business Case 2.0 Current State 7 2.1 Research on Travel and Expense Systems 7 2.2 The York Experience 8 3.0 Future State 10 4.0 Objectives 10 4.1 Benefits 11 4.2 Quantitative Analysis of Benefits/Costs 12 5.0 Critical Success Factors 13 6.0 Stakeholders 14 7.0 Scope 14 8.0 Approach 14 9.0 Deliverables and Milestones 15 10.0 Budget 15 11.0 Assumptions and Constraints/Risks 15 12.0 Resources 15 13.0 Communication/Change Management 16 3

Executive Summary York University, like many North American universities, is currently facing challenges due to significant budget pressures, and infrastructure and processes that may not be sustainable in the longer term. York has identified the need to work as effectively as possible with the resources available to better support the core activities of the University Teaching, Research and Public Service. 1 With the launch of PRASE, the University began a transformational journey that would ultimately achieve two paramount objectives: enhance administrative service delivery and improve efficiency. PwC s PRASE Phase 1 Report identified a number of opportunities for improvement broadly categorized as early successes, foundational/enablement elements, process related, transformational initiatives. 2 A Travel and Expense (T&E) solution that integrates travel booking with an automated expense claim reimbursement process and electronic funds transfer as the payment mechanism for employees emerged as a top priority to be pursued in Phase 2. Significant service enhancement and cost savings opportunities are possible with the implementation of an integrated T&E solution as it will transition York from the manual, paper based, inefficient and ineffective system to an automated, technology based, efficient and effective travel and expense management system. A Request for Proposals (RFP) will be released with approval of this Business Case, and will determine the feasibility, technology approach and cost as well as an implementation plan associated with the fully integrated solution. There are a number of vendors in the marketplace that offer various comprehensive approaches. While the RFP will address the comprehensive solution requirements, it is the view of York that there will be a need for a phased roll out. It is important however, to understand the end to end solution that will enable York to select the correct integrated solution in order to achieve its long term goals related to travel and expense. York will need to assess the best solution for York, the investment needed to implement and the timelines associated with benefit realization. The Business Case Ideally, the implementation of a complete solution (i.e. a solution that includes an On line Travel Booking Tool, negotiation of travel vendor of records as well as the expense claim and funds transfer solution) has the potential to yield significant cost benefits (as highlighted in the PwC Phase 1 Report). However, this business case offers a compelling argument for implementing a T&E solution in a phased approach that begins with the automation of the expense claim reimbursement coupled with electronic funds transfer (EFT) payments for all employees. 1 PwC PRASE Phase 1 Report, March 2011, page 5 2 PwC PRASE Phase 1 Report, March 2011, page 6 4

The Current State Expense claim generation and funds reimbursement is currently a significantly manual process with the following characteristics: York uses a paper based forms system for end to end expense claim reimbursement processing; Processes 15,000 20,000 manual expense claims each year; Requires significant time and effort for approximately 2,000+ staff and faculty (including preparers and approvers); Reimbursements can take up to 30 days to process; Manually controls approximately $11 million spent on travel and related expenses; This represents approximately 12% of total discretionary spending (which excludes salary/benefits). The Benefits As a result implementing expense claim and funds transfer automation, the following benefits will be achieved: Employees (staff and faculty) will be able to create on line expense reports; Managers will be able to review and approve them online; Financial teams will be able to access relevant information, and create custom spending reports whenever needed; Full use of the EFT option for employee reimbursements will reduce the cycle time and cost of processing manual cheques (moving from the current 50% adoption rate); Decrease processing costs between 50% and 70% (through the cycles of claims preparation, claims approval, claims processing and claims auditing); Increase expense related policy compliance by up to 30% (through a more transparent and accessible system); and, Reduce reimbursement cycle times up to 40% (by deploying electronic workflow and processing). In addition to these, a number of other institutional benefits will be realized including: Decreased level of manual effort required for end to end processing including associated rework; Standardization of expense reports to reduce inconsistencies between claims; Seamless policy compliance through automated work flows and approvals; Reduced reimbursement cycle time (for individuals preparing claims to managers who approve them, to Accounts Payable/Expense Desk for processing); and Improved overall service delivery to faculty and staff. 5

