Request Demo
expenses

Why visibility into expense reports is so important

by Josephine McCann February 12, 2019

The average enterprise processes thousands of expense reports each quarter — large companies may process thousands daily. At the majority of these companies, small teams of auditors pore over these reports manually, analyzing them for mislabeled items, out-of-policy purchases, and duplicate expenses. They may have to examine line items and cross-reference receipts against dozens of sources to make sure they’re legitimate.

Overwhelmed by the volume of transactions they face, human auditors consistently overlook recurring types of expense report misconduct like duplicate charges, mileage padding, and overcharges for taxi or ridesharing services.

The problem comes from high-risk expenses and fraud that are hiding in your expense reports because you don’t have visibility into them. Cunning employees know that your lack of time is on their side.

The risk hiding in your expense reports

We recently reviewed data from hundreds of customer accounts in a variety of industries and summarized the results in The State of AI in Business Spend. We found that the average company processed 4,374 reports, with each report containing an average of 11 line items. That’s more than 48,000 line items that auditors would have had to review if these companies hadn’t been using artificial intelligence (AI), but we’ll get to that in a moment.

Of all of the expenses in these reports, fully 10% were classified as high risk: they either weren’t compliant with company policy or they were flagged as potentially incorrect, wasteful, or fraudulent spend.

A common problem is duplicate receipts. We’ve frequently seen situations where employees with two different managers submit the same receipt for a meal together, knowing that their managers don’t cross-reference other teams’ expense reports. If you’re an auditor tasked with catching these high-risk expenses manually, parsing through expense reports can feel like finding the proverbial needle in a haystack. Financial teams often resort to randomly sampling 10% of submitted expense reports and hope for the best.

The math doesn’t work in your favor, either: Sampling only 10% of spend when only 10% of expenses are high-risk yields a near-zero probability (5.7769042e-14, to be exact) that you’ll find all high-risk spend.

Visibility into high-risk expenses is critical

Why is it finding high-risk spend so important? Because not all expenses are created equal, and some can leak an incredible amount of money out of a company. While our study only flagged 10% of enterprises’ total expenses as high risk, those high-risk expenses represented 33% of the total dollar value of all expenses.

Overworked back-office staff may turn a blind eye to “nickel-and-dime” misconduct, but our platforms, which has scanned several million expense reports, reveals a much more serious problem.

Only about 18% of line items flagged by AppZen for scrutiny are for less than $20. But almost 43% of all flagged line items are for more than $100. And a line item flagged for potential misconduct is just as likely to be for more than $500 than it is for less than $20. In other words, the average instance of employee fraud is much bigger than you think.

Money isn’t the only risk, either. Could your organization afford the hit to its reputation if certain types of hidden employee spending came to light? Employees have submitted expense reimbursement requests for tattoos, jewelry, dog kennels and even bullets. None of these would look good in your local newspaper. (We’ve summarized some of the most “creative” expense reports for your reading pleasure.)

How AI can help

Given the value at risk, many enterprises are using AI to get visibility into questionable spending before they reimburse employees. They’re making the technology central to their audit process. Companies that use AI to approve expenses and and automate the audit process achieve 100% visibility into expenses; companies that don’t use AI achieve just 2 to 10% visibility.

Many risky expenses are hard to find without AI. Strip clubs, escort services, and gaming establishments sometimes have generic, “brown paper wrapper” names on their receipts. One common and flagrant example we’ve seen is a charge from “K-Kel Inc.” submitted as a dinner bill. Auditors who aren’t cross-checking vendors will miss that K-Kel Inc. is actually an alias for Spearmint Rhino, a strip club. AppZen recognizes this vendor name and flags it.

AI gives you complete visibility into expenses and a method for identifying fraud, not only reducing the burden on your financial team so they can focus on more important tasks, but also helping you reduce costs that might otherwise leak out of your bottom line

How much could 100% visibility into expense reports save your company? For more trends and insight, download our latest research report. The findings focus on spend visibility, value at risk in expense reports, insights on streamlining the spend audit process, recommendations for finance teams, and more.

Josephine McCann
Product Marketing Manager, Content

Josephine is a Product Marketing Manager at AppZen, where she loves crafting content and telling interesting stories.

Related articles

ai

We let AI loose on millions of invoices and contracts, and here’s what we found

Read the Article
ai

7 ways AI can help you comply with policy and regulations

Read the Article
ai

Why you need visibility into invoices (and how AI can help you get it)

Read the Article