The 3Ps of expense compliance verification: Pervasive, preventive, prepayment

by AppZen May 1, 2022

In this edition of our “Did You Know?” series, we look at the limitations of existing compliance verification and how to transform it into a pervasive, preventive, and prepayment process. This ongoing series highlights the capabilities and benefits of AppZen Expense Audit, bringing you deeper into what makes it tick and how you can take advantage.

Maintaining expense compliance to company policy, global laws and sanctions, and industry regulations is a complex, time-consuming process. Keeping in mind the 3Ps of expense compliance verification can help you avoid the risks involved. You need a solution that’s pervasive, preventative, and acts prepayment.

Sample audits are not enough

Monitoring for compliance is often done after payments have been made to employees. This means it’s happening out of the workflow. It is also done selectively. Standard practice for most businesses is sampling 5-10% of all expense receipts and invoices, so the likelihood of missing a violation is 90% or greater.

If this is you, you are facing a significant risk of non-compliance. If you’re reimbursing employees and confirming the validity of their transactions with after-the-fact audits, you may pay for a transaction that violates a government regulation or your own company policy. Even a single misstep can cost you millions of dollars and cause irreparable reputation damage.

Paying the price of large-scale auditing

Some companies pride themselves on ensuring a 100% prepayment manual audit and they pay a high price to do so. Whether outsourcing or using a large, in-house team, there remains the possibility of human error, long cycle times, and the difficulty of making changes to policy. Scaling up as business travel increases and the company grows will only intensify the pressure.

Three key areas of compliance

Adding to the complexity, there are three areas of compliance that need to be continuously monitored: company policy, industry regulations, and global compliance.

Compliance with company policy

One of the greatest challenges to policy compliance is not knowing you have a problem. Or, worse, knowing there’s a risk but ignoring it because it’s cost-prohibitive and difficult to address. Here are just a few areas you should consider:

  • Recognizing disguised, suspicious expenses: Confirming merchant codes, duplicate payments across spend systems, and individual spend history to find patterns and take action
  • Manual work: Physically reviewing receipts and processing exceptions because legacy systems can’t read crumpled or faded receipts; confirming line item data against what’s been entered into the EMS
  • Limited analytics: Spending more time manually analyzing data and generating reports than you are on auditing
  • Expenses on foreign language receipts: Trusting employees that expenses are compliant because outsourcing receipt translations is prohibitively expensive
  • Institutional knowledge: Training for auditor consistency and retaining employees with extensive experience who know just what to look for
Compliance with industry regulations 

Financial services. Life sciences. Technology sectors. Manufacturing. Every industry has its unique challenges. Many have industry-specific regulatory requirements that need to be considered when managing payments. There is strict payment transparency legislation in the life sciences industry, for example, such as the Sunshine Act in the US, the European Federation of Pharmaceutical Industries and Associations Disclosure in the UK, and the Loi Bertrand in France. Ignoring or violating any one of these regulations could result in heavy penalties and high-visibility legal actions.

Global compliance and the FCPA

The Foreign Corrupt Practices Act (FCPA) and others like it around the world generally prohibit the payment of bribes to foreign officials to assist in obtaining or retaining business. Based on US foreign policy and national security goals, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces economic and trade sanctions against people and entities found on the Specially Designated Nationals (SDN) and other sanctioned lists. Associating with such politically exposed persons or unauthorized foreign agents or entities can compromise your company’s global reputation. Conflicts of interest that are discovered after the fact may lead to costly litigation and heavy fines.

Don't let them tell you it can't be done

Some rules-based solutions can help you identify the more obvious violations, but “build a rule and flag” is not enough. Expense management systems (EMS) and optical character recognition (OCR) are not able to differentiate between “beer” and “root beer” on a receipt. Countless violations can lie hidden behind misleading company names, merchant codes, and fraudulent, employee-entered report data.

Audit and recovery firms will tell you that no audit is 100% free of error or fraud, so a recovery audit is the only solution. But there is a better way.

The 3Ps: pervasive, preventative, and prepayment expense compliance

Advances in artificial intelligence (AI) for finance now allow companies to use AI-powered spend auditing to continuously audit well before payment is issued. Shifting from a recovery mindset to a discovery-based approach means misallocated cash never leaves your balance sheet, saving your team time and headaches trying to regain lost funds.

Finance AI is pervasive, continuously monitoring for compliance across all of your spend, in-line, as each expense report is submitted. It checks for such things as duplicates across expenses, invoices, and even P-Card data, ensuring errors, waste, and fraud aren’t missed between systems.

It’s preventative, catching things a human auditor might miss. Specially-trained finance AI software extracts, reads, and verifies unstructured data on each expense report and receipt, even receipts in foreign languages. It continuously enriches that data, in-line, with intelligence like meal prices and merchant types from online and social databases. It monitors for compliance with regulations and company policy. It can check government databases to identify business attendees on expense receipts who may have ties to the government for FCPA compliance.

If everything looks good, it can give auditors the green light. If not, it can flag exactly what the issue is and send automated emails to employees and managers asking for more information. And it can do all of this prepayment, before a single cent is paid out, verifying 100% of expense report and receipt line items before reimbursement is made.

Avoid the risk of exposure with AppZen's finance AI

Pervasive, preventive, prepayment expense compliance verification is a critical tool in any compliance toolbox. With AI, you can free up resources and reallocate time previously spent reviewing reports to focus on strategic business tasks. 

AppZen’s patented AI software has the maturity of 6+ years of building finance domain expertise from millions of transactions. Unlike other solutions, it’s customizable to fit your specific industry requirements and unique company policies. For enterprises with any exposure to policy risk and sensitive security situations, AppZen’s finance AI-powered solutions are powerful business allies.

Wondering what else AppZen Expense Audit can do? Read the rest of our “Did You Know?” series or check out AppZen Expense Audit.

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