The Investment Based on research to date, an initial investment to purchase the capability that only supports the automation of the expense claim reimbursement process is estimated at $100K. It is viewed to be a similar type of technology solution to Sm@rtBuy where the solution is cloud based and primarily supported by the vendor. Annual support for the product is estimated at $250K based on a preliminary view of a per cost transaction model the return on investment is estimated at well over 300% (see details on page 12). Next Steps With approval to proceed on the basis of this business case, and pending the outcome of the Request for Proposal (RFP) it is anticipated that this project will be undertaken in phases as follows: Phase 1: Approved Business case following the due diligence through the RFP process. Implementation of an automated expense submission, approval and payment system, with scanning capability and electronic workflow coupled with EFT payment; Phase 2: Subject to a separate, approved business case with additional benefits not included above, linkage to a credit card for efficient transfer of data to populate expense report preparation; and, Phase 3: Subject to a separate, approved business case with additional benefits not included above, linkage to a preferred supplier for travel booking. 1.0 Recommendation The Finance department/prase Office are requesting consideration and approval of this business case from the PRASE Executive Sponsors. This approval will trigger the release of the RFP which is in its final stages and ready for release to the marketplace for the selection and implementation of the best solution for York University. 6

Business Case 2.0 Current State York s current state with respect to travel and expense processing is as follows: York uses a paper based forms system for end to end expense claim reimbursement processing; Processes 15,000 20,000 manual expense claims each year; Requires significant time and effort for approximately 2,000+ staff and faculty; Reimbursements can take up to 30 days to process; Manually controls approximately $11 million spent on travel and related expenses; This represents approximately 12% of total discretionary spending (which excludes salary/benefits). As part of its review of York s expense report processing system, PwC identified process inefficiencies, as well as opportunities and benefits of moving to a modern automated travel and expense system (moving from a tactical back office function to a more strategic internal set of processes 3 ). Moreover, York s current manual expense report process significantly contributes to expense reimbursement policy non compliance, workplace frustration and the ineffective management of travel costs. PwC s PRASE Phase 1 Report released in March 2011 included a recommendation for the automation of the travel and expense system as a project of high priority which should be undertaken in Phase 2. As a result, a project brief was submitted to PRASE Executive Sponsors for Phase 2 consideration (September 2011). The project was approved in principle, pending the submission of the formal business case. 2.1 Related Research on Travel and Expense Systems Many of the issues associated with York s current travel and expense system have been identified by the Aberdeen Group (an independent research organization) in one of its reports 4 : A typical expense report, in organizations deploying moderate to low/no level of technology, costs between $29 and $51 to process. Organizations deploying the use of extensive technology process expense reports for as little as $6.25 per expense report. Organizations deploying limited or no technology typically have limited data and analytics to monitor travel expenditures to identify opportunities for improvement. Organizations deploying limited or no technology typically have limited ability/inefficient processes to monitor/audit expense reports. 3 Aberdeen Group, T&E Expense Management, March 2012, page 2. 4 Aberdeen Group, The State of Travel and Entertainment Expense Management, February, 2010. 7

2.2 The York Experience York s processes and experience closely resemble the challenges identified by the Aberdeen Group and PwC in its PRASE Phase 1 Report. (a) Expense report processing at York is costly and inefficient York s expense reimbursement process is characterized by the following: The use of numerous paper based forms. The use of forms with limited embedded technology. The use of physical movement of expense reports from preparer to approver to processing. The expense report process at York has evolved over many years. The preparation of one expense report may require the use of up to 7 forms: Claim for Reimbursement Form Application for Employee Direct Deposit Banking Form Mileage Log Form Professional Expense Reimbursement Form Request for Accountable Advance Form Receipt Itemization and Rebate Calculator Tool Affidavit Form This is a very time consuming and often frustrating process for claimants, preparers, and approvers. This is supported by researchers and support staff in open forums held in January and February of 2012 as part of another PRASE initiative; namely, Services for Researchers Post Award Processes. These findings will be available on the PRASE web site for reference by mid April. Internal Audit s most recent review of expense report reimbursement noted instances of mathematical errors, improper account usage, incorrect HST rebates, and inappropriate foreign exchange conversions. Finance staff reviewing expense reports routinely finds similar computational errors. Once an expense report is prepared, it requires approval from the claimant s immediate manager/unit head. This approval process requires the physical movement of the expense report to the approver. The routing of the expense report for approval is often expedited by the claimant or via internal mail. This is a time consuming and wasteful use of resources, particularly if claimants physically deliver/walk the expense report to the approver, which is often the case. The loss of productivity associated with this is difficult to quantify, but often reflected in employee feedback. Once an expense report is delivered to an approver, s/he can only approve the expense report if s/he is physically present in normal workplace. Often approvers are away on vacation or business/academic travel. In these instances, the claimant will have to wait for the approver s return so that the expense report can be approved for payment. This contributes to delays and frustration, particularly if the claimant is unaware of the approver s absence. Electronic approval and the use of electronic workflow is a more effective and efficient mechanism. 8

