T&E Policy Best Practices

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1 T&E Policy Best Practices Audit every dollar of spend with artificial intelligence.

2 Do you spend thousands to millions in travel and entertainment per year? How are you helping your employees make good decisions? Did you know that after salaries and benefits, corporate travel and entertainment (T&E) is the 2nd largest controllable expense? When s the last time you thought about your T&E Policy? A well-managed T&E program reflects a well-run compliance function and ultimately, a well-run company. An efficient T&E management program can help the company save on its T&E spend, set clear expectations for employees and prevent fraud, and provide spend data that helps manage the business. A well defined policy clearly conveys the company s expectations for its employees. Even if your T&E spend is <$500k annually, set your company up for success and growth by establishing a comprehensive T&E policy. Company Revenue Average Annual Travel Spend Less than $100 million ~ $700,000 $100 million to $500 million ~ $1,500,000 $501 million to $2 billion ~ $7,400,000 Greater than $2 billion ~ $58,000,000 Annual Travel Spend by Company Size Source: 2016 Paystream Advisors Report 2

3 Help your employees make good decisions Let s take a look at what defines a comprehensive T&E policy. Foundation of a Strong T&E Policy Culture Based on company vision and brand, influenced by business goals, industry, economic climate. Communication This is the biggest challenge. No matter how fair and robust the policy is, it s of little use if it's outdated and difficult to find. Identify who the policy should be communicated to and where to store it. Compliance Measures how well travelers follow the policy; identify enforcement and penalties for non-compliance. Content Relevant topics addressed in the T&E policy. The good news is that building a travel policy will make you critically think about your current compliance policies and identify inefficiencies. Writing a policy is only the first step in this process. Let s start with the basics. 3

4 What are your goals in building a T&E policy? Why do you need a T&E policy? Examples include: Reduce travel spending costs Reimburse employees faster Reduce expense misuse and fraud Eliminate paper based expense reporting Obtain better spend data Negotiate better Promote use of vendor rates (hotel, approved vendors airline, rental car) Increase convenience for travelers Reimburse for only company approved expenses 4

5 Who should be involved in building a T&E policy? 1 Compliance, Accounting, HR, Risk Management, AP. 2 Business Managers need to buy into what's developed so they adhere to all parts of the policy, preventing Managers from ignoring parts of the policy they don't like or creating slightly different policies for their divisions. Since they 'own' the business they'll likely have the clout to get away with it. Better to have them buy into it up front than ignore it later because they see it as "more non-value add bureaucracy keeping me from growing the business." 3 We encourage seeking traveler input by selecting your top road warriors, perhaps in the form of a focus group. Getting a frequent traveler s perspective is key in defining your T&E policies. 4 One specific individual should own the policy - managing the whereabouts of the document, regularly updating the policy, and getting the right people in the room to discuss revisions. What are your current T&E costs? Identify your average trip cost and cost to process each expense report. How can you leverage technology to reduce this cost? According to research by the Aberdeen Group, manually processing a single expense report will cost a little over $20 (to be exact, it s $20.65). An average of 1.5 expense reports are submitted per employee per month. Now assume your company has 1,000 employees, you re looking at well over $30k per month in just processing costs. Over the course of a month, tens of thousands of dollars are spent on just processing reports, and the actual expense costs and audit staff are an additional expense. 5

6 Type of Processing Average Total Cost Manual $26.63 Some Automation $17.31 Full Automation $6.85 Source: 2016 Paystream Advisors Report What to cover in your policy? Start from the basics of when an employee realizes they need to book a work trip, considering the points below: Who should the policy cover? The policy should apply to anyone traveling on the company s dime - employees, consultants, potential candidates, interns and contractors. If your company operates in multiple countries, create one global umbrella policy with country specific addendums or consider creating multiple country specific policies. Keep in mind local laws, culture and practices. Where is travel booked? Should you book through a company approved travel management tool (Concur, Netsuite, BCD, Egencia, CWT) or travel agent? Or can you book through an online travel site like Priceline, Kayak, airline websites, etc? When a company doesn t use a travel management tool, it s allowing employees a higher degree of discretion in their booking choices, which could cost the company more money. How should employees pay for travel? Should they use a company sponsored corporate card or use their personal card and submit expenses for reimbursement? 6

7 For employees with corporate cards, it s important to state in the policy that they re required to take responsibility for delinquent or late payment fees. Identify the repercussions of misusing a travel card (for personal expenses, extravagant expenses, etc) such as suspending corporate card usage and requiring pre-approvals for all travel expenses. When are pre-approvals required? Identify situations when a pre-approval is necessary and lay out the process for approvals. An example is for high dollar expenses for conferences, international travel, etc or requiring a supervisor to approve the trip cost before booking. Although having an approval process can reduce misconduct and potential fraud, requiring any approval is time consuming - especially if the approver is on vacation and the employee needs to book travel quickly. Consider requiring approvals for only a limited number of situations. How does the reimbursement process work? Identify what expense platform should be used to submit expenses. Identify what documentation is needed for timely reimbursement, such as itemized receipts, expense justification/purpose, and copy of pre-approval. Clearly state the reimbursement time frame. Three Parts to a T&E Policy Start with an introduction, or purpose statement, identify why there is a T&E policy and who it applies to. Second, identify expectations for employees and clearly state the process for individuals who fail to comply with the policy. Lastly, set clear guidelines of what expenses are permitted. Here s a deep dive into the large expense categories. 7

