T&E Spend Analysis Report Volume 1 Volume 1 Fall 2014
CORPORATE CARD 1234 5678 9876 5432 Executive Summary For this report Oversight analyzed over 10 million transactions, a total of over $1 billion dollars in expenses. Even though overall fraud exceptions are low (only about 1% of the total expenses analyzed for this report), we found that 82% of fraudulent activity was made by only a handful of employees (5%.) Spending for items that are arranged through travel management companies (TMC), such as airfare, lodging, and automobile rentals rarely involve non-compliant behavior. Still, most organizations have T&E purchases that occur outside of TMC bookings: out-of-pocket expenses, travel emergencies and other items that go on corporate travel cards. Purchases outside of airfare, lodging, and automobile rentals are the least controlled expenses and represent a grey area where advanced analysis can identify opportunities to improve control of the travel program. Fraudulent and non-compliant spending costs organizations hundreds of thousands of dollars each year. Of the $1 billion in transactions analyzed for this report 6% of transactions, representing 5% in transaction value, were out-of-compliance with company policy. For an organization with an average of $10 million in travel spend, this equates to roughly $500,000 in annual out-of-policy spending.
Introduction We like to think of T&E as the window into the soul of a company. Where else do you get to see your employees habits and behaviors as clearly as you do in your travel and expense program? To help prospective and current customers alike, we ve compiled the Oversight T&E Spend Analysis Report to highlight the typical patterns of behavior we see within travel programs. The companies in the report are primarily Fortune 500 companies with over $1 billion in revenue annually. These companies use a variety of T&E management systems including Concur, Oracle iexpense, and other solutions such as SAP. Of the customers in this report: 10% use Oracle (iexpense) 68% use Concur 10% use SAP 6% use IBM 6% - Other Over 90% of the surveyed clients analyze transactions on a monthly basis with the remaining 10% analyzing data daily or quarterly. The use of corporate credit cards is on the rise, including everything from office supplies, to temporary employment services, to fuel, to telecommunications and travel expenses. According to a report published by the Global Business Travel Association, business travel expenses are expected to rise 7.2% in 2014, to over $288.8 billion.[i] When expenses rise, so does card use and out-of-pocket spending. With increased spending comes greater vulnerability to the two biggest problems facing T&E programs today: fraud and misuse. It has been proven that the longer fraudulent activity lasts, the more financial damage they cause. [ii] With 5% of any given organization committing 82% of the fraudulent actions, the solution isn t so much about detecting fraud and other non-compliant behavior, but detecting it better, faster, and sooner with as little inconvenience to the rest of the cardholders and travel program staff as possible. Fraud and misuse are the two biggest problems facing T&E programs today. To explore and highlight potential problems associated with increased T&E spend, we ve compiled the following statistics from data analyzed by the Oversight Insights On Demand product for T&E. The Oversight T&E Spend Analysis Report Volume 1 Page 3
Exceptions to corporate travel policy happen every day, for a myriad of reasons: by accident, necessity, or fraud. From the analysis of 10 million transactions, 6% were flagged as potential violations to policy. Was the misclassification a mistake or an attempt at stealing? Of the 160,000 travelers represented in the analysis, 20% had at least one exception on their expense report. Within our analysis, 11%, or roughly 1 in 10 travelers triggered an exception multiple times.!!!! Why look for repeat offenders? Because most fraud, waste, and abuse committed in organizations is perpetrated by only a small handful of employees. From our data we determined that it was only 5% of travelers in an organization making over 80% of the purchases flagged as fraudulent. Meaning within each organization there are only a handful of bad actors. T&E fraud is often one of the largest indicators that fraudulent activity is happening elsewhere within the company. From a similar study conducted by the ACFE, they reported that in 75.6% of their cases involving expense reimbursement fraud, the perpetrator was also engaged in at least one additional form of occupational fraud. [ii] Only 5% of travelers in an organization made 82% of the purchases flagged as fraudulent. The Oversight T&E Spend Analysis Report Volume 1 Page 4
What are the ways in which these bad actors can defraud companies? Suspicious Out of Pocket Expenses Of the 10 million transactions analyzed for this report, 2.8% were flagged for Suspicious Out of Pocket activity. This was the largest percentage of transactions for any one category, (out of duplicate submissions, suspicious outof-pocket, and policy misuse) and more than the exceptions for both duplicates and potentially fraudulent purchases combined. This is not surprising since out of pocket expenses are the least controlled T&E purchases. Example: A traveler submits an unusual number of out-of-pocket expenses just under the $25 receipt limit, meaning they did not need proof whether the purchase occurred. And there is a statistically unusual pattern of occurrences over the course of the past 90 days. Example: A traveler routinely puts a big-ticket item on their personal card (for the points) instead of on the corporate card, and then asks for a reimbursement. While this example isn t fraud, as he/she is traveling on behalf of the company, the misuse of policy creates a vulnerability that can be exploited by nefarious travelers. Duplicate Expenses 16,000 travelers in our report, or 10% had a suspicious out of pocket expense on their report. Duplicate submissions are also an area of incredible vulnerability for noncompliant spending and fraud. In our data, 0.75% of expense transactions alone were duplicate submissions; instances where the same item was expensed on more than one expense report. INVOICE FOR ABC COMPANY PERSONAL CARD 1234 5678 9098 10% of the travelers analyzed for this report had at least one duplicate expense on their expense report. The Oversight T&E Spend Analysis Report Volume 1 Page 5