b) Expense report processing at York provides limited data and analytics to monitor travel expenditures to identify opportunities for improvement York s system provides very limited data to monitor travel expenditures. This limitation precludes York from identifying opportunities for savings associated with travel expenses in the areas of air travel, accommodation and vehicle rental. An understanding of York s travel and accommodation expenditure patterns will allow York to consolidate its expenditures in these areas and possibly reduce expenditures over time. With travel expenditures exceeding $11 million on an annual basis, each 1% reduction in expenditures will result in a savings of over $100,000 annually. York University does not have a vendor of record for booking travel itineraries. The community books travel arrangements (airline, rental car, and hotel) through any number of different vendors (travel websites, various travel agencies, etc.). As a result, travel arrangements may bear unnecessary transaction costs (through travel agent commissions) or higher pricing (particularly if a traveller is not presented with competitive pricing data for travel options). A recent analysis performed at the University of Manitoba concluded that a migration to an automated travel and expense management system would likely save them up to $400,000 in unnecessary transaction costs and up to $1M in reduced travel costs as a result of competitive pricing. While the University does encourage the use of CAUBO rates for car rental and hotel accommodations, these rates are provided within the Procurement Services website. This requires the traveller to search and access these rates when booking travel arrangements. York has no data available to identify whether preferred travel rates with CAUBO are extensively used across the University and no effective mechanism to encourage their use. As noted earlier, York will realize significant benefit from implementing a fully integrated solution that includes travel booking. The RPF will request marketplace solutions for a fully integrated travel and expense system. This includes options for travel booking with preferred vendors or travel agency. Implementing this front end capacity is subject to a subsequent business case that will be submitted once the RPF results have been assessed and a recommendation reached. c) York has limited ability/inefficient processes to monitor/audit expense reports There is no direct and integrated linkage between York s policy and procedures with respect to expense report reimbursement, and the forms used to process reimbursement. A claimant preparing an expense report using one of these forms is required to separately navigate to York s website to access the policy and procedure. Internal audit routinely audits expense reports at York. This is a very labour intensive exercise, as receipts have to be retrieved from Finance (research related) or from departments/units (all others) to be reviewed. The receipts then have to be returned to storage in either Finance or departments/units. Significant time is invested by Internal Audit solely to locate and return receipts to their storage locations. This is an inefficient use of time and effort. With the provincial government release of the Broader Public Sector Expenses Directive, York, like all other organizations within the Public Sector, will be subject to increased scrutiny and accountability, to ensure that its expense reimbursement process is compliant with provincial directives. Facilitating 9

electronic storage and retrieval of expense claims/receipts is another measure of increased efficiency for all involved. 3.0 Future State As stated earlier, the ideal future state is to implement a fully integrated solution that comprises all of the elements described below: Expected outcomes from such an implementation include: Efficient and cost effective arrangement of travel itineraries Efficient and cost effective processing of expense reports Efficient and cost effective monitoring and compliance 4.0 Objectives Aligned to institutional objectives, automating the travel and expense process will result in an enhanced stakeholder experience while reducing operating costs as noted below with associated metrics. These are based on average results experienced by those who implemented a similar solution and are provided by the Aberdeen Group. York specific PwC data has also been considered in determining a realistic, achievable target. Decreased processing costs between 50% and 70% Increased policy compliance by up to 30% Reduced reimbursement cycle times up to 40% Details of each of these benefits and the overall ROI calculation are provided below. 10

