T&E ramping back up
We keep hearing about companies preparing to return to some sort of normalcy. As vaccine programs continue apace and international corporate travel looks set to make a comeback, we can expect that elusive “normalcy” to return to business expenses.
But the return to old habits comes with a new twist. 80% of employees now want to work from home at least some of the time and are prepared to put their money where their mouths are: over a third are willing to take a pay cut in exchange for a hybrid option. The experience of working at home during the crisis was certainly not ideal for many, such as those with young families, but it gave people a taste of remote work and the genie is clearly out of the bottle.
The initial move to remote work brought necessary changes to employee expenses — flight and hotel expenses became monitors and keyboards almost overnight. As the world transitions again, splitting time between home and office brings with it a new series of associated financial challenges for organizations, as employees submit hybrid expenses and auditors are forced to process them.
There are two main questions we should be asking: How will this change affect spend management teams? And how should they prepare for the onset of hybrid expenses?
Hybrid expenses in your expense management system
During the COVID-19 pandemic, it was no surprise that the make-up of employee expense reports changed, as they came to grips with remote working. May 2020 saw a new low, in terms of both the volume of reports and the spend amount. This drove associated changes in many corporate spend policies, to provide clear guidance to employees regarding acceptable work-from-home expenses. Despite some initial confusion, finance teams adapted to the lower volume and value of expense reports.
The new normal seems to have suited many. Gallup reports that 61% of US employees prefer to continue to work from home. This groundswell of employee emotion is likely to force employers into providing a hybrid model, at least for the short term, with a work week split between office and home.
This will inevitably roll over into expenses. Employees will continue to claim some remote working items while also feeling entitled to office or travel-related items when away from home. There are several nuances and associated questions likely to arise as a result of this hybrid working approach:
- What expenses are acceptable, and to what levels?
- Will the opportunity for expense fraud increase with the complexity of each expense report?
- How can finance teams easily validate employee work location, in order to determine whether a home or office expense is valid at any given point in time?
The move from remote to hybrid expenses is a processing pivot just as challenging as the move from office to work-from-home reports. Organizations need to be prepared to manage these expenses accordingly.
How to prepare your expense management system for hybrid expenses
- Ensure policies are in order and effectively communicate those policies
When COVID-19 struck, many organizations responded swiftly by proactively issuing updated policies detailing the expenses employees could claim in the new working environment. Within a few months, three-quarters of organizations were allowing employees to submit claims for remote working expenses.
Clarity around what types of expenses employees could claim, how much could be claimed for new expense types such as home internet usage or facemasks, and the many details of how to submit an expense claim all created a feeling of security. In those organizations where remote working changes were made quickly and communicated clearly, employees reacted positively, with 83% of employees feeling fairly compensated for remote working expenses, versus 54% where organizations did not change policies.
A similar, proactive approach is required as the move to a hybrid environment nears. Clear guidance should be communicated around:
- Which expense types and thresholds are applicable for remote days, office days, and travel
- How reporting methods will adapt to provide clarity on the working location of the employee, with regard to each expense report line item
- The auditing processes that will be deployed to validate any new policies
Transparent and proactive policy changes were both necessary and well-received by employees when remote working was introduced. They will be expecting the same level of communication as we transition once again.
- Up your T&E audit game
Changing policies to define what is acceptable in any new normal is step one. But auditing against these new policies for incoming reports is the next and much more difficult step. The challenge is multi-faceted, as an added layer of data is required during the audit process: the working location of the employee.
In the good old days of T&E, auditors could see a logical flow in an expense report. Perhaps starting with a flight, then a taxi, a couple of meals, and a hotel expense, the auditor could see a trail of associated expenses. Applying the same logic is going to become a lot more challenging with hybrid work.
Without knowing where the employee is due to be working on any given day, it is incredibly difficult to audit an expense report. While a parking charge may be entirely valid on an office-based day, why would someone charge one when working remotely? Equally, should an employee charge home internet fees when they are working in the office?
The updated expense policy should cover these scenarios, but applying them across a large volume of reports will be demanding, nonetheless. The first step must be to implement a comprehensive, accessible, digital system for recording an employee’s work location on any given day. With this data available, the audit team stands a chance of applying the policies. However, the need for automation of expense auditing remains.
- Automate the expense approval process
According to research from CFO Magazine, despite 90% of organizations claiming to utilize some form of expense approval process automation, 45% still cite the need to minimize the administrative burden of expense processing as their top related priority.
AI-based automated expense systems are a tried and tested way to achieve productivity gains and cost savings in expense report auditing. With regard to hybrid work, there are two critical areas of interest:
1. 100% audit coverage
A core benefit of AI-driven expense auditing automation is that it can audit 100% of the lines on 100% of the reports coming through the process against all expense policies. Even with all the time and patience in the world, the best human expense auditing on the planet cannot hope to deliver this level of coverage at scale. Only automation can provide this
2. Policy Agility
A second key feature of AI-driven expense automation is that of policy agility. Imagine a manual audit process when an expense policy changes. Every person on the audit team needs to be made aware of the changes to the policy, then needs to instantly start applying the new approach. In a scenario such as implementing a new, hybrid working expense policy, numerous changes to the underlying policies are likely to occur. These changes are simultaneously complex and stressful for the auditor to deploy, introducing a strong likelihood of human misinterpretation and error.
This situation does not happen with AI-driven solutions. Changes to policies are made in the central system and instantly deployed through the solution, with no communication required, no user training, and no misinterpretation.
Modern work requires modern finance solutions
Employee expenses didn’t go away during the pandemic; they largely shifted to work-from-home-related spend, such as internet costs, IT equipment, and cleaning equipment. But as the world opens up again, more traditional T&E will return. Far from delivering a return to normal, the beginning of a hybrid work environment will again challenge employees and auditors to significantly change their working practices for the second time in just over a year.
If recent history has shown us anything, it is that humans, society, and businesses are incredibly innovative, agile, and resilient. Those organizations that respond proactively and transparently, and communicate hybrid work changes openly, will transition without fuss or impact. Those that do not will struggle through the second, business-specific, pandemic-related wave of change.
You can learn more about how AI-driven Expense Audit can help you manage your transition to hybrid work here, or contact us today.
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