8 Expense Category Best Practices: Flights Cabin class - Economy is usually preferred. Business class may be allowed if it s a long haul flight (5 hours+), international travel, or the role of the traveler (C-Suite). Airline Fees - Consider if you should cover fees for checked bags, trip insurance, and cancellations. Other factors: Lowest Logical Airfare Parameters, Preferred Air Carrier Details, Emergency Travel Assistance, Use of Private / Charter Aircraft, Group Travel, Advanced Purchases Timeframe, Airline Club Lounges. Hotels Hotel Star Class - Do you have preferred hotel chains with pre-negotiated rates? Are AirBnBs or HomeAway bookings allowed? Provide a list of suggested hotels chains or hotel rate limits per night for top travel destinations. Address whether to allow gifts to be given to employees who stay with friends/family as opposed to a hotel room, and identify the compensation (perhaps $50+ per night) provided to the friend/family member. Incidental Expenses - Valid business-related charges might include in-room internet, parking, room service for primary meals, tips to hotel staff, and fees for extended check-in/out to accommodate a traveler's schedule. Rental Cars SUVs and luxury cars - usually not reimbursable. Prepaid fuel, additional insurance bought from rental company, GPS rentals are not reimbursable. Provide guidelines on car size, insurance coverage, and refueling policy. 8

9 Ground Transport (Train, Taxi) Provide guidelines on using limo or town car services - usually not allowed. Mileage - Communicate if employees can use their personal car on business travels and what they can be reimbursed for, such as mileage, parking, tolls. Refer to the IRS standards for mileage reimbursement. Suggest requiring receipts for expense above a certain threshold, industry practice is $25 or $50. Meals and Entertainment Differentiate between employee meals and business meals by having a specific expense type for each in your T&E system. Identify guidelines for what is allowed for internal travel and meals v/s external business entertainment. Define where alcohol can be expensed, e.g. internal employee meals, client meals, etc. Suggest defining the max limit on alcohol as opposed to stating no excessive spend on alcohol. Identify daily meals spend limit by meal or set per diem amount. Identify unallowable expenses such as club fees, alcohol, movies, mini bar charges and dry cleaning/laundry. Best practice is to disallow providing a gift or entertaining government officials and employees of state owned entities. (Consider FCPA compliance. Identify exceptions, if necessary.) Require attendees of all meals to be listed. Enforce requiring itemized receipts for expense above $25 USD Gifts and Donations Address how to provide a gift to a commercial client or third party. (Consider FCPA compliance - suggest disallowing any gift or entertainment to a Government Official.) Address when to accept any gift or entertainment and the declaration process. 9

10 Travel Incidentals Address whether the following are reimbursable: foreign currency conversion, international phone service, passports, visas, ATM fees, TSA Pre-Check and Global Entry programs. Other Factors to Consider Approved Payment methods Exceptions for Executives Rewards Programs - Corporate Card, Hotel, Airline, Train Travel Upgrades Preferred Suppliers and Rates Cash Advance Limits Corporate Phone Expense Limits Internet Expense Limits Suggested Gratuity Expense Submission Timeframe Cancellations Manager Approvals VAT Reclaim Policy Enforcement Process T&E can be one of the largest components of indirect spending, and it can be one of the most complex and hardest to control. Improving the management over your T&E processes by fully leveraging data, reducing non-compliance, enforcing policy violations, and creating more efficient processes is what makes a successful T&E program. Start building your T&E policy and process today. 10

11 Next Steps Many organizations process T&E spend manually, and as a result, face many challenges in efficiency and control. Once you've written your T&E policy, reach out to AppZen. Customers are finding that compared to their existing tools and processes, AppZen is a preventive continuous monitoring tool that catches 10 times more errors and fraud - all while creating a more efficient audit practice and reducing T&E processing costs up to 80%. AppZen uses Artificial Intelligence to automate T&E expense report audit and instantly detect fraud and compliance violations. AppZen s patented technology uses Computer Vision, Machine Learning, and Natural Language Processing algorithms to instantly analyze receipts, credit card transactions, travel bookings, and other data and notify your audit team in real-time of any compliance issues, errors, and fraud. About the Author Meena is an Associate Director at AppZen. She's an expert in forensic accounting, FCPA investigations, data analysis, compliance and fraud detection/prevention having spent several years within PricewaterhouseCooper's Risk and Fraud Consulting Practice in San Francisco, New York, Mumbai and McLean. She can be reached at meena@appzen.com. 11