4.1 Benefits The specific objective of this project is to transition York from a manual, paper based, inefficient and ineffective system to an automated, technology based, efficient and effective expense and travel management system. In so doing, York will be able to achieve the following specific benefits: a) Decreased processing costs PwC s PRASE Phase 1 Report indicated that an automated expense reimbursement solution would likely reduce work effort by approximately 50 70%. The Aberdeen Group, in one of its research papers, indicates that companies using technology to process expense reports realized up to 80% lower processing costs relative to companies that are technology laggards. Reducing the work effort by up to 50% will generate critically needed added capacity for staff and faculty to dedicate to key priorities identified in the University Academic Plan, Faculty plans and most importantly, supporting these priorities without net new financial resources. b) Increased policy compliance By using technology and a single portal for expense report reimbursement, increased adherence to policy compliance will result. A single portal for expense reimbursement (compared to York s highly fragmented use of multiple forms and websites) will allow the expense reimbursement policy to be more effectively integrated into the reimbursement process and allow for a more effective monitoring and audit of expenses. From a reputational perspective, this will provide the University with a level of comfort should external auditors conduct an extensive review of York s compliance to internal and external policies and legislation. The Aberdeen Group 5 indicates that organizations deploying technology have significantly higher policy compliance rates, of up to 31%. Although recent internal audit results have indicated that York s compliance rate is reasonable, this compliance rate is likely achieved within the parameters of an inefficient expense report processing system. Stated differently, York s high level of compliance rate comes at a significant cost because of its inefficient process. A more efficient expense reporting system will likely generate compliance rates equal to or better than the status quo, but at a reduced, and more sustainable overall cost a key institutional objective. c) Reduced reimbursement cycle time The Aberdeen Group has reported that an automated process can reduce the reimbursement cycle by 40%. This is largely the result of the movement of expense reports via electronic means for submission, approval and payment. Organizations that have implemented automated travel and expense systems have also reported a number of other important benefits: Improved analytical capabilities to identify cost reduction strategies Improved employee satisfaction Improved fraud detection and prevention ability 5 Aberdeen Group, T&E Expense Management, March 2012, page 2. 11

Improved ability to negotiate favourable business arrangements with key vendors (airlines, hotels, etc.) These benefits contribute to the compelling case for why automating the expense reporting process at York, at this time, and given the current financial outlook, is not only desirable, but necessary. 4.2 Quantitative Analysis of benefits/costs a) Cost of current system Number of expense reports processed annually by York 15,000 Cost per expense report to process, as estimated by Aberdeen Group Estimated annual cost to York using current process $29 $51/report $435K $765K Median of two for purposes of analysis $600K b) Estimated benefits of moving to an automated travel and expense system Processing Costs Savings Aberdeen Group estimates up to 80% savings PWC estimated 50 70% Use 50% of $600K Increased compliance $300K Positive Benefit Reduced reimbursement cycle time Savings through cost reduction strategies ($11M travel spend) by: Selection of a preferred vendor for travel bookings Increased use of preferred travel rates through consolidation Improved analytical ability using electronic data analysis o Assuming York can reduce its $11M travel spend by $3% Positive Benefit $330K Note: The University of Manitoba has recently introduced an integrated/automated travel and expense solution. It estimates that savings generated from a more effective use of travel expenditures will be in the range of $400K of $1.4M per year. The UofM is approximately half of York s size. Total quantifiable benefits per year $630K+ 12

b) Estimated Costs of moving to an Automated Travel and Expense System York s Finance department issued a Request for Information (RFI) in late summer 2011 and subsequently invited three respondents to present proposed solutions. These vendors offered varying approaches and costing models that will become formalized with a response to the RFP. However, through these discussions, Finance has estimated the cost associated with the automation of the expense claim reimbursement application as noted below. One time implementation cost (excluding internal costs) $100K Ongoing annual costs $250,000/yr. (Ongoing annual costs are likely on the high side, and include auditing, expense payment to employee, and user support). Summary Quantifiable benefits per year $ 630,000 Annual cost for system (250,000) Net benefit to York per year $ 380,000 Investment $ 100,000 Pay Back Less than 1 year Return on Investment 380% 5.0 Critical Success Factors The implementation of an automated expense claim reimbursement solution will be successful only with a high degree of usage and acceptance from the general community. Specifically, the solution s success will be dependant on the community s acceptance of innovative and technologically advanced features such as: Scanning technology to submit receipts Electronic submission and workflow approval Direct deposit reimbursement (approximately half of all expense reimbursements are processed via EFT today) As noted earlier, faculty and staff have already indicated the need for this technology to increase productivity and improve service delivery. As a result, community acceptance of this technology is expected to be relatively high, but will be driven by a proper communication and training program (both 13