Henderson Steakhouse $176.32 From our set of 10 million transactions, over 75,000 are duplicates. This study had an average duplicate transaction value of more than $50 per duplicate. This means nearly $3.8 million in duplicate expenses across the 160,000 travelers in this report. 75,000 X $50+ duplicate transactions per duplicate $3,750,000+ total in duplicate expenses That is a significant amount of wasted money. Waste Issues in T&E are often a good indicator of the need to review other activities to gauge risk, which is why it is especially important to monitor for all behaviors, not just fraud alone. 20% of the 160,000 travelers in this sample had at least 1 non-compliant purchase. This is lower than surveys where 25% of travelers admitted to submitting out-of-compliance expense reports. [iii] With only 5% of our travelers potentially attempting to defraud the company, this means that the other 15% aren t bad actors, but they also aren t being as cognizant of spending as they could be. Oversight Report Other Surveys Compliant Travelers 80% Non-Compliant Travelers 15% 75% 25% Detecting non-compliant spending isn t just about catching fraudsters. It s about shaping policy so that travelers and company leadership can both feel comfortable about where their money is going and reducing leaks in the spending. The lower level of fraud among the travelers in our report (1%) is likely due to the Hawthorne Effect, wherein people respond differently when they know they re being watched. This falls in line with the ACFE 2014 findings that organizations with proactive monitoring and analysis consistently identify fraud schemes in half the time of those without analysis. [ii] 5% Travelers attempting to defraud the company Travelers that aren t being as cognizant of spending Travelers that admitted to submitting out-of-compliance expense reports Error Detected Policy Misuse! Nearly 18,000 travelers in our analysis, (11%) had an expense on their report flagged as policy misuse. The Oversight T&E Spend Analysis Report Volume 1 Page 6
Where does the money go? Since travelers are spending significant company dollars on non-compliant goods and services, where exactly are they spending this money? The 5 most popular merchant category codes for non-compliant spending are: Electronics stores Computer Software Stores Management, consulting, and public relations firms Sports & Athletic Clubs, Country Clubs and Golf Courses Theatrical Producers (Non motion-picture) In most T&E programs companies across the board spend the largest amounts of money on airfare, hotel, and restaurants. Surprisingly, we also found these four categories where customers spend large: Conferences & Training Office Supplies Theater & Entertainment Storage Facilities 134569 ADMIT ONE ADMIT ONE 134569 Unsurprisingly, two of these four categories also had the highest number of instances of non-compliant spending: 134569 ADMIT ONE 134569 ADMIT ONE Special Events Office Supplies Theater & Entertainment Computer & Electronics The Oversight T&E Spend Analysis Report Volume 1 Page 7
The Good News While fraud is certainly a hot button issue, it isn t a rampant problem when organizations leverage proactive monitoring and analysis. Only 1% of transactions in this study were flagged as potentially fraudulent. The same goes for policy misuse, suspicious out-of-pocket, and duplicate expenses: each only accounts for less than 5% of the 10 million transactions we analyzed. 10 Million Transactions The experiences of our customers indicate that monthly monitoring and related actions and communications helps to promote appropriate behavior among employees. These companies have seen improvements in compliance reflected in the decrease of out-of-compliance activities by as much as 70%. Only 35% of the organizations in the ACFE report [ii] had an effective antifraud, transaction monitoring solution, and automated, on-demand analysis is the solution to many of the issues highlighted in this study. Oversight Insights On Demand makes it easier than ever to analyze 100% of transactions at the frequency your organization desires. 5% 1% Potential Fraud Policy misuse, suspicious out-of-pocket, & duplicate expenses Resources [i] Iwamoto, K. (2014, July 14). GBTA Report: 2014 Business Travel Spend to Rise Nearly 7%. Retrieved from http://www.lanyon.com/resources/gbta-report%3a-2014-business-travel-spend-to-rise-nearly-7 [ii] ACFE. (2014) Report to the Nations on Occupational Fraud and Abuse 2014 Global Fraud Study. Retrieved from http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf [iii] http://www.cipd.co.uk/pm/peoplemanagement/b/weblog/archive/2014/08/29/one-in-four-staffadmit-making-false-expense-claims-study-finds.aspx About Oversight Oversight s mission is to deliver analysis that helps companies make smarter business decisions. Oversight Insights On Demand is a new web based application designed to assist travel and purchase card managers in uncovering possible misuse, fraud, and compliance violations. With the software, customers address operational data analysis requirements and leverage analytics to change employee corporate spending behavior. A Concur, Oracle, SAP and TSYS partner, Oversight has over 10 years of experience analyzing $1.8 trillion in expenditures annually at Fortune Global 5000 companies and government agencies. Visit www.oversightsystems.com for more information.