will be developed once the RFP process is concluded and the project formally begins), and software that makes the process easier (a serious consideration when selecting the successful RFP proponent). 6.0 Stakeholders STAKEHOLDER GROUP INTERESTS, EXPECTATIONS, CONCERNS Expect an easier system than the status quo Claimants Approvers Finance Information Technology Training will be critical as this group consists of approximately 2000+ individuals, some of whom may only use the system once per year (Similar to claimants) Finance will be responsible for administering and training the user group UIT will be responsible for assisting with implementation and integration into PeopleSoft The preferred strategy is to purchase software as a serve, requiring minimal UIT time. 7.0 Scope With approval to proceed on the basis of this business case, and pending the outcome of the Request for Proposal (RFP) it is anticipated that this project will be undertaken in phases as follows: Phase 1: Approved Business case following the due diligence through the RFP process. Implementation of an automated expense submission, approval and payment system, with scanning capability and electronic workflow coupled with EFT payment; Phase 2: Subject to a separate, approved business case with additional benefits not included above, linkage to a credit card for efficient transfer of data to populate expense report preparation; and, Phase 3: Subject to a separate, approved business case with additional benefits not included above, linkage to a preferred supplier for travel booking. 8.0 Approach The following represents a timeline for implementation of the system: Timeline Task PHASE 1 IMPLEMENT A AUTOMATED EXPENSE SOLUTION April 30, 2012 June 30, 2012 Release RFP Select vendor for automated expense solution provider 14

July 30, 2012 September 2012 Begin planning for resources, develop timelines, etc. (this assumes that the Sm@rtBuy project is completed) Begin Implementation (Project cannot realistically begin sooner than September 2012 to allow for completion of SciQuest implementation and roll out) Go Live. December 2012 February 2013 This project will likely take approximately 4 6 months to implement PHASE 2 Linkage to a credit card for efficient transfer of data to populate expense report preparation (subject to a separate, approved business case) PHASE 3 Linkage to a preferred supplier for travel booking (subject to a separate, approved business case) 9.0 Deliverables and Milestones Given the phased approach of this project, and dependent on the selected solution resulting from the RFP, the specific deliverables and timelines will be jointly developed with the vendor selected to implement the solution. 10.0 Budget Preliminary investigations have indicated that one time implementation costs will likely be in the $100K range and approximately $250,000 annually thereafter, for licensing, support and maintenance. Costs can only be finalized once a vendor is selected. It is assumed that both Finance and UIT will provide the necessary support for implementation and ongoing support/maintenance with existing personnel, resulting in no incremental costs. 11.0 Assumption and Constraints/Risks The most important assumption to the success of this implementation is high user adoption by the community. Without user/community adoption, the benefits identified in this proposal will not be captured by the University. 12.0 Resources Once a solution provider has been selected from the RFP process, a detailed work plan will be developed with respect to both functional and technology resources required to support the implementation of the project, and the ongoing maintenance of the solution. 15

13.0 Communication/Change Management Finance is currently implementing the Sm@rtBuy e Procurement solution. The communication plan used for that project will form the foundation for the communication plan for the expense claim reimbursement/eft project. It is recognized that both projects will have a significant impact on the user community. Managing through the changes that will come from these implementations will require frequent and timely communications to all affected stakeholders. Reporting on achieved outcomes to the broader community will also be factored into the communication plan. 16

PRASE PROJECT EXECUTIVE SPONSOR APPROVAL* Project Title: Travel & Expense System: Automated Expense Claim Reimbursement and Electronic Funds Transfer Business Case Author(s) Prepared by: Renata Faverin (PRASE Project Director) Aldo DiMarcantonio (University Comptroller) Submitted on: March 30, 2012 Approver(s) Approved by: Gary Brewer, VP Finance & Administration Signature: Date: Approved by: Patrick Monahan, Provost and VP Academic Signature: Date: * Please return to Project Director for Project File 17